This week’s topic
Since 2022, the international gas price has maintained a high level. As the world’s largest LNG importer, China has begun to resell imported LNG internationally and transfer it to Europe and other places. This week, we analyze the motivation and income of LNG international resale by Chinese natural gas importers in combination with the current international and Chinese gas price environment.
Core view
At the beginning of 2022, China’s LNG import was cold, and the international LNG resale market was hot.
China’s LNG import market volume fell and prices rose: in January and February 2022, China’s LNG import volume was 7.8132 million tons and 4.8636 million tons respectively, with a year-on-year decrease of 6.7% and 11.8% respectively; The average CIF price of imported LNG was 3.97 yuan / m3 and 2.8 yuan / m3 respectively, with a year-on-year increase of 132.2% and 43.7% respectively; The international LNG resale market is booming: CNOOC and Sinopec issued a tender in January 2022 to sell dozens of LNG goods delivered before November 2022. CNOOC proposes to sell one LNG ship per month from May to November, while Sinopec seeks to sell up to 45 LNG ships by October. The bidding accounted for about 4% of China’s total LNG imports last year, which is one of the largest LNG sales bidding in China so far. In March 2022, Sinopec sold at least three batches of LNG delivered in summer to European ports; From January to February, Guanghui’s entrepot trade volume reached 251000 tons.
The international resale profit opportunities of LNG are considerable, among which Changxie has greater resource advantages.
From the price side, China’s price is upside down compared with the international spot price, which is unattractive at the price side. In February, the price of LNG in China was 4.47 yuan / m3, but the spot price of imported LNG arriving in China in the same period was as high as 7.83 yuan / m3, and the price inversion reduced the enthusiasm of Chinese importers to purchase spot; The international gas price continued to run at a high level. From January to March, the average price of TTF was 32.71 US dollars / million British heat, while the LNG price in China was only 21.21 US dollars / million British heat in the same period. On the one hand, the international spot import cost and China’s LNG spot price continue to hang upside down. If the international gas source is resold in China now, it faces the risk of loss; On the other hand, the spot price in Europe continues to be higher than the spot price of LNG in China. The two factors jointly strengthen the attraction of international resale at the price side.
From the cost side, LNG long-term cooperation locks in low-cost gas sources. In 2021, China signed a total of 32.17 million tons of LNG medium and long-term agreements and framework agreements, accounting for 34.5% of the total signed long-term agreements, which is the sum of the signed long-term agreements of LNG in the past seven years. Among them, the proportion of long-term agreements bound to the Henry hub price of the United States has gradually increased. Compared with the long-term association linked with crude oil, the long-term association bound with Henry hub price has lower volatility, and has obvious cost advantages compared with TTF price in Europe and JKM price in Asia. From April 2021 to the end of March 2022, the average price of TTF and JKM reached US $22.63 and US $22.72 per million British heat respectively, while the average price of Hh in the same period was only about US $4.14 per million British heat.
What is the income of LNG international resale at this stage?
If transportation and other costs are considered, it is conservatively estimated that the resale price difference per million British heat is about US $20. According to the specification of 75000 tons / LNG ship, the resale net profit of a LNG ship will reach US $76.5 million, equivalent to about 486 million yuan.
Investment suggestion: the high international gas price drives up the LNG resale price, and the long-term agreement can help importers lock in a lower price. The long-term agreement linked with Henry hub has obvious cost advantages compared with the current international gas price. We believe that the high price difference between high price and low cost further increases the attraction of international LNG resale at the current time point. It is suggested to pay attention to the performance elasticity brought by LNG resale to natural gas related traders under the environment of high gas price this year. In terms of specific targets, it is suggested to pay attention to [ Enn Natural Gas Co.Ltd(600803) ] [ENN energy] [ Jiangxi Jovo Energy Co.Ltd(605090) ].
Risk tips: the risk of sharp fluctuations in international gas prices, the risk of gas demand falling short of expectations, the risk of LNG import long-term association unable to deliver on time, etc.
