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The US will be the largest incremental contributor to global LNG supply at the start of 2019, with Sabine Pass T5 and Corpus Christi T1 adding 1.4 bcf/d combined to US export capacity. We forecast that much of the new US volumes not already under contract will find a home in Europe, with the continent’s LNG imports set to grow by 3.3 bcf/d during summer 2019. The narrowing of the JKM-TTF spread to under $1.00/mmbtu along with still high freight rates ($160,000/day) mean more attractive margins for spot US gas into Europe than Asia. The narrowing of the spread has in part been driven by a mild start to the Asian winter allowing importers to preserve stocks heading into 2019. Japan and South Korea will combine for a 0.6 bcf/d decline in LNG imports during summer 2019, as higher nuclear availability fuels their respective power markets in place of gas-fired generation. There is also downside risk to imports outside of East Asia. Egypt has not taken a cargo since September, as it flips to being a net exporter of gas in 2019. Bangladesh and India face infrastructure issues—Bangladesh from maintenance at FSRUs, India from a lack of downstream pipelines—that could limit 2019 gains. Even with these downside risks to demand growth, we expect the global market to be able to absorb US LNG in 2019, with Europe to serve as the residual taker.
US LNG export capacity took a leap forward in late November as Corpus Christi T1 began producing LNG. The 0.7 bcf/d (4.5 Mtpa) facility is set to load its first cargo in December and has seen flows average 0.5 bcf/d as it ramps up towards full utilisation. Corpus Christi T1 is the first of two Cheniere facilities that are set to start up before the end of 2018. Sabine Pass T5 continues to take feedgas as it moves towards commercial service. Though it is difficult to isolate flows to the new train on its own in flow data, Sabine Pass has seen flows to the full facility rise above the nameplate capacity of the first four trains by 0.2 bcf/d since the middle of November. Given Cheniere’s track record of placing trains into service approximately 170 days after initial feed gas is started, Sabine Pass T5 should come online sometime in the coming weeks.
Much of the new US supply that is not currently under contract will be bound for Europe, as the continent is ready to absorb whatever excess spot volumes the US sends its way. We forecast European LNG imports will grow by 1.3 bcf/d (4.2 Mt) y/y this winter, rising to 3.3 bcf/d (10.8 Mt) in y/y growth during the 2019 injection season.
Softness in the 2019 summer JKM-TTF spread, which peaked above $1.50/mmbtu in October before falling to $0.79/mmbtu on 6 December, along with spot freight rates that are still up at a $160,000/day-high have made Europe a more attractive destination for US LNG (see Monthly: Global LNG – JKM softening, 8 November 2018).
We forecast Asian LNG demand will edge up by 0.8 bcf/d (2.7 Mt) y/y this winter, down from 1.2 bcf/d (3.8 Mt) in last month’s forecast thanks to a mild start to the Asian winter. Japanese HDDs in November were down by 20% y/y and were 11% below the five-year average. China saw a more limited decline, with HDDs for the month 1% behind both the 2017 total and the five-year average. This has left Asian stocks preserved at high levels heading into 2019 after the region bulked up on LNG in preparation for the cold. Our balances point to 2.7 bcf/d (8.7 Mt) of y/y growth in Asian LNG imports during the 2019 injection season, with China making up the lion’s share of the gains at 1.9 bcf/d (6.2 Mt) y/y.
Outside of China, LNG demand among several importers is running into structural problems. We forecast MENA demand will fall by 0.6 bcf/d y/y (2.0 Mt) during summer 2019, as Egypt flips from a net importer to a net exporter of LNG. The country took in no cargoes in October as its total gas production hit a record 6.6 bcf/d. Further east, LNG growth in South Korea and Japan will hinge on the availability of nuclear generation. In Japan, the late October restart of the 0.9 GW Ikata 3 reactor, combined with 4.7 GW of 2018 nuclear restarts, will reverberate into 2019, leading to our projection of flat growth in LNG imports. Lower levels of projected nuclear outages in South Korea will see that country’s LNG intake slip by 0.6 bcf/d y/y for the 2019 injection season.
The biggest question marks surrounding 2019 demand are in South Asia. Bangladesh, which had its first import cargo delayed from April to August by rough seas and technical issues at its lone FSRU, has had a troubled start to its life as an LNG importer. The difficulties at that FSRU, a 0.5 bcf/d (3.5 Mtpa) facility at Moheshkhali, have seen state-owned energy firm Petrobangla scrap plans to pursue future FSRUs. The lone exception is the 0.5 bcf/ FSRU from Summit LNG, which is expected to start in Q1 19. The cancellation of the other projects will leave imports capped by a lack of infrastructure development out through the next three years at least. India likewise is running into infrastructure issues. While its 0.75 bcf/d (5.0 Mtpa) Mundra regas facility was inaugurated in October, it has yet to receive a cargo and there are currently no tankers scheduled to load at the facility, with reports suggesting that a dispute between the port operator and the terminal owner will lead to an indefinite delay. India’s other new facility, the 0.75 bcf/d Ennore facility, is undergoing commissioning, but will see a slow start-up when completed due to a lack of downstream pipelines. We forecast South Asia will add 1.1 bcf/d (3.7 Mtpa) in imports in the 2019 injection season.
Of course, much will depend on weather. A swing towards colder temperatures in Asia over the second half of this heating season could see inventories depleted and more cargoes diverted that way. Even with some upside risk to y/y growth figures in Asia, Europe will still need to serve as a demand backstop for US LNG in 2019 and 2020 given the pace of supply additions do look set to outpace the growth in global demand. With EU appetite for LNG unlikely to be fully satisfied in summer 2019, the arbs between Henry Hub and the TTF/NBP should stay open.
|Fig 1: Japanese HDDs||Fig 2: Unavailable South Korean nuclear capacity, GW|
|Source: Bloomberg, Energy Aspects||Source: KHNP, Energy Aspects|