China aims to shut almost half a million small-scale coal boilers in its industrial sector by 2018, in what should have been a positive move for the liquefied natural gas (LNG) market.
However, LNG prices will continue to struggle as massive new supplies come online in an already oversupplied market, ANZ analysts wrote in a recent report.
China's annual LNG import growth is expected to increase as the country retires 400,000 small-scale coal boilers in the industrial sector by 2018, some of which will be replaced by gas boilers, ANZ said. A $3-per-mmBtu - mmBtu stands for one million British Thermal Units - reduction in China's regulated gas prices and lower domestic gas prices will also help encourage coal-to-gas switching as the East Asian giant aims to control air pollution, the house added.
But China's LNG imports will still fall behind those of Japan and South Korea, which together account for almost half of global imports, ANZ calculated. And the forecast rise in Chinese imports will likely be offset by a bigger jump in supply.
Natural gas prices hit their lowest level in almost two decades earlier this year, in turn hitting LNG, the super-cooled version of natural gas that's made for easier storage and shipping. Depressed oil prices - which hit prices across the commodities complex - did not help LNG prices either.
Natural gas prices have since rebounded but the longer-term price outlook isn't positive, with global LNG supplies expected to rise 50 percent by 2020, wrote ANZ Research's strategists Daniel Hynes and Natalie Rampono