China's LNG Production Capacity to Outstrip Demand by 2014

Liquefied natural gas (LNG) production capacity in China is likely to outpace demand by 2014 as a result of new plants being set up in the country and as consumers switch to cheaper piped gas, industry sources told ICIS news last week.

With strong market conditions, Chinese firms have been building at a fast pace in last two years.

These companies are expected to start up new LNG plants with a combined capacity of 87.4m cubic metres (cbm)/day by 2014, bringing the country’s total production capacity to 101m cbm/day, the news report said. The current capacity stands at 21.8m cbm/day and is expected to reach 35.6m cbm/day by the end of 2012.

The growth rate of LNG capacity expansion is expected to slow down but remain high at over 43% in the period of 2013-2014, according to market sources.

However, the report said that these LNG plants may not be able to find enough supply of gas feedstock. At present, there are 82 LNG plants under construction or are scheduled to come on stream in 2014, 28 of these plants, with a combined capacity of 28.8m cbm/day, will consume feedstock gas supplied by PetroChina’s Changqing Oilfield, ICIS said.

However, PetroChina, the country’s largest gas producer and sole piped gas importer, have started to adopt stricter policies on granting gas supply contracts to LNG producers from July this year, a company source said.

“China’s LNG production capacity has been expanding too fast and there is a lack of government or industry regulations on plant construction,” the source told ICIS news.

Prior to July 2012, LNG producers could get feedstock gas through supply and purchase agreements with PetroChina’s subsidiary oil and gas companies. However, after July, these producers have to apply to PetroChina directly for the feedstock, which makes it more difficult and time-consuming in acquiring gas supply.

Some LNG producers, with new units planned or under construction, have not obtained feedstock gas supply contracts yet, a LNG supplier based in northern China said.

Companies which have signed gas supply contracts may also suffer from feedstock shortage after starting up their units, as upstream gas suppliers may reduce or halt supplies to LNG producers if piped gas supply falls short in winter in order to guarantee household consumption, the supplier added.