Global LNG demand rises, China market becomes an important growth engine

With the deepening of energy transition, the position of natural gas in the global energy structure is increasingly prominent.

From February 9th to 16th, during the Spring Festival period, China National Petroleum Corporation supplied over 5.36 billion cubic meters of natural gas, accounting for more than 60% of the country's total gas supply. The highest daily gas supply reached 750 million cubic meters, highlighting the important position of natural gas in China's energy structure.

The Shell Liquefied Natural Gas (LNG) Outlook Report 2024, released by oil giant Shell, shows that as China's industrial sector accelerates its coal to gas conversion and South and Southeast Asian countries use more liquefied natural gas (LNG) to support their economic growth, global LNG demand is expected to increase by over 50% by 2040.

The reporter from China Business News noticed that with the promotion of net zero emissions, China is becoming an important engine leading the growth of the global natural gas industry, attracting many LNG industry giants including Total Energy and Petronas (hereinafter referred to as "Petronas") to enter the Chinese market.

Global demand is on the rise

During the Spring Festival, in order to ensure energy security supply, the "gas fields" of China's petroleum storage facilities and LNG receiving stations are fully opened. The reporter learned from PetroChina that the Hutubi gas storage facility in Xinjiang Oilfield of PetroChina has accumulated 100 million cubic meters of gas production during the holiday period.

In fact, natural gas will play a more important role in the energy transition process. In the eyes of industry insiders, the prospects of natural gas in the energy transition mainly depend on considerations of energy security and the challenges of the transition process. Natural gas will assist the terminal industrial sector in rapidly reducing carbon emissions and also support the long-term development of renewable electricity. The demand and supply cost of liquefied natural gas are expected to rise in the long term, and the long-term market development is mainly affected by the new pipeline gas import project.

With the advancement of net zero emissions, the proportion of natural gas in China's energy structure is constantly increasing. According to statistics from the National Energy Administration, the domestic natural gas production will reach 230 billion cubic meters in 2023, maintaining a trend of increasing production by 10 billion cubic meters for seven consecutive years.

Currently, the global demand for natural gas is on the rise. The LNG Outlook Report shows that the global LNG trade volume will reach 404 million tons in 2023, higher than 397 million tons in 2022. The tight supply of LNG has limited the growth of its trade volume, while its prices and price fluctuations remain above historical averages. Although natural gas demand has peaked in some regions around the world, the total global demand will continue to rise. According to the latest industry estimates, global LNG demand will reach around 625 million to 685 million tons per year by 2040.

According to industry insiders, although the European natural gas crisis has had a short-term impact on the global energy market, it is difficult to overturn the positioning and demand of natural gas as a "bridge energy".

The reporter noticed that after a sharp decline in Russia's pipeline natural gas exports to Europe in 2022, LNG continues to play a crucial role in ensuring energy security in Europe in 2023. Despite the overall decline in natural gas demand in Europe in 2023, the import volume of LNG in Europe remains the same as in 2022.

The LNG Outlook Report mentioned that compared to the historical high prices and unprecedented price fluctuations from the end of 2021 to 2022, a relatively balanced global natural gas market in 2023 will help reduce and stabilize natural gas prices in major importing regions of Europe and East Asia. However, the natural gas prices and volatility in 2023 are still significantly higher than the operating prices between 2017 and 2020. Despite sufficient global market supply in 2023, Russia's pipeline natural gas supply to Europe is insufficient and LNG supply growth is limited in 2022, which means that the global natural gas market is still structurally tight.

Recently, Bloomberg quoted Sherida Al Kaabi, CEO of Qatar Energy, as saying that Qatar Energy may also sign additional agreements to welcome more partners to join the joint venture that will expand production capacity in the North Field.

It is reported that Qatar Energy Company is expected to announce new LNG supply agreements with European and Asian buyers, and is undertaking the world's largest LNG pipeline capacity expansion.

Meanwhile, for the Southeast Asian market, according to the LNG Outlook Report, the decline in domestic natural gas production in some countries in South and Southeast Asia after 2030 will drive a surge in their demand for LNG, as these economies increasingly require large amounts of natural gas for their gas-fired power plants or industrial use. However, South and Southeast Asian countries need to invest heavily in natural gas import infrastructure.

