February LNG demand was once again a mixed bag across the main importing countries. In Northeast Asia, Japan and Korea continued to post y/y declines, with takes down by 0.3 Mt (-3.8%) and 0.1 Mt (-2%), respectively. In contrast, Chinese imports increased y/y by 0.19 Mt (11.5%) to 1.85 Mt, a smaller gain compared to January’s growth of 0.34 Mt (16%), but in line with our forecasts. Indian imports continue to look strong, higher y/y by 0.51 Mt (61%) in February. In Latin America, total LNG imports declined y/y in February, with all countries posting disappointing numbers except Argentina, where a y/y increase of 0.03 Mt (35%) came as something of a surprise against a backdrop of higher domestic production and a generally weak economy.
In February, Chinese LNG imports continued to see healthy y/y gains as gas demand increased on colder weather and the November pricing reforms. The latter have boosted gas demand by eroding the competitiveness of alternatives (particularly LPG and fuel oil). We still see modest growth in underlying gas demand underpinned by the recent price reductions—which should be evident throughout most of the year with some y/y gains in LNG imports. We have revised our forecast for 2016 demand y/y growth up from 1.7 Mt to 2.0 Mt due to deteriorating hydro levels, with another 1.8 Mt of y/y growth expected in 2017.
India continues to be the other LNG star this year, as the prevailing low prices are starting to stimulate demand. We believe the power sector has been the primary driver of the gains over the first two months of the year. Total power generation increased by 8 TWh (10%) in February, with gas fired generation up by 1.1 TWh (40%). Weak hydro generation has been behind some of the increase in gas (down by 0.7 TWh (-10%) y/y), as water levels in India’s most important reservoirs now stand at only 29% of total storage capacity, well below the 10-year average levels. For 2016, we have revised our forecast of Indian LNG imports upwards, primarily reflecting more power sector demand.
Japanese LNG imports continue to contract y/y, in contrast to the stronger demand seen in China and India. One moderately bullish development was the surprise court injunction issued against the operation of the Takahama 3 & 4 reactors (each 0.9 GW). Kansai shut down Unit 3 as of 10 March (Unit 4 was already offline, awaiting a fault resolution). Both will remain offline until the injunction is lifted.
South Korean imports also fell despite colder than average weather in February, with the country seeing 6% more HDDs y/y. The colder weather contributed to the 0.13 Mt (6.5%) increase in residential and commercial gas demand, which was met by drawing on existing supplies (a 0.48 Mt implied storage draw in February). The Korean Meteorological Agency (KMA) predicts warmer than average weather for South Korea through to mid-April, which is unsupportive of a continuation of the draw on inventory.
Globally, with Sabine Pass train 1 operational and Australia’s Gorgon now loading its maiden cargo, the LNG supply wave is just beginning to swell. The focus will remain on the demand side given the sheer weight of new supply entering the market in the coming five years.