Bargain-price LNG in China winning industrial fans
Chinese factories are using small supply stations as the fuel’s price is dropping. (ENN)
LNG is gaining traction with big users of gas in China’s industrial sector as domestic prices have hit record lows, prompting city gas distributors to offer discounts on piped volumes to retain customers.
Industrial users pay the steepest gas prices in China, while households are charged the least to prevent civil strife. Distributors invest heavily to win deals to supply small cities and build infrastructure, and they therefore tend to charge high industrial prices, according to Liu Guangbin, an analyst with SCI International.
Under pressure from environmental policies to curb coal use, industrial users used to put up with the high tariffs ? even if it increased costs. But now, so-called ’self-supply’ stations, which can store LNG and regasify it on-site are becoming popular, Liu told Interfax Natural Gas Daily. Offering an alternative to pipeline gas, self-supply stations are capturing interest from industrial users keen to use LNG as the glutted market is causing the fuel’s price to slide.
The average ex-works price of LNG in China has fallen to RMB 2,778 per ton ($8.13/MMBtu), down by nearly half from the end of 2014 and a drop of 17.5% from the end of 2015, according to data from SCI.
The price drop has helped boost industrial demand for the fuel. Industry accounted for 41% of the 10.76 mt of LNG consumed in China last year, up from 35% in 2014, data from SCI showed. The sector accounted for 30% of China’s overall gas use in 2015, according to an annual report from China National Petroleum Corp.’s Economics and Technology Research Institute.
A general manager with a paint producer in Haining, in Zhejiang province, said his company has been using a self-supply station to take advantage of the low price of LNG. The station cost RMB 300,000 and supplies more than 10 thousand cubic metres per day (10/Mcm/d) of gas. "The cost of LNG works out to an average of RMB 2.7/cm, which is advantageous for us," he told Interfax Natural Gas Daily.
浙江海宁一家涂料生产商的总经理介绍，他的公司一直在使用自供储气场站，液化天然气价格低。自供储气场站成本300000元，可以供应超过1万立方米/天(10 / Mcm / d)的天然气。“液化天然气的使用成本平均2.7元/立方，这对我们来说是大大获利的，”他告诉nterfax Natural Gas Daily说。
The manager said the company bought the station after being priced out of pipeline gas.
"The requirements became outrageous. We would have had to pay RMB 360,000 for a connection to a pipeline network and also put down a deposit," said the manager. He said the total cost of linking the company to the local gas grid would have been more than RMB 1 million.
The distributor also quoted a gas tariff of RMB 3.8/cm ? more than double the current ex-works LNG price. "As we’re a private company, it was unaffordable. We turned them down and went with the station," the manager said.
Self-supply stations have seen a surge in popularity in developed coastal markets, with around 1,000 users consuming 1.2 mt of LNG in 2015, according to Gao Yan, president with Ningbo-based station manufacturer Luyuan Gas and Power. Luyuan sold stations to 300 industrial buyers in 2015.
"The market share of LNG in factories has increased quickly. Large plants use LNG and pipeline gas, while small to mid-size factories prefer cheap LNG from stations," said Gao.
Self-supply stations have also won the support of local and regional governments. Shandong’s office of housing and urban-rural development issued guidelines on coal use on 7 June that encouraged the use of LNG and CNG stations as a transitional model.