Fundamentals

Published at 17:15 31 Jul 2018 by

Strong Asian demand was once again the main driver behind a 0.5 Mt y/y increase in global LNG imports last month. Hot weather drove much of the increase, while brisk industrial demand boosted Chinese LNG takes and South Korean imports rose on nuclear and coal-fired generation constraints and restocking efforts. In contrast, Japanese imports fell sharply y/y on higher nuclear availability. The recent start-up of a new import contract with Gazprom supported Indian receipts, while cold weather in Chile and Argentina coupled with low Brazilian hydro levels and ongoing Mexican pipeline constraints increased Latin American LNG imports in June. Despite high summer temperatures in MENA, imports continued to decline on lower Egyptian takes.

A combination of hot weather, industrial gas demand growth and injection demand boosted Chinese LNG takes by a chunky 0.93 Mt (31%) to 3.97 Mt in June. Slow domestic gas production growth also played a role. Domestic output only rose by 0.7 bcm y/y to 12.2 bcm in June, bringing H1 18 output higher y/y by 3.4 bcm, compared to a 5 bcm y/y increase in H1 17. We remain bullish on Chinese LNG takes across 2018 and forecast 14.5 Mtpa of incremental takes y/y.

South Korean imports were up by 0.3 Mt y/y (9%) y/y to 3.8 Mt due to low nuclear and coal-fired generation, and restocking efforts. Hot weather and coal-fired capacity constraints caused by air quality restrictions should provide support for LNG imports in July, helping offset higher nuclear availability. We think LNG takes will be higher y/y by 0.5 Mt in July and by 1.7 Mt across Q3 18.

Japanese LNG imports dropped by 0.64 Mt y/y (10.3%) in June—despite unseasonably hot weather—owing to increased nuclear availability cutting power sector gas demand. Given the 4.7 GW of nuclear capacity that has returned to service since March, power sector gas demand should continue to ease, although hotter-than-normal weather could negate this. We now forecast that Japan will import 0.24 Mt more LNG in Q3 18 y/y but 1.3 Mt less y/y in Q4 18.

Indian LNG imports rose by 0.53 Mt y/y (39%) in June, despite mixed fundamentals, as Gazprom delivered its first cargo to India under its long-term contract. Underlying power sector gas demand fell, and with hydro levels replenishing, it is unlikely the next few months will see any uptick in power sector gas demand. We expect India to import 2.8 Mt more y/y in 2018, although there are potential headwinds to growth because of delays to new regas capacity.

MENA LNG imports rose m/m to 1.16 Mt in June as high summer temperatures hit the region. But even with temperatures higher than seasonal norms across all of the main importers, takes were 1.0 Mt lower y/y in June, primarily driven by lower Egyptian imports. Peak summer cooling demand will provide some support over Q3 18, when we expect the region to import 4.6 Mt, although this will still be lower y/y by around 0.8 Mt.

In June, Latin American LNG imports stepped up by 0.1 Mt y/y to 2.2 Mt. A cold southern hemisphere winter in both Chile and Argentina, low hydro reservoir levels in Brazil, and ongoing infrastructure delays in Mexico supported LNG takes.  Over H2 18, we expect imports at 9.1 Mt (+0.6 Mt y/y) before dropping by 0.9 Mt y/y to 15.9 Mt in 2019, on expectations of stronger domestic gas production in Argentina and Brazil.

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