In addition, the LNG Outlook Report shows that natural gas plays a crucial role in countries where renewable energy accounts for a high proportion of the power generation structure. Natural gas, as a good supplement to wind and solar power generation, provides short-term flexibility and ensures long-term supply security.

Focus on the Chinese market

With the acceleration of coal to gas conversion in China's industrial sector, global oil giants have turned their attention to the huge LNG market in China.

According to data from the General Administration of Customs, China's LNG imports reached 71.32 million tons in 2023, a year-on-year increase of 12.6%. Meanwhile, in 2023, China will once again surpass Japan to become the world's largest importer of LNG.

Steve Hill, Executive Vice President of Shell Energy Global, stated that China's industrial sector is seeking to reduce carbon emissions by shifting from coal to natural gas, and therefore may dominate global LNG demand growth by 2030. ”

In recent years, the Russia-Ukraine conflict and the Palestine Israel conflict have further exacerbated the complexity of the international situation. In the face of today's world pattern, from the perspective of energy security, domestic gas is a solid cornerstone to support the growth of natural gas demand.

According to the "China Energy Outlook 2060 (2024 Edition)" released by Sinopec Economic and Technological Research Institute Co., Ltd., it is expected that in order to ensure the safety of domestic natural gas supply, domestic natural gas production will reach its peak around 2040, close to the peak period of natural gas demand, with a peak scale of about 310 billion cubic meters, and may still be at the level of about 250 billion cubic meters by 2060. Based on this, it is highly likely that the peak value of total natural gas imports will be within 300 billion cubic meters.

Meanwhile, the "China Energy Outlook" points out that if the overall energy security constraints are stronger, fossil fuels will not be quickly replaced by intermittent renewable energy, and natural gas consumption will rise overall on the basis of coordinated development scenarios. It is expected that China's natural gas demand will peak around 2040, with a peak of about 610 billion cubic meters, accounting for nearly 13% of primary energy; By 2060, there will still be about 400 billion cubic meters, accounting for approximately 9% of primary energy.

In recent years, global petrochemical giants have been continuously deepening their cooperation with China in the LNG field.

Qatar is the world's largest LNG exporting country, and its largest export market is China. The reporter learned from Sinopec that in November 2023, Sinopec signed an integrated cooperation agreement with Qatar Energy Company for the second phase of the Qatar Northern Gas Field Expansion Project (NFS). According to the agreement, Qatar Energy Company will supply 3 million tons of LNG to Sinopec annually for a period of 27 years; And transfer 5% equity of its joint venture company (equivalent to 1.875% equity of NFS project) to Sinopec. This is the third long-term LNG purchase and sale agreement signed by both parties, and also the second integrated cooperation project reached by both parties after the first phase of the Northern Gas Field Expansion Project.

In June 2023, China Petroleum and Qatar Energy signed an agreement in Doha, stipulating that Qatar would deliver 4 million tons of LNG to China Petroleum annually for a period of 27 years. In addition, PetroChina will participate in the Qatar Northern Gas Field Expansion (Eastern) Project (NFE) in the form of shareholding.

Meanwhile, as a global energy giant, Total Energy is also investing in the Chinese market. In 2021, Total Energy and Shenergy Group signed a binding cooperation agreement to supply 1.4 million tons of LNG annually and jointly establish a joint venture to expand LNG sales in the Chinese market. In 2020, Total Energy and China National Offshore Oil Corporation (CNOOC) reached their first transaction on the Shanghai Petroleum and Natural Gas Trading Center's international LNG online trading system, actively embracing the digitization of LNG trade.

Total Energy stated that one of the reform goals of China's natural gas midstream infrastructure is to open up to third parties fairly, which will provide opportunities for more downstream natural gas participants. In this context, Total Energy not only expands its LNG import business in China, but also plans to cooperate more closely with China through infrastructure investment to reduce the carbon intensity of energy products by increasing the proportion of natural gas in production. As the world's third-largest liquefied natural gas operator, Total Energy supplies over 5 million tons of LNG to China annually.

In addition, Petronas is currently the third largest LNG supplier in China. Petronas stated that since the Regional Comprehensive Economic Partnership (RCEP) came into effect in Malaysia in 2022, the company has actively focused on the Chinese market and sought more opportunities for energy cooperation between China and Malaysia.

The reporter learned that in early 2023, PetroChina and Tiger Gas reached a cooperation agreement on LNG refueling business, making Tiger Gas the first Chinese customer of PetroChina's LNG refueling business.