China’s domestic LNG market witnessed a volatile trend of falling first and then rebounding this week with distinct phase inflection points. The downward movement was driven by weak demand in the off-season and short-term weather disruptions, while the rebound was underpinned by rising costs and inventory destocking. Nevertheless, obvious divergence exists between domestic and imported gas sources, and the sustainability of the rebound is constrained by imported supplies.
I. Core Logic Behind the Price Decline in the First Half of the Week
Weather disruptions directly curb vehicle fuel demand and reduce logistics efficiency
Persistent rainfall across multiple regions restricted road transportation and lowered the transit efficiency of LNG tank trucks. Refueling stations slowed down restocking activities. As a major consumption segment of liquid natural gas in summer, demand for vehicle-used LNG weakened, directly shrinking sales channels for inland liquefaction plants.
Weak fundamental market conditions in the off-season lead to cautious downstream purchasing
The market remains in the traditional summer off-season for natural gas with no heating demand to provide support. Industrial gas users and city gas companies only purchase to meet rigid demand without large-scale stockpiling. Widespread wait-and-see sentiment prevailed among downstream buyers. Liquefaction plants faced mounting sales pressure and rising inventories, forcing them to cut prices to boost sales and accelerate inventory turnover, which dragged the overall price level downward.
II. Key Drivers of the Price Rebound in the Second Half of the Week
Rising bidding prices of feed gas provide cost support
Online bidding transaction prices of feed gas climbed in the first half of August, pushing up liquefaction costs and ending the previous low-cost environment. Mounting losses strengthened liquefaction plants’ willingness to hold prices, laying a fundamental foundation for the market rebound.
Prior concentrated price cuts facilitated effective inventory destocking
Sustained discounted sales relieved high inventory pressure for most inland liquefaction plants and mitigated storage capacity risks. Manufacturers no longer had an urgent need to cut prices to clear stocks, shifting pricing leverage to upstream suppliers and triggering successive markups.
III. Structural Market Headwinds: Persistent Pressure from Imported LNG
Towards month-end, coastal LNG receiving terminals proactively lowered listed prices to meet monthly sales volume assessment targets. Cheap imported seaborne LNG continued to flow into the market and competed with domestically produced LNG.
This created a structural market contradiction: inland domestically produced LNG rebounded amid improved costs and inventory levels, yet outward shipments of low-cost coastal imported LNG capped upward room for domestic LNG. Competition over regional price spreads intensified, and conditions were absent for a broad-based sharp price surge nationwide.
IV. Market Summary and Short-term Outlook
The current rebound is a phased recovery driven by inventory improvement and higher costs, rather than a trend upturn fueled by improved end-user demand.
The fundamental off-season backdrop remains unchanged, with limited tangible demand growth from downstream consumers. Two key factors require close monitoring going forward: first, whether feed gas costs can stay elevated to continuously underpin liquefaction plant offers; second, whether seaborne LNG prices will stabilize after coastal terminals complete month-end sales push. If imported LNG continues to be sold at low prices, competition between domestic and imported supplies will persist, restricting the rebound scope for inland liquefaction plants. The market is expected to fluctuate repeatedly with divergent performances across regions.