We expect that South Asia will enter a period of higher growth in LNG imports, up by 5.6 Mt y/y in the injection season (33%), as we move into summer and leave behind a very muted Q1 19 in terms of its LNG takes. Downstream infrastructure remains a constraint in India and helped lead to a 0.27 Mt y/y (14%) decrease in LNG imports there in March. However, some of those constraints seem to be easing and should facilitate a move back to higher demand y/y. Also, spot LNG imports in March were being priced off Dec-18 and Jan-19 JKM prices, which both came in on average around 8-9 $/mmbtu—expensive for the South Asian markets. With the JKM pricing more keenly for the summer 2019 contracts, at around 6 $/mmbtu, we expect more demand from South Asia. Lower LNG prices (below 6 $/mmbtu since March) and infrastructure debottlenecking mean we forecast Indian LNG demand to increase by 2.5 Mt y/y over all of 2019. Bangladesh will import 3.3 Mt in 2019 according to our forecast, which is stacked towards H2 19 after the April arrival of the country’s second FSRU. We project Pakistani imports will grow by 2.7 Mt y/y (40%), though the country’s macroeconomic troubles lend some downside risk to that figure.
One of the main factors that led to a 0.27 Mt y/y (14%) decline in Indian LNG takes in March is continued infrastructure constraints. Upgrades to existing terminals seem most likely to relieve that pressure. India’s main terminal, Dahej, which is well connected to the Indian grid, has been operating above nameplate capacity in 2019. Pressure on that capacity should ease when its 2.5 Mtpa expansion is completed in June. Flows through the 5.0 Mtpa Kochi terminal remain modest, with only 0.07 Mt imported over Q1 19, as the terminal is still awaiting the completion of the 879 km Kochi-Mangalore pipeline seven years after its initial start-up. The pipeline, which has faced repeated delays, is now only expected to be completed in May. The terminal should see utilisation rise to 40% upon completion of the pipeline, equating to up to 2 Mtpa, a 1.5 Mtpa increase y/y. We note local opposition to pipelines is still an issue and India’s oil ministry has indicated its in-service date could slip further. Kpler data suggest that April flows so far have been 0.14 Mt, the highest monthly imports into the terminal since August 2017.
The new 5.0 Mtpa Ennore regas terminal will take only its second cargo in May, despite beginning commissioning in February, as it is only connected to three customers (Chennai Petroleum, Madras Fertilizers and Tamil Nadu Petroproducts). The downstream pipelines needed to expand the Ennore customer base are still expected to be two years away, although the terminal will likely provide up to some 0.3 Mtpa of incremental demand this year. H-Energy’s 4.0 Mtpa FSRU at Jaigarh has an open tender for its first delivery, in May. The new FSRU will only use a maximum of 2.0 Mtpa of its capacity until some 635 km of pipelines are completed to link the facility to India’s gas grid, which will not happen until 2021 at the earliest.
A further headwind to uptake of LNG in India is strong hydro-electric generation, which grew by 1.82 TWh y/y (26%) in March and has cut gas-fired output’s share of the power market. Hydro stocks remain above 2018’s levels, indicating further gains from the sector are likely in Q2 19. In March, generation from thermal fuel sources fell y/y, with a 0.5 TWh y/y (1%) decrease in coal-fired output and a 0.3 TWh y/y (7%) plunge in gas-fired generation. Given that India imports most of its LNG under long-term deals, we believe JKM prices would need to be below 5.00 $/mmbtu this summer for spot cargoes of gas to begin pricing out coal imports. While front-month JKM prices have plumbed sub-5 $/mmbtu, summer 2019 prices stood at an average of 5.67 $/mmbtu on 23 April. Should JKM prices stay near 5.67 $/mmbtu, India will likely see minimal coal-to-gas fuel-switching (see Insight: Where is South Asia’s fuel switch? 8 March 2019). Regardless, growth in Indian gas demand will come from other sectors, such as industrial demand.
Growth outside of India clearer
South Asia as a whole did see higher LNG imports in March y/y, by 0.23 Mt (9%). Bangladesh, which imported 0.36 Mt in March, will continue to see higher volumes after the April arrival of its second FSRU, the 3.8 Mtpa Summit facility, which was loaded with an initial cargo upon arrival. Given the use of oil-generation in Bangladesh’s power sector and the low price of LNG, a fast ramp-up of the new FSRU will be likely, provided there are no lengthy delays to the construction of connecting pipelines. State-owned Petrobangla stated it is on pace to complete 260 km of pipelines to Dhaka by early May for Summit’s full start-up. Any delay could be compounded though, as the start of the rainy season in June would severely hamper construction efforts in that wet season. Bangladesh currently utilises just 40% of its gas-fired power generation capacity due to gas availability issues. Should Petrobangla achieve its goal to connect Summit to Dhaka by end-May, gas will likely begin to push out some fuel oil use in the country’s power market.
Pakistan—which imported 0.64 Mt of LNG in March, up by 0.15 Mt y/y (30%)—is still searching for new long-term supply contracts. Its dwindling foreign exchange reserves and current account deficit have left the country wary of expanding its Brent-indexed deal with Qatar. A bilateral summit with Malaysia in late March failed to produce an LNG agreement. Talks are also underway with a Saudi delegation on new volumes via Aramco's new LNG trading operation. Another solution being examined by Pakistan is expanding its current deal with Qatar from 4.0 Mtpa to 5.5 Mtpa, although this is thought to be too expensive an option given the current Qatari deal is Brent-indexed. Pakistan requested an IMF loan in October to help manage its deteriorating foreign exchange reserves and a ballooning current account deficit. The macro difficulties could limit how many spot cargoes Pakistan opts for this summer, but the lower prevailing LNG prices will make it a favoured fuel over oil products in the generation mix.
For the region as a whole, we expect that LNG imports will be up y/y by 5.6 Mt (33%) over summer 2019 and by 7.0 Mtpa (19%) across 2019.