China's Breakneck Growth Starts to Slow

Breakneck growth in Chinese demand helped buoy global gas markets in the first half of 2021 and left China nosing ahead of Japan as the world's top LNG buyer (related). But suppliers fear growth could decelerate sharply over the rest of the year because of extremely high LNG prices, a fresh wave of Covid-19 restrictions and a weakening domestic economy. If Asian spot prices remain at current levels of over $17 per million Btu, Chinese industry insiders expect buyers to lean more heavily on piped gas imports and domestic production. Apparent gas consumption leapt 17.4% in the first half to 182.7 billion cubic meters (36 billion cubic feet per day), according to the National Development and Reform Commission (NDRC) planning agency, up from 4% in the first six months of 2020, when most cities were in lockdown (WGI Jan.20'21). Growth compares favorably with pre-Covid-19 levels of 9.4% in full-year 2019, the NDRC says. The National Energy Administration, which coordinates energy policy, thinks first-half growth was even higher: It says apparent consumption was up 21.2% on the same period of last year and up 23.5% on the same period of 2019. Industrial users accounted for 45% of the increase. The last time demand rose by more than 20% was 2011. Forecasts of the expected slowdown vary. More optimistic market players put second-half growth at up to 15% year on year. But some industry analysts reckon it might be restricted to 8%, and put the full-year increase at 13%. And if LNG prices keep increasing, second-half growth might reach just 2% and full-year growth 10%. Slowdown is already evident. China’s LNG imports in June were 16% higher year on year but 3% lower month on month. Market players worry that the high prices will prompt some consumers to stop using gas. “Now gas prices are higher than oil prices, gas vehicle users will switch back to oil,” one predicts. Domestic LNG prices, which are unregulated, have doubled over the past year to over 5,360 yuan per ton ($22/MMBtu). As a result, some industrial users have already switched back to fuel oil or pipeline gas or even suspended production. The biggest demand uncertainty stems from China’s worst coronavirus outbreak since last year, as a new wave of lockdowns fuels more concerns about economic slowdown. Millions of people have been confined to their homes and many Chinese cities have limited travel in a bid to contain the highly transmissible Delta variant. Authorities in Beijing have cancelled all large exhibitions and events scheduled this month. The spread of the variant outside China could also reduce demand for exports, prompting export-oriented Chinese manufacturers to cut gas consumption. Dawn Lee, Beijing China's Gas Supply Domestic