BEIJING/TOKYO -- On the back of a massive government push toward cleaner-burning fuel to combat air pollution, China last year surpassed South Korea to become the world's second-largest importer of liquefied natural gas for the first time.
China imported 38.1 million tons of LNG in 2017, up about 50% from the previous year and slightly above South Korea's 37.6 million. While Japan was still the biggest importer at 83.6 million tons, China is widely expected to become the No. 1 importer in the 2020s or by 2030. And if the East Asian nation continues its "explosive" purchases of the fuel, neighboring countries may be forced to pay higher import prices.
Back in 2011, China imported 12 million tons of LNG, roughly one-third as much as South Korea. But it has tripled imports over the past six years as Beijing has stepped up clean-air measures in line with the "regain the blue sky" slogan adopted under President Xi Jinping.
Specifically, the government is urging manufacturing plants primarily in Beijing, Tianjin, Hebei and Henan provinces to replace coal with natural gas to operate boilers. Thermal power generation plants are also being pushed to switch to LNG. But some regions are facing an acute shortage of natural gas due to the faster-than-planned energy shift.
China's soaring LNG imports have greatly impacted prices, with spot prices in Asia temporarily skyrocketing this winter.
As a result, investment in LNG-related facilities may be rekindled. China currently relies on coal for some 60% of its primary energy consumption, while the ratio of natural gas is only 6%. By 2030, the government plans to raise the proportion of natural gas to 15% and lower that of coal to 49% or less. And according to Chinese media reports, the number of bases accepting LNG is expected to more than double from the current 17. Research firm Bloomberg New Energy Finance predicts that China will become the world's largest LNG importer in that same timespan.
China currently buys the cleaner-burning fuel from Australia and Qatar, while it has expressed interest in an LNG project in Alaska.
The global supply capacity of LNG is currently outpacing demand, and major natural resources companies have procrastinated on investment in large LNG plants due to the drop in resource prices since 2014.
But Kosho Tamura of Japan Oil, Gas and Metals National Corp. said, "supply will fail to keep with demand in 2022, or one year earlier than forecast, because of, among other factors, China's strong demand." If the pace of LNG imports by China further accelerates, resources majors may resume investment.
One example of that possibility is an LNG plant project in Canada involving British-Dutch oil and gas company Royal Dutch Shell, Mitsubishi Corp. of Japan and PetroChina. A final decision on investment was delayed from the initially expected 2016. Bidding from plant builders was reopened at the end of last year, resulting in competition between two groups including Japan's JGC.
Surging LNG imports by China will greatly impact procurement by Japan and other neighboring countries. Long-term purchase contracts totaling more than 10 million tons per year between Japanese companies -- especially gas and electric power firms -- and resources developers are due to expire between 2019 and 2022. Although buyers can currently procure LNG under favorable terms, sellers may take a strong position around 2020, because of China's burgeoning demand.
Japanese buyers have been able to buy LNG at discount prices under long-term bulk contracts, but they may see procurement prices jump as a result of aggressive imports by China.