Will China’s surging imports shape the future of LNG shipping?

China’s gas consumption is expected to rise at a much higher pace than domestic production, resulting in growing LNG imports. According to the most recent World Energy Outlook (WEO) report the surge in China’s gas consumption will surpass domestic production and natural gas
pipeline imports, thereby creating demand for imported LNG. During the period 2018-2023, domestic production and pipeline imports are expected to increase by 6.8% per year, while the consumption is forecast to grow by 7.3% annually. Therefore, China’s LNG imports are likely to grow in the future, at rates in line with its contracted supply.

For the moment China’s contracted LNG import volumes will be sufficient to meet demand and therefore there is unlikely to any immediate bounce on vessel demand and spot rates. Indeed, ships for most of the 2018 contracted cargo volume of 27 million tonnes have already been fixed. This leaves about 5 million tonnes of LNG imports that will absorb spot market capacity – and depending on where the gas is sourced from – generate employment for some 8-10 LNG carriers.

But from 2022 onwards China’s gas demand will exceed the country’s contracted cargo volume and that in turn will create additional demand for LNG tonnage. Where the gas is sourced from will play a significant role in determining the exact demand for LNG ships. For example, the distance from Australia to China is less than 50%
of the distance from the US to China. Hence, if China decides to increase its share of US LNG imports, both tonne-mile demand and fleet utilisation will grow at a faster pace than if China imports the incremental LNG from Australia.

During 2022-2026, China will have an additional requirement for 55 million tonnes of LNG (as current contracted volume will fall short of the rising demand), with total imports in 2026 likely to be in the order of 22 million tonnes. If shipments from the US rose to account for 20% of these imports it would create additional employment for 60-70 LNG vessels, which is about 15% of the current fleet. At 40% of total imports, shipments of LNG from the US to China would create additional demand for about 80-85 LNG carriers. Hence, longer-term, Chinese LNG imports and the demand they create for LNG carrying capacity will be a major feature of the market.