Gas prices are difficult to break, and gas consumption continues to improve

In terms of price, the price of pipeline gas is usually determined by the long-term agreement between the two sides, and the gas price is relatively stable, while the price of LNG is constantly changing with the change of market demand, and the pricing difference is large among different regions. Specifically, due to geographical distance and transportation costs, the gas market is significantly regional. The supply and demand structure of different regions has significant differences, which makes the gas pricing mechanism of regional markets different. In places with sufficient gas resources, such as North America and the United Kingdom, the gas price is mainly determined by the domestic supply and demand relationship, while in the Asian continent and Central Asia, the price is mainly monopolized by the governments of both supply and demand sides. Gas resources are relatively poor and rely on foreign gas sources in regions such as continental Europe, continental Asia and Central and Northeast Asia, which are related to the characteristics of local gas. For example, gas in Europe is mainly used for winter heating, so gas prices are linked to competitive fuels such as diesel prices, while in Northeast Asia, gas prices are linked to oil prices. China's domestic pipeline gas and imported pipeline gas prices are relatively stable, the LNG trade pricing system originated from Japan, the long-term contract adopts the weighted average price of crude oil imports from Japan (JCC) pricing formula, the spot price adopts the general JKM spot price.

1.2 Short-term gas supply and demand imbalance, long-term natural gas price rise is supported

In 2021, gas prices have risen rapidly. As of October 5, the trading price of Henry Hub in the United States was 1.37 yuan/square ($6.37 / million British thermal units), an increase of 232% year-on-year, in addition to the extreme high price caused by the cold winter of 2020, the highest value in nearly 7 years. As of October 7, IPE British natural gas futures traded at 7.18 yuan/square (245.51 pence/color, exchange rate 8.776:1), an increase of 556%, the highest value in nearly 10 years.

We believe that the short-term supply of global natural gas is insufficient and demand is strong, and climate factors combined with energy transition drive this round of price increases. In the short term, the sudden COVID-19 pandemic in 2020 will tighten the global gas supply side. On the one hand, the epidemic will lead to global work stagnation, affecting the input and output of the energy industry, including natural gas extraction. On the other hand, the pandemic has put a drag on economic growth, reducing global demand for production materials, including methane, and further reducing gas production. In 2020, global natural gas production was 3,853.7 billion cubic meters, down 3% from the previous year, which is the first year-on-year decline in natural gas production in nearly a decade. On October 6, Russian President Vladimir Putin said that Russia was increasing gas supplies to Europe.

At the same time, in September 2021, the United States Climate Center issued a "La Nina" re-emergence warning, and the probability of "La Nina" phenomenon increased from 70% to 70% to 80%. At the October press conference, China's meteorological Bureau also said that it is expected that the cold water will further strengthen in the next three months (October-December) and enter a "La Nina" state. In 2021, the probability of "La Nina" phenomenon is high, and "La Nina" phenomenon is likely to cause a major cold wave in the Pacific Ocean and usher in a cold winter on both sides of the Pacific Ocean. In the case of cold winter, China, the United States and other countries that use natural gas for winter heating will remain strong natural gas demand in the fourth quarter.

With the gradual improvement of the epidemic prevention and control situation in various countries, the resumption of work and production has promoted the prosperity of industrial production and commercial activities to continue to rise, and the consumption of natural gas in various countries has been driven by the strong demand side. As the largest natural gas consumer, the impact of the epidemic on the US economy has come to the middle and late stages. According to EIA data, after April 2021, the growth rate of natural gas consumption in the United States turned from negative to positive, increasing from April to June, decreasing 4% in July, and increasing 7.4% month-on-month. As the third largest natural gas consumer, China has been the most effective in epidemic prevention and control. Since the beginning of the first half of the year, domestic industrial and commercial activities have recovered steadily, production and life have resumed and the "coal to gas" policy has continued to advance, driving domestic gas demand to continue to improve. According to the data of the National Energy Administration, from January to July 2021, the apparent consumption of natural gas was 211.2 billion cubic meters, an increase of 17.1% year-on-year. In addition, as the main regions of natural gas consumption, the United States and Northeast Asia due to high summer temperatures in 2021, local natural gas demand is relatively strong.