This is the last LNG outlook for 2017. We wish all of our clients the best for the holiday season and a very happy new year. We look forward to seeing you all in 2018.
As the heating season started in earnest, LNG prices for end of December and January delivery into Northeast Asia increased from just over 9.0 $/mmbtu at the start of November to just under 10 $/mmbtu by month-end.
Directionally, NE Asian LNG prices will move on the weather. China started the heating season with storage full and lots of buying as the majors were under considerable pressure to avoid shortages over the heating season. Given statements from PetroChina and Sinopec on how they intend to get through the winter, both seem likely to fully utilise their LNG terminals (predominantly in the north) this winter. As a result, we expect Chinese buyers will have already bought up cargoes for the peak winter session, meaning little additional spot buying and monthly imports likely to be up consistently by around 1 Mt/m y/y.
Outside of China, demand looks less resilient in Northeast Asia if the winter is as mild as long run forecasts suggest. Japanese LNG demand is already under pressure given higher levels of nuclear availability, and the likelihood is high one 1.2 GW Ohi reactor will be on for Q1 18 and the second should be on for Q2 18. In South Korea—one of this year’s other demand surprises—some upside remains from volumes through the non-KOGAS terminals, while gas demand will be pressured by new coal-fired plants. Nuclear outages remain surprisingly high—only 1 GW lower than last year—so there may be some upside here, although most of the power gap is being made up by coal plants.
South Asia should also take more volumes, with some recent tenders suggesting a greater willingness from India to shell out more for LNG than previously. That said, Pakistan has cancelled three recently purchased cargoes, with price reportedly part of the decision.
On the supply side, the big Chinese buying spree seems to have been largely met by Qatari spot, with reports suggesting the supply side also is looking tight and highly contracted moving into peak winter. Some commissioning cargoes are around, though with the start-up of 4.5 Mtpa Sabine Pass Train 4 and the 4.4 Mtpa train 1 at Wheatstone now old news, these will be ramping up during the rest of Q4 17. Also in December, one cargo from Dominion’s 5.3 Mtpa Cove Point project is expected and three cargoes are expected from Novatek’s 5.5 Mtpa Yamal Train 1.
The strength of Chinese buying over 2017 has led us to revise our further-ahead balances and makes the market look less long gas than previously expected. In particular, it opens up the possibility that the Pacific basin market never fully goes into surplus, suggesting periods when Russian and/or Qatari volumes pushed to Europe will be fewer than previously expected.
We still think that the Q1 18 market looks looser on a normal-weather basis, as the supply coming online this quarter should be ramping up and buyers will be looking only for late-winter cargoes. A mild December could mean NE Asian stocks will still be healthy going in Q1, and a 3 $/mmbtu or more drop in prices from February or March could well be on the cards. Before then, it is likely that spot NE Asian prices will go above 10 $/mmbtu in December/January.
In November, the market did see Engie (Gdf Suez) sell its considerable LNG portfolio to French major Total for around $1.5 billion. For an evolving market needing all the liquidity it can get, it was not the most welcome of news.