Nigeria could shift exports to Japan as Chinese LNG imports decline

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Nigeria’s main liquid natural gas (LNG) exports could head to Japan as the country plans to expand Nigeria’s liquefied natural gas plant at Bonny in Rivers State.

Its current train-7 expansion is followed by a plan to establish train-8 as the government spearheads a new gas expansion plan.

This follows indications of weakening gas demand in China, which presents new opportunities for Japan by becoming the world’s largest importer of liquefied natural gas, LNG.

China became the world’s largest importer of liquefied natural gas last year, but in a completely different energy market this year. China will likely cede the title to Japan as China’s LNG imports are set to see the biggest annual drop on record since China began importing the super-chilled fuel in 2006.

Although LNG imports by state-owned companies entering China from Nigeria, LNG increased in January 2015.

Similarly, Japan purchased the largest share of Nigeria’s LNG exports in the same year, according to data from the World Oil and Gas Review 2014.

China’s weakening gas demand, rising domestic natural gas production, policies to support coal as an “energy security” tool and, of course, spot prices much more LNG highs this year have all combined to reduce Chinese LNG purchases so far in 2022, consultants Wood Mackenzie said in an analysis.

Wood Mackenzie expects Chinese LNG imports to fall to 69 million tonnes (Mt) this year, which would represent an unprecedented annual decline of 14%, the largest drop since China imported LNG for the first time in 2006.

According to WoodMac, China’s gas demand fell 5% year-over-year in the second quarter due to high gas import prices, the economic slowdown with COVID-related lockdowns, a winter hotter than usual and support for “cleaner” coal, as Chinese authorities have prioritized energy security since the power cuts last fall.

So far this year, China has stayed away from expensive spot LNG cargoes as prices soared with last fall’s energy crisis and Russia’s invasion of Ukraine, which pushed Europe to buy LNG to replace the Russian gas pipeline as much as possible.

Developments in energy markets have also disrupted China’s LNG import policies. In 2021, China was the world’s largest LNG buyer and the United States was the largest supplier of spot LNG volumes to China, the EIA said earlier this year.

From February to April 2022, China’s LNG imports from the United States fell 95% compared to the same period in 2021. So far this year, the United States has occasionally sent LNG shipments to China, but most US exports have gone to Europe, which pays more for spot LNG supply.

Europe is pricing Asia for spot deliveries and is turning to mostly American LNG to reduce its still-heavy reliance on Russian gas. At the same time, China is buying more LNG from Russia, which the West does not want to touch.

High spot LNG prices and lackluster demand due to China’s zero-COVID lockdowns have significantly reduced Chinese appetite for U.S. spot LNG this year. Chinese companies have signed several long-term deals for US LNG, joining the trend of buyers reverting to long-term deals to avoid costly LNG supply in a market where Europe is scrambling to secure volumes to avert a winter of rationing and industrial collapse.

“Chinese buyers have minimized their exposure to expensive spot LNG. Spot purchases have been curtailed and it appears some Chinese players have resold shipments to the European market,” Wood Mackenzie research director Miaoru Huang said.

High spot prices and weaker demand from the power sector, with priority given to coal, are expected to lead to the largest decline in China’s LNG imports on record.

China has been putting more emphasis on energy security since the fall of 2021.

Earlier this year, hot on the heels of Russia’s invasion of Ukraine, China said it would continue to maximize the use of coal in coming years to ensure its energy security, despite pledges to contribute to global efforts reduction of emissions.

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