China's LNG trucking capacity to double in medium term

Wood Mackenzie estimates that liquefied natural gas (LNG) trucking capacity in China will double to 38 million tonnes by 2025.                       

China is the world’s largest LNG trucking market. In 2017, 19 million tonnes of LNG was transported via tanker truck from domestic liquefaction plants and LNG import terminals to downstream markets. This accounts for 12% of China’s total gas consumption.

LNG trucking has played a key role in supporting gas demand in China, especially during the 2017/18 winter when the nation faced severe gas shortages following the implementation of the government’s coal-to-gas switching policy.

New residential, commercial and industrial gas users outside pipeline coverage resorted to trucked LNG to meet switching targets. Domestic liquefaction plants were also struggling to cope with the surge in winter demand as feed gas was rationed.

Trucking enabled terminals to import more LNG than their regas capacity, allowing excess LNG to be transported to areas of high demand outside the pipeline network. In some cases, LNG was trucked more than 2,000 km from southern terminals to demand centres in northern China.

The flexibility of LNG trucking alleviates the constraints of China’s lack of pipeline coverage, storage and regas capacity. It also adds liquidity to China’s gas market, facilitating price discovery.

“While we witnessed logistics companies rush to buy more LNG trucks over last winter, equally important is the number of truck-loading positions and operational efficiency at LNG terminals. These factors determine the amount of LNG that can be transported out to demand centres,” said Miaoru Huang, senior manager, China and Asia Pacific gas and LNG, at Wood Mackenzie.

“The good news is truck-loading positions can be added relatively quickly, and currently, there is about 20.2 million tonnes per annum of truck-loading capacity across the country's LNG receiving terminals. We expect China's gas demand to reach 264 billion cubic metres this year. Similar to 2017, 12% of demand will be supported by LNG trucking," Ms Huang added.

Historically, the main LNG trucking movements were from LNG plants in northern China to demand centres in coastal regions. However, as the cost of imported LNG has declined, domestic LNG plants face steeper competition from imported LNG.

Wood Mackenzie estimates that the cost of delivering LNG via import terminals to southern and eastern coastal regions in 2017 was about US$2-4 per million British thermal units cheaper than from domestic LNG plants located in the north. However, the converse is true in the case of delivering LNG from southern terminals to the north. It would therefore be more economical to source LNG from the same region.

Despite this, LNG was trucked from the south of the country to the north during the last period of peak winter demand. The high delivered cost of LNG  was supported by the surge in LNG prices.

While gas demand is expected to remain healthy this year, any gas shortages in the 2018/19 winter will not be as severe as in the 2017/18 period.

"LNG buyers are likely to have learned from the experience and will try to avoid being caught by price surges again. As such, trucked LNG price as high as US$30 per million British thermal units  seen during last winter is unlikely to occur again," Ms Huang said.

"LNG trucking has increased gas-on-gas competition. It has helped create a spot market for gas. Until China's gas market evolves to one with a price discovery function, trucked LNG will continue to be welcomed by market participants looking for liquidity and flexibility.”