Fundamentals

Published at 14:00 31 Aug 2017 by . Last edited 19:11 31 Aug 2017.

LNG imports continued to see strong y/y in gains in July, with China dominating the NE Asian market and Japan and South Korea once again surprising to the upside in terms of demand. Even Latin America posted a rare y/y rise in imports in July, reflecting a truly strong month in the LNG market.

China continues to post relentless growth in LNG imports, with volumes in July up by a huge 1.4 Mt (94%) y/y at 3.1 Mt. Australian and Qatari cargoes, up by 0.71 Mt (41%) y/y and 0.37 Mt (80%) y/y respectively, continued to provide the bulk of the incremental supply, though imports from Indonesia and Malaysia also rose y/y. Qatari imports are still relatively highly priced at 9.56 $/mmbtu, while Australian gas is averaging 6.84 $/mmbtu. We are forecasting that Chinese LNG imports will increase by around 8.0 Mt y/y this year, up from our forecast of 7.2 Mt last month. We expect demand to be up by another 5.9 Mt in 2018.

South Korea imported 2.72 Mt of LNG in July, 0.80 Mt more y/y in July. In a continuing trend, most of the volumes were sourced from new terminals in Australia, with imports from the country up by 0.27 Mt y/y to 0.38 Mt. But despite higher y/y imports, aggregate demand fell from a year earlier, indicating that South Korea made another net stockbuild last month. As of mid-August, there was 7.9 GW of nuclear capacity offline in South Korea, which is 33% of total capacity and 5.9 GW more y/y. This should support gas demand over the next month, especially given that weather forecasts are indicating a 50% probability of above-average temperatures in South Korea through August and September, which would boost cooling demand.

In neighbouring Japan, LNG imports rose in July by 0.24 Mt (4%) y/y to 6.82 Mt on particularly hot weather. This was following a month of y/y declines in June. With LNG imports higher than our expectations in July on hot weather, we now forecast that imports will be up by 1.1 Mt y/y in 2017 (from a previous forecast of largely flat y/y). We have imports dropping by 1.3 Mt y/y in Q4 17 on forecasts of a warmer quarter in y/y terms. We expect a further 2.6 Mt y/y fall in 2018.

Indian LNG imports rose y/y by 0.13 Mt (7%) to 1.59 Mt (2.09 bcm) in July, supporting stronger gas-fired power generation amid sluggish non-thermal performance. We have maintained our Indian LNG import forecasts for 2017 and expect a rise of 1.0 Mt (5%) y/y.

In an interesting development, Latin American imports grew y/y by 0.17 Mt in July to 1.81 Mt, led by Argentina, which took 0.15 Mt more LNG y/y to meet strong power sector gas demand. Mexico was close behind, taking 0.14 Mt more y/y in order to replace lower-than-expected pipeline imports from the US. In contrast, Chile (-0.08 Mt) and Brazil (-0.06 Mt) took less y/y.

The one importing region that took less LNG y/y was the Middle East and North Africa (MENA). MENA imports totalled 2.01 Mt of LNG in July, lower y/y by 0.17 Mt. This was the second y/y decline in 2017, but it was not driven by lower Egyptian imports as it had been in May but by Jordan. Despite extremely hot temperatures in Jordan, imports were lower by 0.16 Mt suggesting last July’s reading may have been inflated by the timing of arrivals.

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