China’s slowing gas demand raises supply concern in Australia

Jun 30, 2015 12:00 AM

China’s weakening appetite for super-cooled natural gas is raising concerns that the industry is facing a glut as global supply grows.

“Downside risks appear to be growing,” according to a report Tuesday by the Office of the Chief Economist in Australia, which is predicted to become the world’s largest supplier of liquefied natural gas later this decade with the start of six new projects.

Lower demand for gas in China and more supply moving into the country from Russia and Central Asia, on top of a downturn in the oil market, are weighing on LNG prices. The weaker-than-expected outlook hurts suppliers in countries such as Australia and Papua New Guinea.

Chinese LNG buyers will probably struggle to digest all the fuel that they have agreed to purchase, according to a Citigroup Inc. report Monday. Proposed LNG export developments face the risk of delays, the analysts wrote.

China’s imports in the first three months of 2015 fell from a year earlier for the first time since 2006, the Australian government said. Competition from pipeline supplies and rising coal and renewable energy capacity will probably squeeze LNG, according to the report.

“If, as early signs suggest, Chinese importers are unable to accommodate new contracted volumes over the short term, a global supply glut could quickly emerge,” the Australian government found in its report.

Origin Energy Ltd. and ConocoPhillips, developing a A$24.7 billion ($19 billion) LNG project in Australia, have faced speculation that customer China Petrochemical Corp. may seek to resell gas amid delays to an import terminal. Origin said Tuesday that it expects the Chinese buyer known as Sinopec Group to fulfill its obligations.

Although China’s long-term natural gas demand is forecast to rise at least threefold to more than 60 million metric tons per year by 2025 from last year’s level, “a slowdown in economic activity and higher domestic gas pricing has limited demand,” Citigroup said.

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