November 2, 2022

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Shenzhen Aims to Become International Gas Trading Hub

China’s southern city of Shenzhen wants to become an international gas trading hub, according to a document recently released by the Development and Reform Commission of Shenzhen Municipality.

Shenzhen, a prosperous city of nearly 13 million people, says it will provide policy support such as rent subsides, cash incentives, talent support, and will also simplify the relevant hazardous chemical audit system.

Shenzhen is situated on the South China Sea in a strategic location amid present and future LNG importing nations (see map).

Yet, while the race for an Asian LNG price benchmark has been underway for many years, a China-based gas index has been considered out of reach without fundamental reforms.

Shenzhen's Incentives

Shenzhen will launch a global investment promotion program to attract the world’s leading gas trading companies. The aim being to have them locate their Asia-Pacific headquarters, order centers and settlement centers in Qianhai, Shenzhen's port area.

For natural gas trading companies operating in Qianhai with an annual trading volume of 100 million yuan ($13.74 million) or more, Shenzhen will offer incentives of up to 30 million yuan for a single company depending on the circumstances, according to the document.

The document also mentions support for the development of an LNG refueling business, LNG shipping business and the building of LNG distribution centers.

Shenzhen will also encourage the consumption of natural gas onshore. For example, the government will offer a subsidy of 50,000 yuan per vehicle for the replacement of existing heavy freight vehicles with LNG-powered ones.

The Shenzhen government document is already in effect and expires at the end of 2025.

Shenzhen's Progress

The first LNG receiving terminal in mainland China, the Guangdong Dapeng LNG Terminal, is located in Shenzhen and is owned by CNOOC.

Currently, Shenzhen relies on natural gas for a large proportion of its electricity supply, and has three of the 22 LNG receiving terminals in China. At present, the Shenzhen LNG receiving terminals have a combined import capacity of 12 million tons, accounting for about one-sixth of the total receiving capacity in China.

Back in July, China Gas Holdings announced that its headquarters building was officially located in Shenzhen's Luohu District, where the company is listed on the Hong Kong Stock Exchange. During the prior month, the company signed an offtake deal with a US LNG export project.

Last year, BP signed a 10-year pipeline gas agreement with Shenzhen Gas, under which BP will provide a wholly-owned subsidiary of Shenzhen Gas with up to 300,000 tons of pipeline gas per year starting in 2023, at a price linked to international LNG prices.

A Shenzhen Hub?

lng221102_China_Asia_map.svg


Staff Reports

Russia's Gas Production Falls as Exports Slump

Russia's natural gas production continues to fall as a result of the steep drop in its gas exports following its invasion of Ukraine earlier this year.

The country's October gas output of 53 billion cubic meters was down 19% versus the same month of last year, according to sources with access to the data.

Production for the first 10 months of 2022 fell 11.2% to 556.3 Bcm compared with the same period of 2021, reflecting a sharp drop in pipeline gas exports.

Moscow has recently forecast that gas production will decline by around 10% this year from last year's record of 762.3 Bcm, but experts say it will likely fall by 10% to 15%.

Gazprom Leads Decline

Gazprom — Russia's top gas producer and its sole pipeline gas exporter — is at the heart of the decline in gas output.

The state-controlled gas giant's production fell 18.6% to 344 Bcm in January-October, reflecting a 43% drop in pipeline gas exports as a result of its bitter dispute with Europe over the war in Ukraine.

Gazprom produced 30.7 Bcm in October, down 31% versus the same month of last year, as its exports to Europe (including Turkey) and China sank to a new low.

However, the company's October output was 22% higher than in September, supported by the start of the winter heating season in Russia and injections into domestic storage facilities.

Nevertheless, the volumes produced in October represented just 66% of Gazprom's total production capacity and the tally for the month was lower than in any single month of 2021.

Gazprom completed its domestic storage injection campaign last week, hitting a record level of 72.66 Bcm and a record daily withdrawal capacity of 852.4 MMcm/d.

Gains for Other Producers

All of the country's other top-four gas producers have increased their output so far this year, but that was not enough to offset the big drop in Gazprom's volumes.

Novatek increased its 10-month production by 4.1% to 66.4 Bcm. That is partly due to higher LNG production at its 50.1%-controlled Yamal LNG plant, which is supplied with gas from the South Tambei field in the Arctic.

