Both South Korean res-com and power sector gas demand were stronger y/y in October, but LNG imports were a considerable 1.0 Mt (37%) higher y/y at 3.8 Mt, helping the country post yet another hefty stockbuild. While we expect LNG imports to be broadly flat y/y in November, the region is likely to post another early winter net stockbuild owing to exceptionally mild weather and more nuclear capacity. From November onward, we should see a substantial y/y decline in power sector gas demand owing to higher nuclear availability, easing the supply-demand balance and helping preserve stocks. We forecast that LNG imports will be broadly flat y/y at just under 3.4 Mt in November and will drop by 0.24 Mt y/y (6%) in December.
Strong late summer imports swelled South Korean LNG stocks, leaving them marginally higher y/y by the start of October. Aggregate gas demand was higher y/y in October, largely driven by unusually low temperatures which were at odds with generally warmer-than-normal conditions in most of the rest of NE Asia. The persistence of high nuclear outages, up by 0.7 GW y/y, also increased the call on gas by the power sector, which was up by a hefty 0.4 Mt (52%) y/y. Despite strong end-user demand, higher LNG imports allowed the country to still make a robust early winter stockbuild, pushing stocks to roughly 4.1 Mt by the start of November, up by almost 0.4 Mt y/y and the highest with which Korea has ever started the heating season.
The high stock level will colour LNG takes for the rest of Q4 18, with South Korea in a comfortable position for winter, while November demand will be far less robust than seen in October. Temperatures have been unseasonably high so far this month and are forecast to remain so for the next two weeks, putting the country on track to have the mildest November since 2011, with HDDs 31% lower y/y and 20% below the past five-year average, which will drive res-com demand down y/y. In the power sector, some nuclear capacity has started to come back online. While 6.7 GW of nuclear capacity is currently offline this month, that is 2 GW less y/y. With the low HDD count also dampening total power consumption, we should see a notable y/y drop in power sector gas demand this month, for the first time in a year. We expect LNG imports in November of just under 3.4 Mt, almost flat y/y.
Indeed, from November onward, we should see a sustained drop in power sector gas demand every month for the next year owing to more available nuclear capacity, although we do expect to see some substantial extensions to outages, given historical precedent. For example, in early October, KHNP had 3.4 GW of nuclear capacity scheduled to be offline in November, or 14% of total capacity, but that was revised to 6.7 GW by the start of November. KHNP currently has outages scheduled at 6 GW for December, owing to the return of the 0.7 GW Wolsong 1 unit. However, this does not seem to take into account the company’s announcement in mid-October that the Wolsong 1 reactor has been permanently shut down, citing economic reasons and heightened safety restrictions. The reactor, which was commissioned in 1983, originally had a planned retirement date of November 2012. However, KNHP had previously successfully sought an extension to operate through to November 2020, having invested 56 billion won (49 million US dollars) to upgrade the plant. The latest decision to close the plant has come under heavy criticism from officials in the nuclear industry and from the KHNP union, with claims that KNHP has purposefully underestimated the economic efficiency of the plant and shutdown costs to justify the decision.
Unavailable nuclear capacity in January is so far scheduled to drop to 5 GW, a massive 5.4 GW less y/y, so even some delays would still likely result in a y/y increase in available nuclear capacity. Also, KHNP still indicates that the 1.4 GW Shin Hanul U1 will be online in December. It is unclear if fuel loading has happened yet and, if it has not, then that start-up is out of the question. We have not scheduled that plant for a start-up this year and expect that it will not be online until H2 19 given the lack of update on fuel loading. But without that new plant online and even if there are some extensions to existing outages, we should see a substantial y/y decrease in power sector gas demand owing to the high level of outages last year. Lower gas into power paired with a reversion to mean weather should result in large decreases in gas demand across the winter. The Korea Meteorological Administration is forecasting a greater chance of normal or above-average temperatures for December and January.
Given the reasonably bearish short-term outlook for Korea, we expect total Q4 18 imports to be up by only a small 0.8 Mt (8%) y/y, with all of the y/y rise due to October’s strong receipts. However, we expect that all of this gain is LNG previously bought on expectations of normal winter weather and the mildness of November will just mean that Korea will have no real appetite for additional spot cargoes at all during Q4 18. We expect that Q1 19 imports will drop off by 1.7 Mt (13%) y/y due to the persistence of robust storage levels, although a deep cold spell in December or January could force the country back into the short-term markets for added cargoes to be delivered in February or March.
|Fig 1: Unavailable nuclear capacity, GW||Fig 2: Korean LNG stock movement, Mt|
|Source: KHNP, Energy Aspects||Source: JODI, Energy Aspects|