June was an eventful month in the Global LNG market. On the supply side, the diplomatic isolation of Qatar has hiked geopolitical risks to the global LNG market. Though Qatari exports have yet to be impacted by the crisis, any supply disruption would lead to a spike in LNG prices.
As for demand, data released in June continued to paint a strong picture, especially in Northeast Asia. Rising demand growth in the region was driven by a gargantuan 1.5 Mt y/y increase in Chinese imports. Growth of this magnitude seems to render insufficient the traditional explanation of strong power sector demand driven by hot weather. One explanation could be that the 10 bcm storage facility being built by Sinopec in Henan, scheduled for operations in May 2018, could be starting to fill with cushion gas in the off-peak months. However, without confirmation from Sinopec, this remains speculation.
South Korean demand numbers also continued to come in stronger than our expectations, with LNG imports up by 27% y/y at 2.49 Mt in May marking the strongest incremental growth since February. Strong imports from Australia and Malaysia helped offset a drop in Qatari deliveries in May, in a further sign that Australian gas is replacing Qatari gas in NE Asia. Australian imports were up by 0.20 Mt y/y (66%) at 0.51 Mt, while Qatari receipts fell by 0.22 Mt (26%) y/y to 0.65 Mt. LNG prices for delivery to South Korea in May were on par with those in India and Japan and a step above those in Spain. We now forecast South Korean LNG imports will increase y/y by 1.0 Mt in 2017, which is a large hike on our previous forecasts for a 0.2 Mt y/y drop. We expect a 2.1 Mt y/y drop in 2018, however, as we still expect to see 2 GW of coal capacity start up this year.
Japanese demand was also healthy in May, up by 13% y/y to 6.24 Mt. While both of Kansai Electric’s Takahama units (3 and 4) coming online as of 6 June is a somewhat bearish LNG development for 2017, some weather-driven support should remain as Japan is forecast to be warmer than normal this summer. We now expect imports in 2017 to be flat y/y, with y/y reductions expected from June onwards. We then expect a further 2.6 Mt y/y fall in 2018.
While Northeast Asian demand remained robust, demand in other regions continued to decline in May. This was true in MENA, where imports were down by 0.3 Mt—the largest decline on our records. Egypt was the main driver here, as the country’s domestic production has started to rise rapidly of late, particularly thanks to an early start up of BP’s West Nile Delta project.
Latin American imports continued to disappoint in May, with takes falling by 0.5 Mt to 1.49 Mt. Brazil led the fall (down by 0.28 Mt), followed by Chile (down by 0.2 Mt) and Mexico (down by 0.17 Mt). The only country in the region to import more LNG y/y was Argentina, where imports rose by 0.17 Mt to 0.52 Mt. For 2017, we are forecasting a 1.3 Mt y/y reduction in Latin America’s LNG imports, which is a moderately smaller drop than last month’s forecast of a 1.6 Mt decline. Our 2018 forecast for the region is unchanged at a y/y fall of 1.9 Mt.