China's LNG imports from Russia hit 22-month high in August: sources

China's LNG imports from Russia reached a 22-month high of about 611,000 mt in August, shipping data from S&P Global Commodity Insights showed, due to China's continued reliance on Russian cargoes despite Western sanctions following Ukraine's invasion.

China imported six LNG cargoes of about 71,000 mt each from Russia's Yamal LNG terminal and three cargoes of about 62,000 mt each from the Sakhalin LNG terminal, according to the shipping data.

The Yamal cargoes are estimated to be mostly term contract volumes with about 15.7 million mt/year contracted out of the 16.5 million mt/year volume, while the Sakhalin cargoes were bought in the spot market via tenders, market sources said, adding that the latter were likely purchased at a high discount to spot LNG prices.

"Chinese NOCs [national oil companies] have term contracts with Yamal LNG ... some of them were said swapping cargoes in the market -- sell some non-Russia cargoes to Europe while buy back some lower-priced cargoes in the spot market," a trade source in Guangdong said.

The Sakhalin LNG cargoes were shipped to state-owned Sinopec's Tianjin LNG terminal in North China Aug. 18, PetroChina's Rudong LNG terminal in eastern Jiangsu province Aug. 21, and state-owned CNOOC's Ningbo LNG terminal in eastern Zhejiang province Aug. 27, the shipping data showed.

"We bought some spot cargoes to replenish our inventories in preparation for the winter supply," a source with one of the national oil companies said.

Chinese LNG importers have mostly cut back on their LNG purchases in the spot market in 2022 as prices became too expensive for many downstream buyers to afford and domestic demand was well supplied by cheaper pipeline gas and term contract volumes, sources said.

LNG prices have risen due to tight supply in the Atlantic basin. The Platts JKM daily physical assessment hit $71.01/MMBtu Aug. 25, the highest since $84.76/MMBtu March 7, according to S&P Global data.

The Platts JKM for October eased to $49.381/MMBtu Sept. 2 following muted prompt buying interest.

Hot weather supports gas demand

Strong demand from gas-fired power plants because of hot weather in east China has pushed LNG terminals in the region to boost prompt LNG inflows at a time when the national oil companies are stocking up for winter supply, a third source in Shandong said.

"Jiangsu Rudong LNG terminal saw robust sales of around 32 million cu m/day of natural gas last week, compared to no more than 20 million cu m/day in normal days, a large part of which were sent to gas-fired power plants," the source said.

The temperature in Jiangsu province was over 40 C over several consecutive days in August, leading many gas-fired power plants in the province to run at full capacity to meet consumption, the provincial radio and television station said on its official website Aug. 31.

Natural gas transportation volume to Jiangsu via state-owned PipeChina's West-East natural gas pipeline jumped 30% year on year during the summer, the TV station said. PipeChina supplied nearly 400 million cu m additional natural gas volume in August to 27 gas-fired power plants in Jiangsu via its two local gas storages -- Jinhu and Jintan, the TV station said.

Meanwhile, natural gas-fired power plants in Zhejiang province also ran at full operating capacity due to an increase in power demand over July-August in the wake of high temperatures and rapidly improving economic activity, the People's Daily reported Aug. 17.

Zhejiang's gas-fired and coal-fired power plants have generated a record 9.17 million kW and 42 million kW of electricity, respectively, during the summer, with the provincial grid purchasing a record 37.9 million kW from outside Zhejiang, the People's Daily said, as power consumption in the province surged 14.4% year on year over Aug. 1-16.

China's gas demand for power generation hit a peak for any month in July, and August demand is estimated to remain high due to drought and warm weather, Andre Lambine, senior analyst with S&P Global said. Lambine estimates China's gas-fired power generation at 44 aGW in July, 4 aGW higher than the previous record in December 2021.

"Higher gas burn was driven by a combination of warmer than normal weather and low hydro power," Lambine said. "China experienced about 3 degrees warmer than normal temperatures in July, and the heat wave continued into August, so the high gas burn is likely to have continued in August."

Sichuan drought worsens power crunch

The drought in Sichuan province has reduced power supply to east China, leading gas-fired power plants in the region to increase their operating rates to make up for the gap, market sources said. Nearly one-thirds of the electricity produced in Sichuan is exported to east China, mainly Jiangsu, Zhejiang, and Shanghai, according to sources.

Sichuan is the largest hydropower generator in China. Hydropower generation volume accounted for 82% of the province's total power generation in 2021.

Drought and high temperatures caused Sichuan's hydropower generation to slump 50% year on year in August, resulting in power supply shortages in the province, the local government said Aug. 18.

Sichuan suspended power supply to industrial users over Aug. 15-20 and cut transmission outside the province to ensure adequate power supply to residents.