Natural gas prices skyrocket! Does China need to worry?
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Recently, several news related to natural gas can be linked. Firstly, Sinopec announced that the largest underground natural gas storage facility in North China, the Zhongyuan Gas Storage Complex, has been completed and put into operation, with a storage capacity of 10 billion cubic meters.
Secondly, the National Development and Reform Commission approved the Sinopec Yantai Longkou Liquefied Natural Gas Receiving Station project. The total investment of this project is 8.3 billion yuan, and the maximum receiving capacity after completion will reach 6.5 million tons per year.
Thirdly, CNOOC and Qatar Petroleum have signed a long-term LNG purchase and sale agreement for a period of 15 years, with an annual output of 3.5 million tons. This is the highest annual contract volume long-term LNG purchase and sale agreement signed by Chinese enterprises in the past 8 years.
Against the backdrop of the skyrocketing global natural gas prices, these measures have been implemented in advance and are worthy of praise. Since the beginning of this year, energy prices have risen significantly, with natural gas being the most affected. In Europe, natural gas prices have risen six times, and in Asia, they have also risen five times. Moreover, natural gas inventories in Europe, the United States, and Russia have collectively declined. Next, it is the time for heating gas in winter, and ensuring natural gas supply is crucial for factory production and residents' daily lives.
The main reason for the shortage of natural gas this time is insufficient supply and strong demand. In terms of supply, due to the impact of the pandemic and energy transition, major international oil companies have generally significantly reduced their oil and gas investments in recent years. For example, BP announced a 40% reduction in oil and gas production over the next 10 years and a 20 fold expansion of renewable energy. Many companies have announced that due to the uncertain economic environment, they will postpone the final investment decision for their projects, including some LNG projects that are planned to be put into commercial operation in the short term.
One important reason for the rapid increase in demand for natural gas is that it has the lowest carbon content among traditional fossil fuels and is widely used as a transitional energy source in energy transition. As far as our country is concerned, on the one hand, due to environmental protection requirements, the scale of "coal to gas" conversion has been large in recent years, and the demand for natural gas has rapidly increased. Every winter, during the peak demand period for natural gas, measures must be taken to ensure supply. On the other hand, due to the intermittent and fluctuating nature of renewable energy sources such as wind power and photovoltaics, natural gas has become a supporting energy source for emergencies.
Therefore, natural gas has shown the most obvious performance in this energy shortage. Moreover, natural gas prices and oil prices have shown an unprecedented and significant inversion, with European natural gas prices reaching a historic high of $200 per barrel when converted to oil prices.
Moreover, in recent years, with the rapid increase in energy demand due to economic and social development, China's dependence on oil and natural gas has continued to rise, with natural gas dependence exceeding 40%. In 2018, China surpassed Japan for the first time and became the world's largest importer of natural gas.
It can be expected that under the long-term effects of climate change, energy transition, and short-term factors such as winter heating, the demand for natural gas will continue to be strong in the future, and the increase in natural gas production will take time and cannot be achieved overnight. Supply and demand will continue to tighten. However, as the three major oil companies have taken urgent action, it is expected that China will not experience a large-scale gas shortage like Europe, but a short-term gap may still exist. We need to remain vigilant and continue to increase our efforts to ensure supply.