Fundamentals

Published at 14:55 30 Nov 2017 by

Global LNG imports in October were led by strong demand in China and India. The expansion of urban gas connections led China to raise imports by 1.72 Mt (94%) y/y (4.85 bcm), while Indian imports reached a record monthly high of 1.83 Mt as unseasonably warm weather boosted demand. In contrast, LNG receipts into South Korea and Japan shrank y/y on cooler weather and higher nuclear capacity, while MENA and Latin American imports also dropped y/y amid rising LNG spot prices.

Total gas supply into China was strong in October, supported by the government’s programme to replace coal-fired boilers with natural gas. LNG imports were 3.57 Mt, which was the second-highest monthly take on record. Assuming seasonally normal weather, we expect that China will take 6.6 Mt more LNG y/y this winter and 9 Mt more y/y in 2018, as coal-to-gas infrastructure conversions continue apace, although these numbers are sensitive to weather.  

Indian LNG imports rose by 0.18 Mt y/y to a record monthly high of 1.83 Mt in October despite rising LNG spot prices, as warmer-than-average weather supported demand. Coal-fired generation made up most of the y/y increase in thermal generation, but gas-fired output rose by a considerable 0.9 TWh (21%) y/y to 5.11 TWh. We expect that Indian imports will be up in Q1 18 by 0.7 Mt y/y, while the expansion of regas capacity should support y/y import growth of 3.2 Mt in 2018.

In South Korea, unseasonably cool weather and high September imports helped preserve stocks, leading the country to slow October imports by 0.49 Mt (15%) y/y to 2.76 Mt. In an ongoing trend, however, receipts into non-KOGAS terminals were higher y/y, by 0.20 Mt y/y at 0.45 Mt. We forecast that South Korean LNG imports will decrease y/y by 0.9 Mt in Q4 17, a bigger drop than our previous forecast of a 0.6 Mt fall, given the higher-than-expected October number. We retain our forecast of a 2.5 Mt y/y drop for 2018.

LNG receipts into Japan edged down by 0.15 Mt (2%) y/y to 6.13 Mt in October, the third consecutive month of lower imports, as higher nuclear capacity continued to cut gas demand.  A mild Q4 17, as currently forecast, should keep Japanese demand for LNG fairly modest, particularly with the two 0.9 GW Takahama nuclear units back online. We forecast that Japan’s LNG imports will drop by 1 Mt y/y in Q4 17. In 2018, more nuclear and renewable generation should cut imports by 2.6 Mt (3%) y/y.

Countries in the MENA region imported 1.52 Mt of LNG in October, lower y/y by 0.39 Mt. The declines were led by the UAE, which imported 0.25 Mt of LNG, 49% less y/y, despite warmer weather. Kuwait and Egypt followed a similar pattern, with imports down y/y by 0.10 Mt and 0.08 Mt respectively. The start-up of the giant Zohr field is imminent—still expected by year-end at an initial rate of 0.35 bcf/d—and Egyptian officials expect rising domestic production to eliminate LNG imports in 2018.

Surging LNG prices dented Latin American LNG imports by 0.08 Mt y/y to 1.16 Mt in October. While Mexican LNG takes rose by 0.15 Mt y/y on domestic pipeline constraints and Brazil imported 0.07 Mt more y/y due to low hydro availability, this was not enough to offset lower takes by Argentina (-0.18 Mt y/y) and the Dominican Republic (-0.07 Mt y/y). Over 2018, we see Latin American LNG demand dropping by 1.6 Mt y/y, though most of that is driven by increasing gas production at Argentina’s Vaca Muerta and Brazil’s presalt, with the former having some risk owing to faltering subsidy payments.

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