Fundamentals

Published at 19:45 31 Aug 2018 by . Last edited 15:12 5 Nov 2018.

The heatwave that swept across Asia in July lifted LNG imports that month. Subsequent restocking efforts should continue to support port receipts into the region for the rest of this summer, partially offsetting some gas demand lost due to higher nuclear availability in Japan and South Korea. Import momentum into China— by far the largest demand story this year—will receive another boost from the commissioning of two new import terminals in August. Although July takes into Japan and South Korea were unchanged y/y, that flat reading was still notable given that nuclear availability in both countries is considerably higher y/y. Our forecast for Indian takes remains stable, although if monsoon rains remain strong, higher hydro generation could shave off some y/y import gains. We have revised upward our Latin American LNG imports forecast based on expectations that LNG will continue to backfill Mexican demand, and low Brazilian hydro stocks will support gas into power.

Chinese LNG takes, at 4.15 Mt, grew by 1.03 Mt y/y (33%) in July. Stronger baseline demand from industrial users continues to raise concerns about how high winter demand and potential supply shortfalls might be. Suppliers are looking to increase supplies and improve their midstream infrastructure. In early August, two new import terminals—ENN’s 3 Mtpa Zhoushan and CNOOC’s 4 Mtpa Diefu—commissioned their first cargoes and the majors are working to link up their midstream assets to ensure greater flexibility of supplies.

South Korean LNG imports were largely flat y/y at 2.75 Mt in July. Still, record-high temperatures provided some support for power sector gas demand and led to a net LNG stockdraw. Hot weather likely supported aggregate power demand in August but the effect on gas demand in power will be more muted given that available nuclear capacity was much higher y/y this month. We expect total Q3 18 imports to be 1.37 Mt higher y/y.  Japanese LNG imports were also flat y/y in July at 6.8 Mt, although restocking efforts in August should be brisk. We forecast that Japan will import 0.18 Mt more y/y in Q3 18. In Q4 18, we expect imports to drop by 1.3 Mt y/y on mean temperature reversions and higher nuclear availability.

LNG imports to India grew by 0.41 Mt (29%) y/y in July, the fifth straight month of y/y gains as multiple cargoes again arrived from the US. Despite the growth in imports, gas use in the power sector fell for the second consecutive month. Delays constructing pipelines downstream from new regas terminals, combined with the potential for high gas prices to persist into 2019, could serve as roadblocks on India’s path to meeting our projection for 3.0 Mtpa in y/y gains in 2019.

Latin American LNG takes rose by 0.6 Mt y/y to 2.4 Mt in July due to bottlenecking in the Mexican pipeline system, lower hydro reservoir levels and warmer-than-normal weather in Brazil, and low temperatures in Chile. We now forecast Latin American LNG imports in 2018 to grow y/y by 1.0 Mt to 17.4 Mt, 0.8 Mt higher than our previous forecast.

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