North East Asia's gas demand and supply scenarios

Gas demand and supply Impact of high prices on gas demand Weather-related gas and LNG demand scenarios

China: High gas prices to weigh on industry, power and transport gas demand

Signs of gas demand destruction are appearing in China’s industry sector, especially in manufacturing of non-metallic mineral products, which accounts for around 9% of total industrial gas consumption. Take ceramics as an example: based on data collected in March, production centers across China are showing vastly different operation rates, which closely correlate with local gas and LNG prices.
- When prices are above $12.3/MMBtu, ceramics production lines start to reduce operations. When prices surge to $32.1/MMBtu, reaching Asia spot LNG prices levels, two-thirds of production lines stop. In the first half of March 2022, around 32% of production lines halted operations according to local news sources. If current high gas prices continue into the summer, gas demand in sectors where gas costs are a high proportion of total input costs, such as with ceramics, may see little growth potential or even further signs of demand curbs.

Power sector gas burn will also be impacted by prices. The price spread between LNG supply (both domestic and imports) and coal is widening, with gas going up and coal remaining relatively stable. The National Development and Reform Commission introduced a price range limit to help stabilize market sentiment and prevent excessive volatility in coal prices. Moreover, China’s gas power capacity additions have slowed down since last year when prices started to spike.

LNG trucks, which represent around half of gas demand in the transport sector, are quite sensitive to fuel prices. When LNG prices are higher than 70% of diesel prices – which is seen as a threshold for increased LNG-fueled truck adoption rates – LNG trucks are no longer competitive compared to diesel ones. LNG trucks are likely to reduce or stop running, leading to a reduction in LNG consumption.

Japan’s LNG inventories by the end of February stood at an estimated 4 million tons, the lowest value for this time of the year since 2018.
BNEF projects that Japanese buyers will aim to restock LNG inventories ahead of the peak summer season (July to August), which could push some buyers to come to the spot market if needed.
Japanese electric utilities could, nevertheless, delay stockpiling efforts amid high spot LNG prices. In the first week of March, alone, inventories went down by 18%, according to the Ministry of Economy, Trade and Industry.
Stockpiling needs in the shoulder season are forecast to amount to 0.8 million tons, assuming that storage levels peak at 4.8 million tons in July. Stockpiling needs will rise again right before peak winter.

Korea’s LNG inventories by the end of February were estimated at 1.8 million tons, a big drop from 3 million tons at the end of January.
Dwindling LNG inventories might have spurred Kogas to issue a series of spot LNG tenders for the shoulder season. BNEF projects that Korean buyers will need to restock LNG continuously ahead of the winter season, right up until November. Yet again, stockpiling efforts could be delayed until later in the year due to current high spot prices.
If Korea’s storage peaks at 4.4 million tons by November, stockpiling needs over April to November will amount to a daunting 2.6 million tons – equivalent to about 43 LNG cargoes.