We're seeing phenomenal growth in China's LNG demand, driven by government-mandated coal-to-gas switching. Serious air pollution issues have led to new environmental policies prompting a reduction in coal in favour of cleaner fuels, including gas. How can China ensure local gas demand is met, without the price hikes seen last winter?

By the end of 2017, China had 17 LNG receiving terminals in operation, but the issues faced last winter highlight the mismatch between LNG terminal distribution, mostly in the south, and the winter demand profile.

When peak utilisation in the northern and eastern regions reached 119% ad 159% respectively in the winter of 2017/2018, LNG trucking played a key role in meeting gas demand. With limited pipeline coverage and lack of storage facilities, LNG trucking provided a flexible, albeit relatively expensive, way to reach both on-grid and off-grid gas demand.

Delivering 12% of China's total gas demand, LNG trucking is a growing segment. Trucks are transporting both imported LNG and liquefied domestic production, delivering three-times the amount in 2012.

Trucking costs versus imported LNG

However, as the cost of imported LNG has declined, the cost of delivering LNG around China has become more complex. Sourcing LNG from the same region is the more economical solution, but last year LNG was trucked as far as 2,000 km from southern terminals to northern China to cope with shortages, that's more than double the normal distance. This led to a surge in LNG prices at the peak of last winter, with prices reaching US$30/mmbtu.

LNG trucking continues to be seen as a welcome solution for market participants in search of liquidity and flexibility. While gas demand is expected to remain healthy this year, the next winter gas shortage should not be as severe as the last.