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China's LNG prices drop as supply crunch eases

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Reuters are reporting that LNG prices in northern China have dropped more than 40% from record highs reached less than two weeks ago as a supply crunch has eased and curbs have been enacted on industrial users of the fuel.

Ex-plant LNG prices were quoted at 5700 yuan (US$877) per t in the Inner Mongolia region, compared to 9750 yuan on 24 December. Prices in Shaanxi province fell 46% during the same period to 5520 yuan.

Chinese demand for natural gas has surged this winter after the government required residential and industrial users to switch to the fuel for heating to reduce the emissions produced by coal heating. Under the plan, industrial users could have their gas shut off in the event of supply shortages.

Last month’s record high prices forced some industrial and even some residential users to switch away from natural gas to liquefied petroleum gas or coal.

Some steel mills in Tangshan, China’s biggest steel producing city, were forced to stop operations as the fuel became too costly.

On 18 December, amid the surge in gas prices, China’s economic planner the National Development and Reform Commission (NDRC) ordered state-owned energy companies to cut gas supply to industry by about 15 million m3 per day.

However, the industrial curtailments have not caused imported LNG prices to drop as much the ex-plant prices of domestically produced fuel.

Ex-terminal quotes for PetroChina’s Caofeidian receiving terminal were down 22% over the past ten days to 5130 yuan per t.

Ex-terminal prices at Sinopec Corp’s Qingdao terminal were little changed during the period and were at 7400 yuan per t on 4 January.

Supply to northern China has been bolstered by diversions of gas from the south. Last month, the NDRC said 14 million m3 a day of gas was being moved from the south to the north.

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