South Korea has returned to building LNG stocks as it looks ahead to the peak summer period. The stockbuild could well continue in June, as an outlook for slightly cooler temperatures than normal and higher nuclear availability promise to keep end-user gas demand modest. The y/y increases in nuclear are now starting to leave the market, with Q3 19 scheduled outages back to very similar levels to last year. Given how hot last July and August were, underlying power demand could soften, and more renewables will be a headwind to getting more gas into that power mix. A strong stockbuild now, followed by a more muted peak summer period for gas demand, could well temper the autumn stockbuild and keep LNG growth in the country in check for the rest of the summer. Over Q3 19 we remain unsupportive of LNG import growth, instead expecting Korean imports to drop by just over 0.5 Mt y/y.
Following the somewhat unexpected 0.2 Mt y/y increase in LNG takes in April, Korea repeated the trick with another 0.2 Mt y/y increase in its May LNG imports. While April actually had y/y stability in its gas demand, May was more in line with expectations of a y/y fall in gas demand.
Warmer May temperatures, with CDDs up by 31% y/y and 55% above the five-year average, did little to boost power sector gas demand. That power sector gas demand came off by 0.19 Mt (15%) y/y, which was an expected loss given that South Korean power sector gas demand will be pressured all summer owing to higher nuclear capacity availability. June nuclear outages are now scheduled to be higher than last month at 4.3 GW—up from the 3.3 GW previously scheduled. While June is still providing higher nuclear availability y/y by 2.3 GW, it is the last month this summer to be scheduling fewer summer outages. Over Q3 19, nuclear outages are now scheduled to be higher by 1.9 GW in July and largely unchanged y/y over August and September. As such, any displacement from power will be less than we previously assumed.
With new renewable capacity some 2.9 GW higher y/y, the fairly steady 0.5 TWh y/y or so rise in renewable generation we saw across Q1 19 looks likely to stretch into summer. However, with fewer y/y differences in nuclear availability, thermal generation displacement will fall off after June.
|Fig 1: LNG imports non-Kogas terminals, Mt y/y||Fig 2: Korean LNG stock movement, Mt|
|Source: Berkeley Earth, Energy Aspects||Source: JODI, Energy Aspects|
A hot summer could help that power demand increase, although the forecasts for the rest of June indicate that CDDs should come in some -5% below the five-year average, about 4% above last year. July looks normal, so while there will be cooling need, it is unlikely to be up y/y given last July saw CDDs 22% higher than normal.
Given the competition from non-thermal generation, the demand side does seem weak, and another month of higher LNG imports would keep LNG stock levels from being much higher than usual. Even with a reasonably big reduction in LNG imports in June, with us forecasting a 0.5 Mt reduction y/y, that will need to be absorbed by a relatively big offsetting increase in storage levels of 0.6 Mt. In turn, that would be bearish for Q3 19 takes, with some of the September and October takes likely to be lower y/y. Those late summer injections would likely be only 1.2 Mt over the two months, compared to 1.7 Mt last year.
Flows through non-Kogas terminals stay strong
Flows through the non-Kogas terminals of Boryeong and Gwangyang have generally been healthy this year, coming in around one cargo higher (0.06 Mt) y/y over the first five months of the year. The low level of spot pricing in the LNG market should be felt most acutely through this terminal, as the capacity holders here have far fewer long-term contracted volumes than Kogas. We expect that this increased level of imports will continue, but the lack of much spare storage capacity at those terminals means any upside will be limited.