A hot July and some mid-summer stock building was enough to finally push Northeast Asian LNG prices out of their 5-6 $/mmbtu range, up to 6.35 $/mmbtu by late August. The tight mid-summer LNG market was helped by a tightening at European hubs, driven by a combination of pipeline supply outages, higher coal prices and low nuclear, hydro and renewable generation.
Behind the LNG price hike has been a consistently strong period of gas demand in Asia, which has helped absorb the 18 Mt of new supply seen over the first seven months of 2017. With supply holding its own, the tightness in the market is all about Asian demand.
Leading the demand charge is, of course, China, which took 5.9 Mt more LNG y/y over the first seven months of 2017. China keeps absorbing more gas thanks to the continued expansion in both the urban gas sector and the storage infrastructure needed to help meet growing demand seasonality. For the coming winter, Chinese demand will be strong, but just how strong depends on the weather. If temperatures plunge, China’s northern LNG import terminals could absorb another 6 Mt y/y of supply over the winter months, and this could lead to some price spikes.
South Korean demand has been growing (up by more than 3.6 Mt y/y over the year to August), counter to expectations of a drop in LNG takes held at the start of the year. Imports have remained strong over the last two months, with evidence of restocking after a hot June-July period and an uptick in industrial demand. Interestingly, around 1.6 Mt of that growth has come from imports through non-Kogas terminals, especially through the new GS Energy / SK E&S terminal at Boreyong. Going forward, some of that strength may ebb with 3 GW of new coal plants having come online in June. That said, utilities should keep burning gas if they can get it at less than at Kogas city gate prices.
As for the remainder of 2017, the first 4.4 Mtpa train at Wheatstone should produce first LNG in September, the 4.5 Mtpa Sabine Pass 4 should be operational in November, and the 5.3 Mtpa Cove Point (Maryland, US), 2.2 Mtpa Cameroon (Hilli FLNG), and 5.5 Mtpa Yamal train 1 (Russia) are all confirmed start dates before year-end. With all three likely to start producing late in Q4 17, this is positive for 2018 supply growth, which could be as robust as 2017.
In less positive news for 2018 supply, Sempra this month announced the first 4.4 Mtpa liquefaction train at its Cameron LNG terminal in Louisiana is now likely to be delayed into 2019, while the other two 4.4 Mtpa trains at the terminal could also enter service in that year. Even without those three trains, US LNG availability will be good, even if the single US train now expected online next year is the 4.4 Mtpa Freeport LNG terminal.
This month we are extending our forecasts to cover 2019. Starting with supply, in contrast to 2018, no new Australian trains are expected to come online, as all of the projects currently under construction should be operating by that time. However, there is a raft of US projects expected to come online in 2019 in what looks to be a very busy year for new starts in the US. The big issue for 2019 will be whether there will be enough demand to absorb such a supply onslaught. We think that this is unlikely, and that even with continued strong Chinese demand growth, initial utilisation of those US liquefaction projects is likely to be low.