Fundamentals

Published at 17:15 28 Apr 2017 by

Global LNG prices continued to soften in March, and LNG imports into China and price-sensitive India increased y/y. South Korean demand also increased y/y, though by less than in recent months, while Japanese demand remand largely flat y/y. Outside of Asia, Latin American demand continued to disappoint while MENA imports fell y/y for the first time since August 2014.

China once again imported more LNG than last year, with takes up by 0.29 Mt (17%) to 1.99 Mt in March. The growth continues to be driven by strong imports from Australia, which more than doubled y/y to 1.14 Mt. At the same time, imports from Qatar fell by a marked 61% y/y to 0.21 Mt. The gradual erosion of Qatari market share in China is a trend we see continuing as more Australian supplies hit the water and Qatari arb economics deteriorate. Given the strong start to 2017 for LNG volumes, largely driven by a preference for LNG over pipeline imports, we have left our forecasts for Chinese LNG imports unchanged—up by 4.5 Mt in 2017 and 4 Mt in 2018.

March was the second consecutive month that Indian LNG receipts have climbed y/y, following y/y declines between November 2016 and January, when high European demand raised spot prices and pulled Qatari swing supply away from Asia. LNG imports were 2.08 Mt in March, down slightly from 2.13 Mt in February but 0.27 (15%) higher y/y.

Japan imported 8.14 Mt of LNG in March, basically flat y/y and only slightly above the 8.05 Mt January-February average. Japanese takes, which were up by 1.4 Mt (6%) y/y at 24.2 Mt, have been healthy so far this year, partly due to colder weather than last year. In late March, the Osaka High Court lifted the March 2016 injunction preventing the restart of Kansai Electric’s Takahama Units 3 and 4. Though no timeline has been given, we expect that the two units will be online by June, as Kansai will be keen to start reducing its cost base and start-ups are certainly technically possible in that time frame. Though the weather is looking supportive of stronger LNG imports this summer, the outlook for 2017 is more bearish given the Takahama ruling. We have thus adjusted our LNG import assumptions and now expect a y/y decline of 1.5 Mt in 2017.

South Korea imported 3.53 Mt of LNG in March—a touch lower than February’s 3.60 Mt but still 0.10 Mt higher y/y, albeit the smallest y/y increase logged since October 2016. Imports were still higher than demand of 3.22 Mt, suggesting South Korea made a net stockbuild of 0.31 Mt last month, pushing implied LNG stocks to 1.95 Mt, broadly flat y/y and the highest since November 2016. We forecast y/y LNG reductions of 1.7 Mt in 2017, a smaller reduction than forecast last month due to more supportive weather in Q2 17. We expect a 2.2 Mt y/y drop in 2018.

Aggregate imports in Latin America disappointed again in March, falling by 0.3 Mt y/y (28%) at 0.75 Mt, with Argentina, Brazil and Chile all importing less LNG than last March. Argentina took its first cargo since October 2016, though it was a mere 0.03 Mt. Brazilian imports were down to 0.06 Mt from 0.14 Mt last year, while imports from Mexico rose for the second straight month.

MENA’s imports were down by 0.07 Mt y/y, despite Egyptian takes climbing again, with the slowdown driven by the UAE, as Dubai imported only one cargo of 0.06 Mt. Growing solar capacity in the region is limiting LNG demand outside of the peak summer cooling season.

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