LNG& Natural Gas: Three highlights highlight the strong correlation between the two

The natural gas market can be mainly divided into two parts: pipeline gas market and LNG market. At present, pipeline gas market still occupies a dominant position with 86% consumption ratio, and LNG market consumption volume can only account for about 14% of the whole natural gas market.

Compared with pipeline gas, the marketization degree of LNG is relatively high and mature, and the immediate and flexible market changes make the LNG market naturally get more attention from market participants. However, there is no doubt that the LNG market is an intermediate market, which was initially used to supplement and meet the needs of the natural gas market and gradually developed. The trend of the LNG market depends on the changes of the pipeline gas market to a large extent, and then has a certain counter-effect on the pipeline gas market. This means that the LNG market reflects the development of the overall natural gas market both in terms of supply and demand, cost and other driving factors, as well as in the specific price presentation, especially in the recent stage of unconventional changes in the LNG market, it is particularly important to explore the close relationship between the LNG market and the overall natural gas market.

The formation of LNG price trend is the result of supply and demand, cost and other factors, and these factors are closely related to the overall natural gas market.

The characteristics of the LNG intermediate market are obvious. Supply and demand are subject to changes in the pipeline gas market

China's natural gas supply is composed of three parts: domestic production, pipeline gas imports and LNG imports. On the one hand, the production of LNG plants cannot be separated from the supply of upstream gas sources, and the shipments of receiving stations are the result of partial import conversion, which means that the supply of natural gas including self-produced and imported will directly determine the output of LNG plants and the tank batch of receiving stations. On the other hand, the LNG market, as an intermediate market, plays an important role in peak regulation and supplement. When the demand for pipeline gas cannot be fully met by its own supply, part of it is bound to be transformed into the potential demand or even the actual demand of the LNG market. This strong correlation between market supply and demand is particularly prominent in the recent unconventional market conditions.

In the winter of 2021, in order to ensure that the heating demand can be met in a timely and effective manner, the domestic gas storage and other early reserves are sufficient, and natural gas production continues to rise. In November, natural gas production was about 32,747 billion cubic meters, an increase of 10.72% from the previous month, and a year-on-year increase of 10.09%. At that time, the heating demand for LNG peak adjustment is very little, in the absence of seasonal demand support, LNG prices fell significantly, and some regional factories even appeared losses, the formation of oversupply situation, LNG plant load decreased significantly, at this time to reduce the burden is more to reduce losses. After the Spring Festival, it is also in the domestic pipeline gas shortage caused by a wide range of continuous low temperature weather, LNG heating peak demand has gained an opportunity to climb, which is also the main reason for the rise in LNG prices in February this year.

In recent months, the changing natural gas supply landscape has again had a greater impact on supply and even prices in the LNG market. Under normal circumstances, due to the relatively limited natural gas resources, the domestic market still has a considerable part of the demand dependent on imports to meet, according to Zhuochuang information statistics, in 2021 China's natural gas market external dependence reached more than 45%, therefore, once the import factor has an impact on the supply of natural gas market, it will directly drive the change of LNG supply. Since March 2022, geopolitical factors in Eastern Europe have become increasingly prominent, LNG imports have fallen by 17.97% year-on-year, and the current import supply, including pipeline gas imports and LNG imports, accounts for only about 36%, which brings more pressure on domestic natural gas supply, and inevitably makes the overall supply of natural gas seem a little stretched. This tightening of supply has had a direct and indirect impact on the LNG market in several ways.

First, in the state of tight balance between supply and demand, the demand of the pipeline gas market is difficult to be fully released, and it is bound to be transformed into the potential demand of the LNG market to a certain extent, which is also one of the important factors supporting LNG prices. Second, the supply situation of the overall natural gas market also directly leads to the current LNG supply is still at a relatively low level, according to Zhuochuang information statistics, LNG supply in March was about 2.4750 million tons, a year-on-year decline of 31.79%, of which, the receiving terminal shipments affected by imports more reached a year-on-year decline of 66.07%. Not only that, due to the lack of sufficient gas sources, the price of upstream raw gas costs in factories is still high, and the change of the supply situation of the entire natural gas market through the transmission of LNG supply, cost and other factors has played a pivotal role in the rise of LNG prices against the law.