Yamal LNG's 10-month upstream gas production rose 8.5% to 26.6 Bcm.

New fields in the legacy area of West Siberia — including the 3.6 Bcm/yr Kharbeiskoye field — also contributed to the rise in Novatek's production in the first 10 months of 2022. These are intended to provide pipeline gas supplies for the domestic market.

Oil giant Rosneft increased its January-October gas production by 18.9% to 42 Bcm thanks to a ramp-up of its Rospan gas project and the September launch of the Kharampur gas project in West Siberia, which has already produced 2.7 Bcm to date.

Gazprom Neft — Gazprom's oil affiliate — has also increased its gas production this year thanks to the ramp-up of new fields on the Yamal Peninsula in the Arctic and the start of commercial production at the Tazovsky field in West Siberia in mid-2021.

Russian Gas Production
(MMcm)Oct'22Sep'22YTDOct'21
Gazprom 30,700.025,200.0344,000.044,500.0
Novatek6,613.46,266.266,423.76,298.7
Rosneft5,527.65,148.341,975.84,201.6
Gazprom Neft2,904.32,639.027,531.51,565.3
Lukoil 1,516.01,464.615,297.92,558.4
Other Producers 4,028.23,853.040,365.43,965.3
PSA Operators 1,698.91,545.620,709.22,716.7
Russia Total 52,988.446,116.8556,303.565,806.0

Staff Reports


In Brief

Baltic Pipe Gas Flows Start

Norwegian natural gas has started flowing through the newly built Baltic Pipe for delivery to Poland via Denmark.

Baltic Pipe had previously started partial operations on Oct. 1 that were limited to supplying Poland with gas from the Danish grid.

The new pipeline connects to the Europipe II line offshore Norway and links up to the Nybro receiving terminal in Denmark.

It then crosses Denmark onshore and continues to Poland via an offshore section beneath the Baltic Sea.

Norwegian gas could not be shipped via Baltic Pipe on Oct. 1 because of delays in expanding the capacity of the Nybro terminal.

Gas flows had averaged 5.08 million cubic meters per day between Denmark and Poland since Oct. 1.

Baltic Pipe's full capacity of 10 billion cubic meters per year is expected to be reached by the end of November, according to Danish gas grid operator Energinet.

The pipeline is a joint project between Denmark's Energinet and Polish gas grid operator Gaz-System.

Denmark's Orsted signed a 15-month supply deal with Norway's Equinor for around 720 MMcm of gas to be delivered through the Baltic Pipe starting on Jan. 1, 2023.

Poland's PGNIG and Equinor had previously signed a 10-year supply deal for 2.4 Bcm/yr of gas from 2023, also to be delivered via Baltic Pipe.
Jaime Concha, Copenhagen


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India21.5622.3821.2322.4520.2420.0923.6918.6423.4521.4019.6318.8619.76
Sodegaura, Japan20.5323.9723.9924.3520.0610.4822.8816.8122.5525.2418.2715.7520.74
Zeebrugge, Belgium22.4018.1516.9118.4821.0621.9420.2616.9519.9117.0721.2818.6421.53
Huelva, Spain32.9028.6727.4429.0031.4630.7730.7427.2230.4227.5931.5128.6131.53
Isle of Grain, UK13.649.488.279.7812.4013.1811.858.3111.228.4312.559.9712.78
Everett, US1.33-2.94-2.05-2.610.50-0.070.01-0.51-1.17-4.031.91----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback30. May13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct31. Oct10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia30.0026.230.23-3.77
SW Europe27.5533.679.826.12
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.556.275.715.61
NBP, UK (futures)+2.9635.0932.1322.68
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF6.1912.236.0412.67
Zeebrugge (Belgium)9.8314.724.89--
German NCG6.5613.296.7210.75
NBP (UK)9.8214.885.056.20
US Markets
US Spot Prices
Sabine Pass, Louisiana0.054.544.495.24
Corpus Christi, Texas-0.193.513.704.96
Cove Point, Maryland0.093.082.994.43
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.556.275.715.61
Second Mth0.516.596.086.12
Third Mth0.476.375.906.39
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '220255075100125Energy Intelligence