The South China Sea is an important trade route for LNG, and in 2016, almost 40% of global LNG trade, or approximately 4.7 trillion ft3, passed through.
The latest report by the US Energy Information Administration1 (EIA) details the critical role the South China Sea plays in LNG trade flows, namely, the importance of the trade route for Malaysia and Qatar.
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The two major LNG exporters accounted for more than 60% of total South China Sea LNG volumes in 2016. Just under half of Qatar’s global LNG shipments moved through the South China Sea in 2016. As Malaysia’s only LNG export plant stands on the South China Sea coast, all of Malaysia’s LNG exports pass through the South China Sea. With these figures in mind, the importance of the trade route cannot be understated.
Multiple other smaller LNG exporters also use South China Sea trade routes to reach their destinations. In 2016, Oman, Brunei, and the UAE shipped between 84% and 100% of their total LNG exports through the South China Sea. Much attention has been paid recently to LNG demand and supply dynamics and the impact of potentially lower demand growth on LNG prices. Could emerging markets such as these be key to the growth in demand that producers will be hoping to see in the coming years?
Other LNG exporters in the region, such as Australia and Indonesia, are utilising other trade routes to reach LNG markets. In 2016, approximately 23% of Australian LNG exports and around 29% of Indonesian LNG exports were shipped through the South China Sea. The majority of the remaining LNG exports from Australia and Indonesia passed to the east of the Philippines and Taiwan, avoiding the South China Sea on the way to customers in Japan, South Korea, and northern China.
The four LNG importers with the largest volumes passing through the South China Sea are Japan, South Korea, China, and Taiwan, together accounting for 94% of total LNG volumes going through the South China Sea in 2016. Just over half of all of Japan’s LNG imports in 2016 were shipped by way of the South China Sea. Similarly, about two-thirds of the LNG imported by South Korea was shipped through the South China Sea that year.
More than two-thirds of China’s LNG imports and more than 90% of Taiwan’s LNG imports passed through the South China Sea in 2016. Total imports of LNG to China have more than doubled over the previous five years, from 0.56 trillion ft3 in 2011 to 1.20 trillion ft3 in 2016.
Based on projections in the International Energy Outlook 2017, EIA predicts that China will surpass South Korea as the world’s second-largest LNG importer by 2018 and go close to matching Japan’s level of LNG imports by 2040. If reports are to be believed, the country has recently been in talks with both Russia and the US to increase imports, as traders aim to grab a chunk of the lucrative, growing business of exporting gas to China.
In this month’s regional report on ‘emerging markets’, Arup explore emerging opportunities for LNG in Asia, with a focus on the increasing influence of China in the import market. A hot topic at the moment, new and emerging markets are offering hope to producers looking to contract their LNG in the coming years, under the shadow of a potentially oversupplied market. With China’s imports expected to continue to rise, and new players entering the market, the busy South China Sea is only going to get busier.
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