Commodities
Global gas market outlook – lurking danger: China could turn the gas market upside down
The global gas market outlook is bleak. The temporary decline in demand for LNG in China hides a great danger for the global gas market.
The main surprise of the current situation on the global gas market is the strange behavior of Beijing. While everyone is scrambling around looking for liquefied natural gas (LNG) carriers, there is a strange calm in the Middle Kingdom, which was the world’s main LNG importer last year. The “Chinese anomaly,” however, has a simple explanation.
Global gas market overview – the actions of Chinese traders
Gas market analysts cannot give any precise forecasts. Chinese traders have decided to take a risk and not buy LNG at astronomically high prices. They expect Beijing to continue its zero-tolerance policy towards Covid-19, which significantly restrains the growth of fuel and energy demand in the country. Naturally, traders don’t want to buy LNG at very high prices in advance, which Chinese refineries don’t really need right now.
“This means,” Bloomberg quotes Toby Copson of Trident LNG as explaining, “that China’s (gas) supply is fine and that they have enough pipeline gas and their own coal, at least for now.
In the first six months of 2022, China’s LNG imports were down by about 20%. This is certain to cause China to lose its status as the planet’s top LNG importer this year.
Of course, Chinese traders are taking a big risk by not buying LNG now. If temperatures drop sharply in the fall or winter, or if the Chinese economy returns to its normal growth rate when the pandemic is over and restrictions are relaxed, they will be in a tight spot. In that case, they will have to return to the market urgently, with all the consequences that entails. The main thing for the market and its participants is that the return of Chinese buyers will further exacerbate the LNG shortage and increase LNG prices.
You don’t have to look far for examples. In January 2021, abnormally cold temperatures prevailed over much of China. Chinese traders then rushed to the spot market to buy LNG, causing the price to skyrocket.
The current sluggishness of Chinese traders on the gas spot market gives buyers from other Asian and European countries the opportunity to fill their storage tanks with gas. It has gotten to the point where Chinese companies are now reselling surplus LNG to Europeans.
The Chinese government will of course try to avoid buying LNG at the current very high prices. First, Chinese miners have been ordered from above to sharply increase coal production. In the first half of the year, it passed the 2.2 billion ton mark, according to China’s National Energy Administration, an 11% increase over the first six months of 2021.
Second, Beijing is increasing imports of cheap pipeline gas, mostly from Russia, and increasing production of its own “blue fuel.
China’s energy demand has now declined, mainly due to the coronavirus pandemic, which has not let the Middle Kingdom out of its clinging embrace this year. Lockdowns, which are causing huge damage to the economy, nearly caused a downturn in the Chinese economy in the second quarter.
How long will the “Chinese anomaly” last?
Against the backdrop of what is happening, analyzing and predicting global gas market growth is difficult. No one is willing to predict how long the “Chinese anomaly” will last. President Xi Jinping has repeatedly stated Beijing’s commitment to zero tolerance for coronavirus. This means that lockdowns and restrictions will not go away. The latest major city to begin imposing restrictions this week is Shenzhen, the largest economic center in the south of the country, dubbed China’s Silicon Valley.
Despite the ongoing fight against the pandemic, China’s economy showed clear signs of recovery in July. Goldman Sachs analysts predict a surge in business activity in China in the coming months, which will undoubtedly be felt by the entire planet and, above all, by gas markets.
The return of Chinese gas importers to the spot market means a sharp increase in competition between Asian buyers for LNG carriers and Europeans. Europe will have to further reduce gas consumption to be better prepared for the coming winter and pump as much gas as possible into underground storage facilities.
By Laila Kearney and Georgina McCartney
LONDON (Reuters) -Oil prices slipped on Friday and were on track for a third consecutive weekly decline, pressured by muted demand in China and hopes of a Gaza ceasefire deal that could ease Middle East tensions and accompanying supply concerns.
futures for September dipped 56 cents to $81.81 a barrel by 1250 GMT. U.S. West Texas Intermediate crude for September fell 40 cents to $77.88.
For the week, Brent is trading down almost 1% while WTI is down more than 2%.
Recent data, such as July 20 figures showing that China’s total fuel oil imports dropped 11% in the first half of 2024, have raised concern about the wider demand outlook in China.
In the Middle East, hopes of a ceasefire in Gaza have been gaining momentum.
A ceasefire has been the subject of negotiations for months, but U.S. officials believe the parties are closer than ever to an agreement for a six-week ceasefire in exchange for the release by Hamas of female, sick, elderly and wounded hostages.
