Fundamentals

Published at 18:33 28 Feb 2017 by

Colder-than-average weather across Southwest Europe and an outage on the first Gorgon LNG train tightened the global supply-demand balance in January, boosting European prices and curbing deliveries to most other LNG destinations. Northwest European LNG imports have been lower y/y since the beginning of winter, but deliveries stepped higher y/y in the middle of January after Spanish and South of France prompt prices shed their premiums against other LNG markets.  

LNG imports into price-sensitive India posted the sharpest y/y drop in nearly two years in January, as uncommitted Qatari supply sailed to Europe. LNG prices in India were at a discount of up to 5 cents/mmbtu to Spanish delivered prices last month, having traded at a premium of up to 2.60 $/mmbtu in December. Indian LNG imports fell to 1.64 bcm (1.2 Mt), the lowest since August 2015, down by 0.33 bcm (17%) y/y and by 0.3 bcm m/m. Indian prices deepened their discount to the Spanish hub at the start of February, which could also curb that month’s imports. We are forecasting a 3.0 Mt (16%) y/y increase in LNG imports into India in 2017 and now expect a further 3.3 Mt hike in 2018—moderately adjusted on January’s numbers.

Chinese LNG imports fell m/m to 3.44 Mt in January from a record 3.73 Mt in December, but they were still higher y/y by 0.98 Mt (40%). Unusually cold November-December weather in Northern China caused importers to restock in January, but milder weather that month led CNOOC to announce that it will import less in Q2 17 as supplies are plentiful and storage space is limited. Following a 2 bcm y/y increase in China’s LNG imports in Q1 17, we expect Q2 17 LNG imports to grow by 1.0-6.5 bcm y/y. Over 2017, we expect Chinese demand to rise by about 4 bcm y/y.

But Japanese LNG imports rose to their highest level in two years at 8.30 Mt in January, up by 1.06 Mt y/y (15%). Strong imports may have helped replenish low stocks after imports were slow in December 2016 despite reasonable demand. Japanese LNG prices managed to retain a premium to Spanish prices until February. We have increased our LNG import assumptions for Japan to show a decline of 1.3 Mt y/y in 2017, due largely to January’s take being much larger than forecast. We expect imports to fall by a further 2.4 Mt y/y in 2018.

Korean LNG prices also closed at a premium to SW Europe hubs in January, helping imports reach a two-year high of 4.21 Mt, up by 24% y/y. From Q2 17, we expect weather to be less supportive and for 9 GW of new coal plants that were delayed in 2016 to start coming online. We forecast y/y LNG falls in South Korea of 3.0 Mt in 2017 and 1.8 Mt in 2018. 

Other Asian LNG imports were mixed in January. Singapore imported 0.07 Mt, a 0.13 Mt (66%) y/y fall, while Thailand’s imports amounted to 0.16 Mt, down by 0.02 Mt (11%) y/y. On the other hand, Taiwan imported 1.33 Mt of LNG, an increase of 0.20 Mt (18%) y/y.            

Total Latin American LNG imports were 0.71 Mt, down by 0.49 Mt y/y and a touch higher m/m. Brazil and Argentina imported zero cargoes, while Mexican LNG imports were down by 0.09 Mt y/y at 0.28 Mt. Chile imported 0.30 Mt of LNG, higher by 35% y/y, as the nation experienced its warmest January since 2008. We forecast Latin American imports will fall by 1.4 Mt y/y in 2017.

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