Fundamentals

Published at 16:06 26 Jul 2017 by

June was a strong month for LNG imports in the main demand centres, with Asian demand strong as Chinese imports continued to rocket higher.

China imported 3.04 Mt of LNG in June, higher y/y by a very strong 0.83 Mt (38%), while YTD imports are also 4.41 Mt (38%) higher y/y. Growth continued to be driven by high volumes from Qatar and Australia, with the former up by 78% y/y to 0.32 Mt (despite being the highest-priced source at 9.36 $/mmbtu) and the latter up by an impressive 73% y/y to 1.8 Mt. Conversely, imports from Indonesia continued to slide, down by around 30% y/y to 0.18 Mt in June. We currently forecast that Chinese LNG imports will increase by around 7.2 Mt this year and by another 5 Mt in 2018.

South Korea imported 3.46 Mt in June, with the 0.99 Mt y/y increase driven by healthy takes from Australia, Malaysia and Qatar. Australian volumes rose by a solid 0.45 Mt y/y to 0.64 Mt, while imports from Malaysia were up by 0.20 Mt to 0.43 Mt. After falling y/y in May, imports of Qatari LNG rebounded in June, growing by 0.16 Mt y/y to 1.28 Mt. We now forecast that South Korean LNG imports will grow y/y by 2.5 Mt in 2017, an upward revision of 1.5 Mt on our previous forecast, reflecting higher-than-expected June takes and an increased need for restocking due to an expected stock drawdown this summer. For 2018, we expect a 2.2 Mt y/y drop, unchanged from last month as we still expect to see 2.0 GW of new coal capacity to start up by end-2017.

Following two months of annualised increases, Japanese LNG imports fell marginally y/y in June by 0.08 Mt to 6.19 Mt. Over the first half of the year, Japan imported a total 43.2 Mt of LNG, compared to 40.9 Mt over H1 16. While LNG imports fell slightly in June, thermal coal imports jumped by 1.7 Mt (20%) y/y to 10.2 Mt. With LNG imports largely in line with our expectations in June, we retain our forecasts that Japanese imports in 2017 will be largely flat y/y. We expect that the nuclear restarts seen this year will continue to drive y/y reductions in LNG imports over the rest of 2017, offsetting earlier gains. We then expect a further 2.6 Mt y/y fall in 2018.

MENA imports of LNG rose sharply m/m to 2.11 Mt, higher y/y by 0.37 Mt. This is the strongest y/y growth so far in 2017 and comes after a large y/y decline in May, but it is on a modest base from June 2016 when UAE imports were limited. The region will struggle to maintain such y/y growth through Q3 17 given a high base from Q3 16, when imports averaged 2.2 Mt per month, and the slowdown in Egyptian imports. We expect the Q3 17 total to be lower y/y by over 0.3 Mt.

Latin American imports of the liquefied fuel expanded by 0.40 Mt y/y to 2.04 Mt, with Mexico posting the largest gains. Due to domestic pipeline constrains and growing gas demand in the north, the country took 0.14 Mt more y/y. Chile imported 0.04 Mt more y/y, as it started exporting pipeline gas to Argentina, a development which will support further growth in imports in the future. Argentina received 0.07 Mt less y/y, while Brazilian takes were unchanged y/y. For the big four importers, we are forecasting a combined 1.3 Mt y/y reduction in LNG imports across 2017 and a y/y fall of 1.9 Mt in 2018.

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