Oil price declines were capped, however, by threats to production from Canadian wildfires, a large stocks draw and continued hopes of a September cut to U.S. interest rates after strong economic data, said PVM oil analyst Tamas Varga.
Investing.com– Oil prices fell Friday, on course for a third consecutive losing week as concerns over sluggish demand conditions in Asia weighed.
At 09:00 ET (13:00 GMT), fell 0.9% to $81.62 a barrel, and dropped 0.8% to $77.66 a barrel.
Crude set for third straight week of losses
Both benchmarks are on course for another losing week, the third in succession, with down just under 1% and WTI nearly 3% lower.
Persistent concerns over slowing growth and demand in top importer China have been the dominant factor, part triggered by GDP data from last week, which showed the Chinese economy grew less than expected in the second quarter.
Additionally, more data this week showed the country’s apparent oil demand fell 8.1% to 13.66 million barrels per day in June.
Beijing unexpectedly cut a swathe of lending rates this week, further trying to loosen monetary policy amid growing concerns over sluggish growth.
Apart from China, uncertainty over Japan also grew following middling , while weak activity data in Europe also pointed to economic woes.
Gaza ceasefire in focus
Also weighing on the crude market have been increasing hopes of a ceasefire in Gaza.
The leaders of Australia, New Zealand and Canada called for an immediate ceasefire in a joint statement on Friday, while U.S. Vice President Kamala Harris has pressed Israeli Prime Minister Benjamin Netanyahu to help efforts at reaching a deal, striking a tougher tone than President Joe Biden.
A ceasefire has been talked about for months, but if it was to occur then some of the risk premium could be removed from the market.
Strong US GDP, rate cut hopes offer some support
On the flip side, data, released on Thursday, showed that the U.S. economy grew more than expected in the second quarter, despite pressure from high rates and relatively sticky inflation.
The reading drove up hopes that the world’s biggest fuel consumer was headed for a “soft landing,” where economic growth remained steady while inflation eased.
These hopes were also lifted by the data showing overall U.S. inflation cooled as expected in June.
According to data from the Bureau of Economic Analysis, the (PCE) price index slipped to 2.5% in June, from 2.6% the prior month. .
Stripping out volatile items like food and fuel, the year-on-year “core” gauge, widely known as the Fed’s preferred gauge of inflation, remained at 2.6%, only marginally above the Federal Reserve’s 2% target.
This sparked increased optimism over a potential interest rate cut by the Federal Reserve in September.
Data showing steady drawdowns in U.S. also offered some positive cues to oil markets, as fuel demand in the country remained robust amid the travel-heavy summer season.
(Ambar Warrick contributed to this article.)
(Reuters) -A wildfire reached the Canadian town of Jasper, Alberta on Wednesday, one of hundreds ravaging the western provinces of Alberta and British Columbia, as firefighters battled to save key facilities such as the Trans Mountain Pipeline, authorities said.
Wildfires burning uncontrolled across the region include 433 in British Columbia and 176 in Alberta, more than a dozen of them in the area of Fort McMurray, an oil sands hub.
The pipeline, which can carry 890,000 barrels per day (bpd) of oil from Edmonton to Vancouver, runs through a national park in the Canadian Rockies near the picturesque tourist town, from which about 25,000 people were forced to evacuate on Tuesday.
“Firefighters … are working to save as many structures as possible and protect critical infrastructure, including the wastewater treatment plant, communications facilities, the Trans Mountain Pipeline,” Parks Canada said in a post on Facebook (NASDAQ:).
The pipeline operator did not immediately respond to a Reuters request for comment, but said earlier it was safely operating the pipeline and had deployed sprinkler protection as a preventive measure.
In the day’s last update, Jasper National Park said it could not report on the extent of damage to specific locations or neighbourhoods, and that it would provide further updates on Thursday.
Canadian Prime Minister Justin Trudeau said his government approved Alberta’s request for federal assistance.
“We’re deploying Canadian Armed Forces resources, evacuations support, and more emergency wildfire resources to the province immediately – and we’re coordinating firefighting and airlift assistance. Alberta, we’re with you.”
The town, and the park, which draws more than two million tourists a year, were evacuated on Monday night, at a time when officials estimated there were 15,000 visitors in the park.
Deteriorating air quality forced firefighters and others lacking breathing equipment to evacuate to the town of Hinton, about 100 km (62 miles) away, park authorities said on Facebook on Wednesday evening.
Officials of Parks Canada earlier said they expected rain to arrive overnight.
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