Page 7 - NorthAmOil Week 42 2021

NorthAmOil COMMENTARY NorthAmOil

time as the market was flooded with new supply. China’s imports of piped gas and LNG
Reports that Sinopec was in talks over a climbed 22.6% year on year in September to
20-year deal to buy 2mn tpy from Cheniere 10.62mn tonnes, according to General Admin-
emerged in early 2019, and were followed in istration of Customs (GAC) data published on
early 2020 by news that the Chinese company October 13. This was the highest level since Jan-
would review the terms of the potential deal uary and reflects the country’s efforts to shore
owing to lower LNG prices. up supplies ahead of peak winter demand. In the
The two companies were also waiting for a first nine months of the year, the country’s gas
truce in the trade war, but by the time US LNG imports climbed 22.2% y/y to 89.85mn tonnes.
shipments to China resumed again, demand was The power crunch has become so severe,
being depressed by the coronavirus (COVID- however, that observers have begun to suggest
19) pandemic and there was little appetite to that the central government will have to back-
ramp up purchases. track on its clampdown on coal production and Previous talks
The LNG market has continued to be vola- consumption.
tile, though, and booming demand is leading to “Like other markets in Asia and Europe, between Sinopec
record-high LNG spot prices. Asian spot prices China must perform a balancing act between and Cheniere
have risen above $30 per mmBtu ($829.80 per the immediate need to keep the lights on – via
1,000 cubic metres) as buyers seek to secure more coal – and showing its commitment to over a long-term
short-term supplies ahead of the winter heating increasingly ambitious decarbonisation tar-
season. gets,” Wood Mackenzie’s Asia-Pacific vice chair, supply deal fell
Both the surge in global gas prices and China’s Gavin Thompson, said in a recent report.
domestic power shortages have created a per- He added: “But the short-term reality is that apart as a result
fect storm that has left Chinese energy planners China and many others have little choice but of the trade war
worried about gas shortages in the run-up to the to increase coal consumption to meet power
winter heating season. demand.” and the collapse
China will likely move to ease its restrictions
Demand pressures on coal to avoid a repeat of media coverage in LNG spot
China’s gas purchases have soared this year focusing on freezing homes and schools during
amid a deepening power supply crunch that the 2017-2018 winter. However, any short-term prices.
has left around two-thirds of the country’s prov- surge in coal demand will quickly translate into
inces rationing electricity. The power shortfall greater Chinese gas consumption given that the
has been caused by a coal shortage, strict gov- country’s commitment to achieving peak car-
ernment restrictions on emissions and strong bon emissions by 2030, with carbon neutrality
domestic demand. to follow by 2060.™

Week 42 21•October•2021 www. NEWSBASE .com P7