China Gold: Low inventories amplify short-term price elasticity, LNG price center may enter an upward cycle

The Zhitong Finance App learned that CICC released a research report saying that 1H26 global LNG supply has contracted, and Asia is the main regulator of demand. 1H26's global LNG export volume was 281.2 billion square meters, down about 5.8 billion square meters from 1H25. The cumulative incremental supply of about 10 billion square meters in January-February was spent from March to June. Judging from the import scale of major import regions, the region with the most obvious reduction in imports is Northeast Asia, where European LNG imports are relatively stable. Global LNG continues to maintain a tight balance in the short term, and upstream resource companies still have allocation value.

CICC's main views are as follows:

Global LNG supply and demand remains tight in the short term, and the risk of gas price fluctuations in winter has increased significantly. 1H26 global LNG exports fell by about 5.8 billion square meters year on year, mainly due to reduced imports and digestion in Northeast Asia, while European imports remained stable. The bank estimates that if Qatar's supply gradually recovers in October, global LNG supply may still decrease by about 16 billion square meters year on year in 2026; if recovery is not possible throughout the year, the bank is expected to reduce or expand to 26 billion square meters. Considering that there is limited room for China to further reduce imports, European demand elasticity has also declined markedly. Coupled with low inventories, the bank expects JKM to fluctuate between $15-25 per mmBTU in the fall and rise to 25-35 US dollars/mmBTU in the winter. Under extreme circumstances, there is still a risk of breaking through $40/mmBTU.

The direction of easing supply and demand remains unchanged in the medium term, but the LNG price center may have moved higher than in the past. If Qatar returns to normal in 2027 and the US projects under construction are put into operation, the bank believes that global LNG supply and demand are expected to be relaxed again from 2H27; if the resumption of production continues to be delayed, the tight balance may continue to 1H28. On a long-term basis, the bank believes that energy security requirements will drive the expansion of LNG production in North America, but the rise in US liquefaction rates/natural gas costs may push the LNG mid-term price center to rise from 8-10 US dollars/mmBTU to 10-15 US dollars/mmBTU.

China's short-term demand for natural gas is under pressure, and growth is expected to resume in the mid to late 15th Five-Year Plan period. In 1H26, the country's apparent consumption of natural gas fell 2.4% year on year. Under high gas prices, industrial and power generation gas was replaced by coal and new energy sources. The bank expects demand to remain weak in 2026-2027. The average annual increase in domestic natural gas production during the “15th Five-Year Plan” period was about 5 to 6 billion square meters, which is slower than the “14th Five-Year Plan”; with the loosening of global LNG supply and demand after 2028 and the further improvement of the domestic price mechanism, the growth rate of China's natural gas demand is expected to return to medium to high unit levels. Furthermore, the bank determines that in the high energy price cycle, alternative energy sources such as biomass will also receive certain structural development opportunities.

Risks: Oil and gas prices fluctuate sharply, geopolitical conflicts escalate beyond expectations, investment in new LNG production capacity exceeds expectations, and the recovery in domestic gas demand falls short of expectations.