Analysis of Domestic LNG Market This Week
I. Core Driving Factors for Price Rise in Early Week
Domestic LNG prices trended upward in the first half of this week, mainly backed by production-side cost pressure and temporary tight supply. High purchase prices of feed gas have squeezed profit margins of liquefaction plants, which chose to raise ex-factory prices to mitigate losses. Meanwhile, liquefaction plants in some regions underwent maintenance and operated at reduced loads, resulting in tight local supply and limited spot circulation. This further emboldened upstream suppliers to lift offers and pushed prices steadily higher at the start of the week.
II. Market Inflection Point: Termination of Upward Trend
Sustained price hikes reversed the fundamental market landscape amid two major bearish factors.
First, downstream end-users resisted high prices and cut purchasing enthusiasm sharply. The market is currently in the traditional low-demand season for natural gas with no residential heating demand. Industrial consumers and LNG vehicle fuel buyers are highly sensitive to price fluctuations. As LNG prices climbed, its economic advantage over pipeline gas and alternative fuels faded. Downstream buyers only purchased minimal volumes to meet rigid demand, with bulk procurement almost halted. Market transactions remained thin, and expensive spot cargoes lacked effective demand support.
Second, market supply increased markedly. Some gas storage facilities in Central China commenced mass gas withdrawal, flooding major surrounding consumption zones with extra supply. Gas from storage reservoirs is more cost-competitive than high-priced spot LNG, diverting substantial downstream demand and creating strong selling pressure for pricey domestic LNG. The supply-demand balance shifted from tight to loose.
III. Market Performance Under Long-Short Game
The combined forces of conflicting factors significantly weakened bullish momentum, putting an end to the price rally. On the bullish side, high feed gas costs only provided a bottom for prices rather than sustained upward impetus, and the temporary local supply shortage was fully offset by incremental supply from gas storages. On the bearish side, weak off-season demand and aversion to high prices will persist in the short term, keeping market transaction volumes sluggish.
Slow sales led to rising tank inventory levels at liquefaction plants. To speed up inventory clearance and recover capital, factories facing heavy sales pressure took the lead in cutting ex-factory prices. The overall market halted its upward streak, edging lower with localized price corrections and obvious regional divergence.
IV. Short-Term Market Outlook
No fundamental drivers are available to fuel another sharp rally, leaving limited room for further price increases. Weak off-season demand will continue, and continuous supply release from gas storages will keep the market amply supplied, weighing on prices. Nevertheless, high feed gas costs form a rigid price floor, making sharp declines unlikely.
Overall, the domestic LNG market will see weak range-bound fluctuations in the near term. Central China and other regions covered by gas storage supply face greater downward price pressure, while Northwest China with tighter local supply will hold prices relatively firm. Without unexpected bullish triggers such as extreme high temperatures boosting power generation gas demand or large-scale liquefaction plant shutdowns, dramatic price surges are not expected.