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Earlier Flat LNG Price and Later Drastic Price Change in 2017

From January to the mid-September, LNG’s average market price has been around 3,000 Yuan/ ton and then takes off;

On December 1, LNG price reached 9,400 Yuan/ ton, and its average price was 7,000 Yuan/ ton, hitting a new high;

On December 4, Development and Reform Commission held LNG price warning meeting to ensure the market price of LNG during peak load of winter is basically stable. But it was of no help in the short term and LNG price would continuously rise after a slight drop;

On December 24, more than 20 stations’ LNG source was 10,000+Yuan/ ton, equivalent to 7+ Yuan/ m3, and its price at LNG filling station reached 13 Yuan/ kg;

On December 25, LNG price began to collapse;

On December 30, the selling price of LNG of most LNG plants in Shaanxi, Inner Mongolia, Hebei, Henan, Shangdong and Jiangsu, etc. has decreased to 4,500-6,000 Yuan/ ton, halved compared to 12, 000 Yuan/ ton in the middle of the month.

Why did LNG have such drastic changes?

From January to the mid-September, 2017, the demand and supply of LNG was relatively balanced, and the market price fluctuating range was not large and fluctuated around 3,000 Yuan/ ton.

From mid-September to December 24, “coal-to-gas” and “26+2” stimulated the rapid growth of natural gas demand and the northern China entered heating season. Under the background, domestic demand for natural gas increased significantly and LNG was in serious short supply. In order to protect the livelihood of the people, LNG enterprises in Shanxi, Inner Mongolia and Ningxia and other provinces implemented gas limit vigorously at a ratio up to 50%-60% for a longer period, which has made the LNG price rise to a certain extent.

Since December 25, “three barrels of oil” (CNPC, SINOPEC and CNOOC) joint enlarging of supply protection and the market supervision by the National Development and Reform Commission showed signs of good results. Tianjin Binda gas pipeline has been put into use recently, which marks the first interconnection between gas supply pipelines of CNOOC and CNPC and further releases the gas supply capacity of the northern China.

Recently, the National Development and Reform Commission has published and punished a number of natural gas enterprises which increased the gas price without authorization and in disguise. Some enterprises represented by Caoxian Hengyuan Gas Station in Shandong have been punished. As a result, the momentum of rising natural gas price is under control.

More importantly, as the national measures of “Protecting the civilian use and limiting industry” are implemented, large industrial consumers in many places were shutdown, resulting in the decrease of LNG demand. The changes in the supply and demand has caused the national LNG price begins to drop. With the advent of New Year’s Day and Spring Festival holidays, LNG industrial users continue to reduce their consumption and the market price of LNG will drop further.

Therefore, after the price of LNG has been completely liberalized, the supply and demand situation is an important factor affecting the price of LNG. The price adjustment measures of the government also start from the supply and demand.

Supply and demand remains tight

At present the price of LNG drops mainly by limiting the gas consumption of industrial consumer; in other words, LNG price drop is realized via the losses of industrial consumers. However, the supply and demand of our country remains very tight. As the “coal-to-gas” measures are further implemented and the foreseeable natural gas consumption continues increasing, the supply and demand of natural gas will not be eased in the next year. It is of great significance to speed up the construction of LNG terminals, pipelines and gas storage and other open-source work, as “Limiting industrial gas consumption to protect the livelihood of the people” is not a long-term plan.