Fundamentals

Published at 15:11 27 Jun 2018 by . Last edited 15:12 5 Nov 2018.

Global LNG imports rose by 1.6 Mt y/y to 24.7 Mt in May, driven by strong demand across Northeast Asia and India. Unseasonably hot weather supported imports across those areas last month. Chinese demand was also bolstered by brisk injection demand, while another month of lower nuclear capacity buoyed South Korean LNG takes. Restocking demand supported Japanese deliveries, while Indian volumes ramped up owing to the start-up of new contract supply.  Meanwhile, deliveries to the Middle East and North Africa (MENA) fell as importers stepped away from the high-priced spot market, and rising domestic production continued to slow Latin American demand.

Chinese LNG imports rose by a hefty 1.2 Mt y/y (43%) to 4.15 Mt in May—despite record pipeline imports—owing to strong injection and cooling demand. Importers expect another winter of strong demand and are under government pressure to avoid last winter’s gas shortages. Sluggish domestic production growth should also support LNG imports this year. That said, gas demand growth could start to slow given the government’s recent decision to raise residential gas prices and a slowing economy. Despite the emerging downside demand risks, we still expect LNG imports to rise sharply this year, by 6-7 Mt y/y in H2 18, of which 2-3 Mt will be in Q3 18.

South Korean imports rose by 0.3 Mt (12%) in May to 2.8 Mt. May’s high consumption slowed summer restocking, lowering our estimate of gas in Korean storage to just 0.71 Mt by end-May. Expected strong injection demand over the rest of this summer should keep demand brisk. For 2018 as a whole, we expect a 4.7 Mt y/y increase in LNG imports, around twice as high as we forecast last month given the estimated decline in stocks and the new government air quality policy, which may cut coal-fired generation and force gas-fired plants to fill the gap.

Unseasonably warm weather supported a 0.17 Mt (3%) y/y rise in Japan’s LNG imports last month. We still believe that stockbuilding is needed over the coming summer, although even a hot summer is unlikely to be overly supportive of gas demand, given the 4.7 GW of nuclear capacity that has returned to service over the last few months. We now forecast that Japan will import 0.3 Mt more LNG in Q3 18 y/y but 1.3 Mt less y/y in Q4 18.

Indian LNG imports rose by 0.24 Mt (17%) y/y in May. Stronger imports seem to be the result of new gas supply contracts, which have a Henry Hub exposure, delivering to existing terminals. Thus, despite recovered hydro stocks curbing power sector gas consumption and slow commissioning of new infrastructure, we forecast Indian LNG takes to expand 2.6 Mtpa in 2018.

LNG imports by countries in MENA fell by 0.63 Mt y/y to just 0.84 Mt. The Dubai Supply Authority (DUSUP) is likely using storage flexibility to avoid having to dip into the spot market while prices are high. We have revised our forecasts for MENA LNG imports in 2018 lower by 0.9 Mt from last month, to 12.5 Mt.

Latin American LNG imports were flat y/y in May at 1.7 Mt.  For the whole of 2018, we forecast Latin America to import 16.0 Mt, a 0.5 Mt y/y drop, as domestic production gains in Argentina and Brazil more than offset a 0.9 Mt y/y increase in imports by Mexico.

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