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AsiaElec GAS-FIRED GENERATION AsiaElec

Sinopec awards LNG contract to Qatargas

CHINA CHINA’S state-run Sinopec has reportedly residential applications.
awarded a long-term liquefied natural gas (LNG) Russia’s state-owned Gazprom projected in
supply contract to Qatargas for 1mn tonnes per July that the East Asian country’s demand would
year (tpy) of the super-chilled fuel. rise by 100bn cubic metres every five years from
The contract is indexed at an attractive dis- 304 bcm in 2019, effectively doubling by 2035.
count to Brent crude on a delivered ex-ship The transportation sector is expected to be the
basis, Reuters reported on September 4 citing fastest growing segment, owing to gas’ use as a
unnamed industry sources, noting that sup- fuel for heavy-duty trucks.
plies are expected to start from 2023. Sinopec is Even China’s short-term demand projects are
understood to have paid at a slope of 10.19% – positive, with S&P Global Platts Analytics having
a slope of 16.67% is considered on par with oil forecast in August that national gas demand will
prices. grow by 7.7% year on year to 337 bcm in 2020,
The Chinese major issued the tender in July, with LNG anticipated to grow by 9% y/y and
with reports noting at the time that Sinopec was pipeline imports by 7.6%.
seeking a hybrid pricing basis for the tender. The economic giant’s imports of LNG
Sinopec is understood to be looking to capi- climbed by 3.1% y/y in July to 5.03mn tonnes,
talise on both low oil prices as well as depressed according to data from the General Administra-
global demand for the fuel. China’s long-term tion of Customs (GAC). Reuters, meanwhile, has
demand forecasts remain strong, given the cited Refinitiv Eikon data as showing that Chi-
government’s drive to bolster gas consump- nese LNG imports in August are on track to hit
tion by switching coal for gas in industrial and nearly 6.4mn tonnes. ™

Gas demand from Chinese gencos to fall

CHINA CHINA’S gas-fired generating sector is strug- Gas is losing out because much gas power
gling to stay afloat as the twin pressures of lower technology used in China still relies heavily on
tariffs and the ongoing trade war could push imported technology from global players includ-
demand for feedstock down by 17% by 2025. ing Mitsubishi, Siemens and General Electric.
Beijing has been reducing regulated gas-fired Furthermore, China’s LNG imports also
power tariffs by 16% to 28% in key provincial surged by 12% in 2019.
markets since June 2020, Wood Mackenzie said By 2025, around 8bn cubic metres per year,
this week, driven by the political goals of reduc- or 17%, of gas demand for power generation in
ing end-user power prices and improving man- four coastal markets could be at risk due to fewer
ufacturing competitiveness. The falling tariffs new builds and lower utilisation hours as a result
come in the wake of trade tensions with the US. of poor economics.
Wood Mackenzie said that power tariffs for Wood Mackenzie estimates around 7 GW out
industries in China had now fallen by 25% in the of 17 GW of gas-fired power projects scheduled
last three years. for commissioning between 2022 and 2025 to be
Gas-fired power tariffs at some higher-uti- at risk as a result of delays or cancellations. These
lised gas plants have even been lowered to a level projects are located in the coastal provinces of
similar to the much cheaper coal-fired power. Zhejiang, Jiangsu, Shanghai and Guangdong.
This coal parity initiative has a huge impact However, Yu said all is not doom and gloom.
on the economics of the current gas fleet and China has recovered rapidly from the coronavi-
investment decisions for new units. rus (COVID-19) pandemic, posting an average
“The new regulations will cause at least a 5 to of over 4% power demand growth since May.
6 percentage point decline in the already poor He said: “We expect China to contribute close
margins of gas power plants. Delivered fuel costs to half of global power demand growth in the
at most gas power plants have only declined by next decade, which means the country will need
10% to 13%, while revenues have been cut by to develop all power supply options including
16% to 28% due to the new regulations. Most gas. If power markets become tighter in coastal
projects are now loss-making or barely breaking China, local governments may have to reverse
even,” said Wood Mackenzie principal consult- these policies.
ant Frank Yu. “However, the recent move makes gas-
Despite strong demand growth for sources of fired power less attractive compared to coal
electricity that are cleaner than coal, Beijing has and renewable power, which are supported
chosen to limit gas power development as part of by domestic equipment companies and fuel
its policy of energy security. supply.”™

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