TOKYO -- China's shift toward natural gas as a way to combat air pollution is sending Asian LNG prices wafting higher.
Spot prices for liquefied natural gas stand in the upper $9 range per 1 million British thermal units, climbing 80% since this year's low in June and reaching the highest level in 34 months.
"China is switching away from coal as a fuel," said Eri Owaki, an economist at Nomura Securities, noting that the country is increasing LNG purchases by 40% on the year in advance of winter.
More than 60% of China's energy came from coal last year. But when coal consumption rises during winter to provide heating, the nation's air pollution worsens. China's LNG procurement expands as authorities accelerate the shift to natural gas.
The country also appears intent on securing future resources. Power company China Energy Investment signed a memorandum of understanding Nov. 9 with the U.S. state of West Virginia to invest $83.7 billion in shale gas development there. The same day, oil giant China Petroleum & Chemical, known as Sinopec, and other entities including Bank of China agreed to participate in a $43 billion LNG project in Alaska.
Both deals were announced in conjunction with U.S. President Donald Trump's visit to China. Though some take a cool view of the agreements, suggesting they are largely political theater as they are not legally binding, few doubt that Chinese natural gas demand will rise.
China's net imports of natural gas are projected to reach 278 billion cu. meters in 2040, nearly quadruple the amount from 2016, figures released Nov. 14 by the International Energy Agency show. Of that total, LNG imports are expected to more than quadruple to 130 billion cu. meters -- supplanting Japan as the world's largest LNG importer -- as Chinese domestic production and Russian gas through pipelines fail to make up for demand growth.
While Japanese power companies procure LNG under long-term contracts, a protracted increase in spot prices could raise long-term rates as well, translating into higher costs.