South Korean LNG imports in June fell by a hefty 0.53 Mt (14%), yet stocks are even higher y/y than they were at the start of the quarter. July should see the region post its only storage draw this summer owing to a short stint with lower nuclear capacity y/y. Revisions to the nuclear maintenance schedule—including the return of the 1.4 GW Shin Kori unit 4—now show nuclear capacity higher y/y in August and September, making the summer LNG balance even more bearish. This means that even with a sustained y/y reduction in LNG imports across the rest of the year, South Korea will enter peak winter with record-high LNG stocks. We have revised down our Q3 19 LNG import expectations to 8.6 Mt (-0.4 Mt y/y), from 8.8 Mt last month.
A loose global supply-demand balance this year has left South Korean storage high for mid-summer. The mild early summer and heavy, sustained power sector gas demand losses y/y because of increased nuclear capacity resulted in a sizable 1.13 Mt stockbuild in Q2 19, the second-highest for the time of year in the last five years. Our balances show that South Korean stocks ended June 0.7 Mt higher y/y, and end-July should see that stock surplus draw down to around 0.3 Mt higher y/y due to a rare power sector gas demand boost. July is the first month since October in which nuclear capacity is scheduled to be lower y/y (by 1.7 GW) and it is the only month this summer in which we expect to see a stockdraw.
Come August, however, recent changes to the nuclear maintenance schedule paint a very bearish picture for summer LNG demand. Nuclear capacity, previously set to be flat y/y for the rest of the quarter, is now due to be up by an average of 1.2 GW y/y across August and September. Combined with the broadly steady 0.6 TWh y/y rise in renewable generation that we have seen across most of this year, power sector gas demand losses in Q3 19 will be deeper than previously forecast.
The weather in South Korea has been unseasonably cool so far this month, and CDDs across the rest of July are forecast to be 35% lower y/y and 10% below the seasonal norm. But with so much additional nuclear capacity online this summer, weather-driven changes in aggregate power sector demand were already expected to have much less impact on gas demand than in previous years, when gas-fired plants made up more of the generation mix.
Policy will eventually boost renewable capacity
The government draft of its 2019 energy plan, which was released in Q2 19, aims to boost renewable energy to between 30% to 35% of total energy supplies by 2040. The 2019 energy plan also features a bigger role for gas-fired generation, while the government will look to reduce the importance of coal-fired generation and maintain its position of not extending the lifespan of existing nuclear power plants.
Installed renewable power (wind and solar) capacity is around 14.2 GW (+2.5 GW y/y) and renewables have been responsible for some 7% of power generation over the first five months of 2019, compared to 5% the same time last year. Since January 2019, around 0.8 GW of new renewable capacity has been added to the system, which will only have a limited impact on the need for thermal generation. Over the first five months of the year, coal-fired generation has fallen by 12.4 TWh y/y while gas-fired generation has fallen by 7.7 TWh y/y. The reduction in both forms of thermal generation was largely driven by a heavy increase in nuclear generation of 17.5 TWh y/y due to less nuclear capacity being offline for maintenance. In comparison, the growth in renewable generation has been a more modest 3.0 TWh y/y. Total power generation was down by 1.4 TWh y/y largely due to less supportive weather and economic growth not being strong enough to counter that impact.
Modest growth in Korean power demand will continue amid a global macro outlook for slower growth and forecasts calling for an unusually cool summer. With more nuclear capacity available, the trends in the power sector of H1 19 are likely to persist for most of Q3 19.
|Fig 1: Korea power generation by source, TWh||Fig 2: Korean LNG stock movement, Mt|
|Source: KEPCO, Energy Aspects||Source: JODI, Energy Aspects|