SunSirs: Continued Supply-Demand Looseness Drives Down LNG Market Prices

Introduction: Since November, domestic LNG market prices have experienced a continuous decline. Throughout the month, the domestic LNG market saw relatively ample supply, with increases in both imports and domestic production. On the demand side, factors such as a warm winter and ample pipeline gas supply led to generally lackluster performance. Coupled with weakening cost support, bearish sentiment prevailed in the market, resulting in sustained price declines throughout the month. Looking ahead, while some upstream enterprises may attempt to hold prices steady amid cold air affecting northern regions, sustained ample supply and inventory pressure will constrain upward momentum. The domestic LNG market is expected to maintain a stable-to-declining trend overall in December. Although localized temporary price increases may occur, they are likely to be limited in scope and duration.

I. Price Levels

Since November, domestic LNG market prices have trended downward. Data shows that on November 27, the regional transaction price for domestic LNG stood at 4,191.12 RMB/ton, down 3.4% from early November, 4.44% from the same period last month, and 4.06% from the same period last year. In Shandong Province, the regional transaction price was 4,370 RMB/ton, down 2.02% from early November, 3.64% from the same period last month, and 1.35% from the same period last year.

II. Analysis of Price Fluctuations

(1) Supply: Both domestic and imported resources saw significant increases, ensuring ample market supply.

As November marked the start of the heating season, coastal LNG receiving terminals significantly increased imports to secure domestic natural gas supply. According to vessel arrival monitoring data, total imports in November reached approximately 6.087 million tons, up 11.36% from October. Concurrently, domestic CNPC-directly-supplied LNG plants also increased raw gas allocations compared to October. Taking the Western-Northern auction sessions as an example, CNPC-directly-supplied LNG plants allocated 577 million cubic meters of raw gas in November, a 14.34% increase over October. With both imported and domestic resources showing robust growth, China's LNG supply remained strong. On November 27, domestic LNG market supply reached 133,200 tons, a 0.95% increase from the same period last month. Among this, LNG plant production amounted to 87,900 tons, up 8.92% year-on-year; LNG terminal bulk shipments totaled 45,300 tons, down 11.59% year-on-year. Despite reduced bulk shipments, terminal inventories showed significant growth, reaching 8.1248 million tons by late November—an 11.54% increase year-on-year—reflecting ample upstream supply.

(II) Demand: Limited Peak-Shaving Demand, Weak Terminal Consumption

Following the onset of the heating season, domestic pipeline gas supply remained generally ample, resulting in relatively limited demand for LNG peak-shaving. Concurrently, as temperature drops fell short of historical averages, most regions experienced warmer-than-normal conditions. This led to sluggish growth in gas demand from urban gas and industrial fuel sectors, with overall consumption primarily driven by inelastic demand. Although the transportation sector saw some growth in vehicle-use LNG supported by increased LNG truck ownership, overall terminal consumption remained weak. Combined with ample supply fundamentals, this resulted in insufficient market demand support, failing to effectively boost LNG market prices.

(3) Costs: Declining Costs for Both Seaborne and Land-Based Gas Sources Weaken Market Price Support

Regarding receiving terminals, based on the current overall domestic supply and demand situation, import arbitrage opportunities have narrowed, and domestic buyers' willingness to purchase spot cargoes remains low. In November, spot LNG arrival prices ranged between $10.46 and $11.147 per million British thermal units (MMBtu), with prices showing a sustained downward trend particularly in the latter half of the month. The cost-side support for the market continues to weaken. On November 27, China's spot LNG arrival price stood at $10.46/MMBtu, equivalent to approximately RMB 3,852/ton. This represents a 1.39% decline from early November and a 1.59% decrease compared to the same period last month. At the plant level, supported by seasonal demand, auction costs for residual gas volumes at CNPC-directly supplied LNG plants rose during the first half of November, briefly stimulating upstream price-hiking sentiment. However, limited incremental demand and slowing transaction activity prompted upstream suppliers to reduce prices to maintain reasonable inventory levels. prompting upstream suppliers to reduce prices to maintain reasonable inventory levels. Loss-making operations at LNG plants were common during the first half of the month. Consequently, in the special auction held on November 17 to ensure stable supply (an additional session), raw gas costs faced downward pressure, and their support for market prices became increasingly weak. In late November, the average transaction price for CNPC's direct-supply LNG plant raw gas in the additional auction was 2.319 RMB/m³. Calculated production costs for LNG plants reached approximately 3,942 RMB/ton, down 0.261 RMB/m³ from the second half of November's residual gas transaction price (2.58 RMB/m³), representing a roughly 379 RMB/ton decrease in calculated gas source costs. Compared to the transaction price for remaining gas volumes in the first half of November (2.493 RMB/m³), this represents a decrease of 0.174 RMB/m³, translating to a calculated reduction in gas source costs of approximately 252 RMB/ton. Overall, both imported and domestically sourced LNG costs saw significant declines in the latter half of the month. Against a backdrop of oversupply, the downward pressure on market prices driven by these cost reductions has become increasingly pronounced.

III. Market Outlook

In northern regions, as cold air persists, LNG plants are showing increased willingness to test price hikes. However, the relaxed fundamental conditions and the declining cost of raw gas auctioned by CNPC directly to western and northern LNG plants indicate that upward momentum remains limited. Concurrently, some receiving terminals in North China and East China are showing widespread willingness to offer discounts to control inventory pressure, which may constrain shipments from nearby plants. Expectations for inland LNG sources to hold prices firm may prove difficult to fulfill, with the possibility of price declines even emerging. In southern regions, where heating demand has limited impact, procurement will largely remain driven by essential needs. Stable supply-demand dynamics are expected to continue capping price volatility. While CNPC's direct-supply auction prices for Sichuan-Chongqing LNG plants edged up slightly in early December, the increase was marginal. Cost factors also offer no clear directional guidance for local markets. Overall, increased discounting and inventory reduction measures in the north may trigger a slight downward trend in domestic LNG average prices. Localized temporary price spikes may occur, but these are unlikely to become mainstream or significantly influence the overall market trajectory.

As an integrated internet platform providing benchmark prices, on December 3, the benchmark price of ferrosilicon from SunSirs was 5122.86 RMB/ton, an increase of 0.50% compared with the beginning of the month (5097.14 RMB/ton)..

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