Analysis of Domestic LNG Market This Week
I. Market Overview
Domestic LNG prices generally trended upward at the beginning of this week, yet the upward momentum faded rapidly afterwards, with quotations from some liquefaction plants falling back. Upstream liquefaction plants took the initiative to raise selling prices backed by two favorable factors: high feed gas costs and tight local supply. Nevertheless, continuous price hikes drastically reduced downstream purchasing enthusiasm. Coupled with incremental gas resources released from gas storages in Central China, high-priced LNG encountered sales resistance. After bullish and bearish factors offset each other, the price rally stalled, and prices at some plants edged down slightly.
II. Core Drivers of Price Rises
High production costs underpin prices, driving upstream firms to hold firm on offers
Liquefaction plants are burdened by persistently high procurement costs of feed gas, squeezing their operating margins. To mitigate losses, most enterprises opted to lift ex-factory selling prices, with cost pressure serving as the fundamental support for the current round of price increases.
Temporary tight regional supply fuels bullish sentiment
Liquefaction plants in certain regions underwent maintenance and operated under reduced loads, cutting the volume of spot LNG circulating locally. Tight spot supply emboldened upstream suppliers to keep lifting offers, pushing prices steadily higher in the early part of the week.
III. Two Key Bearish Factors Reversing the Upward Trend
High prices curb downstream demand and slash market procurement volume
The market is currently in the traditional low-demand summer season for natural gas, with no residential heating demand to prop up consumption. Industrial gas consumers and vehicle LNG filling stations are highly sensitive to price fluctuations. As LNG prices kept climbing, its cost advantage over alternative energy sources including pipeline gas and coal eroded substantially. Downstream buyers only placed small orders to meet rigid demand, while bulk procurement nearly came to a halt, leaving high-priced LNG without sufficient demand support.
Incremental gas released from storages loosens overall market supply
Gas storages across Central China ramped up gas withdrawal and delivery, flooding consumer markets with substantial new supply. Gas from storage facilities costs less than prevailing high-priced spot LNG, diverting massive downstream purchasing demand and creating significant sales headwinds for expensive domestic liquefied gas. The supply-demand balance shifted from tight to loose as a result.
IV. Current Market Conditions
Conflicting positive and negative factors have neutralized each other, steadily weakening the market’s upward momentum. High feed gas costs can only form a price floor rather than sustain continuous price growth, and the positive effect of local supply shortages has been fully offset by incremental gas from storages. Weak off-season demand and widespread resistance to high prices will remain unchanged in the short run.
Sluggish sales have caused inventory levels in liquefaction plant storage tanks to build up gradually. To accelerate inventory clearance and recover capital, plants saddled with heavy inventory pressure took the lead in cutting ex-factory prices. The market as a whole ended its consecutive price rise, trending sideways with softening sentiment and localized price corrections, alongside notable divergence in price performance across different regions.
V. Short-Term Market Outlook
There exists no fundamental support for sustained price surges in the near term, with nearly no room left for further price gains. Weak off-season demand will persist, and continuous gas release from storages ensures ample overall supply, weighing down market prices. However, steep feed gas costs form a rigid price floor, making sharp deep declines unlikely.
The market is expected to fluctuate weakly within a range in the short term. Regions covered by gas storage supplies such as Central China face greater downward price pressure, while prices in supply-tight areas including Northwest China will hold relatively steady. Barring unexpected bullish catalysts such as extreme high temperatures boosting gas consumption for power generation or large-scale shutdowns of liquefaction plants, drastic price rallies are not anticipated.