As global LNG prices began to come back down to earth in February, demand across many of the key importing countries increased accordingly.
Chinese LNG imports fell m/m in February to 2.37 Mt but remained higher by 0.52 Mt (28%) y/y. LNG demand may have benefitted from a brief cold spell in Eastern and Southern China in mid-February. Meanwhile, despite being an average of 1.71 $/mmbtu cheaper than LNG in February, pipeline gas imports fell by 0.38 Mt (-13%) y/y. Given the strong start to the year for LNG, largely driven by a preference for the liquefied fuel over pipeline imports, we now expect Chinese LNG imports in 2017 to be up by 4.5 Mt y/y, which is 0.5 Mt more than our previous forecast. We expect growth of another 4 Mt in 2018.
Japan also imported more LNG over the month, with takes up by 5% y/y at 7.79 Mt in February. The increase came despite warmer-than-average temperatures in February, with HDDs lower than both last year and the five-year norm, suggesting that import growth was more due to restocking than the weather. We have increased our LNG import assumptions for Japan, with imports now expected to decline by 1.2 Mt y/y in 2017 (from a drop of 2.1 Mt) and then fall by a further 2.4 Mt y/y in 2018. The altered assumptions on nuclear power availability and the strong start to the year are behind the changes.
India is one of the most price-sensitive buyers on the market, and LNG imports increased sharply in February as lower demand helped soften global prices. Indian LNG imports were 1.6 Mt, up by 0.22 Mt y/y (16%) and up from January’s 18-month low of 1.2 Mt. We forecast a 3.1 Mt (17%) y/y increase in LNG imports in 2017 and a further 3.3 Mt hike in 2018. Risks around these numbers relate to LNG prices, which are based on our expectation of them dropping back to 5 $/mmbtu for most of the year (Q2 17 & Q3 17) and that the level of usable import capacity will expand through the 2.5 Mtpa Hazira expansion by the end of 2017.
Meanwhile, North America imported 0.3 Mt in February, with the US taking 0.23 Mt and Canada taking 0.07 Mt. While the import side has been relatively flat in North America, the export side is heating up. Indeed, Sabine Pass Train 3 recently started operations, with total US LNG demand pull now averaging around 2.1 bcf/d.
Latin American LNG imports increased by 0.23 Mt y/y in February to 0.93 Mt—the first substantial y/y increase since May 2016. The increase was driven by stronger imports into Chile and Mexico, while imports into Brazil remained very weak. Indications are that Argentina, where domestic production is growing, imported no LNG at all for the fourth consecutive month.
LNG demand from the MENA region fell m/m but still grew by 0.15 Mt y/y to 0.86 Mt. The main buyer was once again Egypt, which imported 0.6 Mt, up by 0.26 Mt y/y. But MENA demand faces headwinds this year that will slow incremental growth relative to the last two years. Egypt’s decision to cancel the tender for a third FSRU in December 2016 tops the list. In addition, summer demand growth in the region is unlikely to be strong this year given last year’s very high base.