Slightly milder weather in the first two months of the year softened South Korean LNG demand, with February cargo deliveries slowing by 0.61 Mt (15%) m/m to 3.60 Mt. That said, LNG receipts were still higher y/y by 0.60 Mt (20%). In a continuation of a trend that began in December 2016, the bulk of the y/y increase was because of higher Qatari volumes, up by 0.30 Mt in February. While South Korean LNG prices softened, they remained above other global hubs with the exception of Japan, helping Korea attract uncommitted Qatari supply. February balances imply a marginal 0.03 Mt net injection of LNG into storage, leaving stocks at 1.8 Mt, down 0.12 Mt y/y.
Total domestic gas demand edged up by 3% y/y to 3.58 Mt, but it was down 0.48 Mt m/m and at the lowest since November 2016 as higher nuclear capacity pared power sector gas demand. Nuclear capacity constraints shrank to 3.9 GW last month, 17% of the total fleet, compared with 5.7 GW or 25% of the fleet in January. February’s nuclear outages were the lowest since August 2016. Power sector gas demand was broadly flat y/y at 1.3 Mt last month, but it fell by 0.18 Mt m/m and was at the lowest level since September 2016. The impact on Korean LNG storage levels would have been modest, with imports largely balanced with demand.
January power sector gas demand (the latest month for which data are available) hit a five-month high of 10.33 TWh, up by 1.18 TWh (13%) y/y, as nuclear generation fell by 2.3 TWh (15%) y/y to 13.1 TWh. Renewable generation was up a strong 0.86 TWh y/y in January, reaching a record high of 2.10 TWh. Total power generation was up just 0.38 TWh y/y at 48.6 TWh in January.
After the dip in February, power sector gas demand could find support again in March, as nuclear capacity constraints are rising once more. A total of 5.7 GW (25%) of the nuclear fleet was offline mid-month, 1.7 GW more than in February and 2.9 GW more than a year earlier. However, the Korean Meteorological Agency (KMA) is forecasting a higher chance of above-average or normal temperatures through to the end of April, suggesting that end-of-season heating demand should be limited.
From Q2 17 onwards, we expect weather to be less supportive and for 9 GW of new coal plants that were delayed in 2016 to start coming online. Over 2 GW of new coal-fired plants were reported to be beginning commercial operations at the start of the year. Although LNG imports have stayed robust early this year, we forecast y/y LNG reductions in South Korea of 2.0 Mt in 2017 (a smaller reduction than forecast last month because of the robust Q1 17 imports) and another 2.0 Mt in 2018.