China’s state-run energy company Sinopec is planning to sell some long-term liquefied natural gas (LNG) import deals in response to the country’s slowing economy, which makes these contracts unprofitable. Observers predict that this heralds the end of a five-year expansion driven by increasing Chinese demand. Asia’s demand for energy has fueled a “dash for gas” in producer countries, such as Canada or Australia, as LNG has been emerging as the fastest growing fuel source since 2000. At a time when long-planned projects are starting to take ground, China’s economy is staggering, which is expected to curb demand and drag down Chinese domestic gas prices to levels that will make imports profitless.
Analysts think that falling crude prices, which have gone down by about 40 percent since June this year, are yet another element weighting on Chinese gas prices. Bernstein Research, a sell-side research and brokerage firm with a global equity trading platform, thinks that “based on the recent fall in oil prices… there is an increased risk that there could be a near-term cut in natural gas price (in China) for the first time”. The company added that at lower levels, “LNG and pipeline imports make little sense for producers,” although even if retail prices stay high, imports might not be needed because high domestic prices will keep demand capped. In response to these developments, Beijing is looking for buyers for contracted LNG on the global market, which is already facing an oversupply due to stuttering demand and soaring output. LNG prices, which have already halved this year, are expected to fall by another third by 2015.
