Highlights

  • PetroChina has cut its spot LNG requirements due to weaker economic expansion and pricing reforms
  • South Korea's LNG requirements are likely to keep declining this year
  • Spot LNG prices in Northeast Asia have rebounded ahead of the high winter demand period
  • A bearish oil market should give leeway to buyers when negotiating spot cargoes

Economic overview

Weaker economic expansion and pricing reforms are starting to have an impact on the gas demand outlook in China.

There have been further signs of slower economic growth in China – the world’s second-largest economy – affecting the gas demand outlook for the rest of 2014 and beyond. China’s manufacturing PMI slipped to 51.1 in August from 51.7 in July. The trend was also reflected in weaker output expansion and a lack of new orders, as well as higher unemployment and input costs. This caused Chinese imports of iron ore and coal to drop in August month on month amid falling demand and abundant supply. 

Predicted annual year-on-year GDP growth rates

  2014 2015 2016 2017 2018 2019
Australia 2.6 2.7 2.9 3.0 3.0 3.0
Japan 1.4 1.0 0.7 1.0 1.0 1.1
South Korea 3.7 3.8 3.8 3.8 3.8 3.8
China 7.5 7.3 7.0 6.8 6.6 6.5
Taiwan 3.1 3.9 4.2 4.4 4.5 4.5
Thailand 2.5 3.8 4.8 4.7 4.5 4.5
Source: IMF

Despite the government’s drive to shift to a cleaner energy mix by increasing gas consumption, key players such as PetroChina expect demand for spot cargoes to ease as a result of the faltering economic expansion and domestic pricing reforms. The state-owned company expects consumption to slip further in 2015. 

However, China’s manufacturing PMI remains capable of expansion as it is still above 50; a PMI below that level signifies contraction. China’s GDP expanded by 7.5% annually in Q2 2014, up from 7.4% in Q1. The government has set a minimum level of 7.5% for targeted growth in 2014.