Fundamentals

Published at 15:58 26 Feb 2016 by . Last edited 11:17 22 Aug 2019.

LNG demand was mixed in January across the main importing countries. In Northeast Asia, Japan and Korea continued to post y/y declines, with takes down by 1.19 Mt (-14.1%) and 0.73 Mt (-17.7%), respectively. China, on the other hand, saw its imports increase strongly, up by 0.34 Mt (16%) y/y. India has also been seeing good growth, and imports were up y/y in January by 0.28 Mt (24%). In Latin America, although imports were up y/y in Chile, Argentina, and Brazil, a large 0.14 Mt (-31%) y/y decline in Mexican imports meant total imports into the region fell by 0.06 Mt (-5%) y/y.

In January, Chinese LNG imports were up again strongly as gas demand increased on below normal temperatures (HDDs up by 14% y/y) and the November pricing reforms. However, despite the cold start to the year and the gas price adjustments, we still see only modest growth in underlying gas demand, as a result of forecasts for warmer weather, and the general slowdown in economic activity observed as a result of the Lunar New Year. We have revised 2016 LNG demand up from 1.3 Mt y/y to 1.7 Mt, with another 1.8 Mt y/y in 2017.

India also saw healthy LNG imports. Gas-fired generation increased marginally in India in January, up by 0.69 TWh (22%) y/y, while domestic gas production fell sharply by 0.43 bcm (-15%) y/y. This suggests that the additional LNG imports are largely making up for the decline in domestic gas production, rather than gaining a bigger share in the Indian power market. For 2016, we expect 1.3 Mt (7%) of incremental imports as a result of infrastructure enhancements and lower LNG prices.

Japanese LNG imports continue to shrink y/y, in contrast to the stronger demand seen in China and India. Nuclear restarts remain the culprit, with the Takahama Units 3 and 4 now in commercial operation. We are now forecasting that Japanese LNG imports will be down by another 3.5 Mt in 2016 and by 2.2 Mt in 2017, with the y/y reductions largely driven by the impacts of greater nuclear plant availability. The 2016 forecast was revised further downwards on the basis of the even weaker than expected January numbers.

In South Korea, LNG imports dropped despite colder than average weather in January, with 8% more HDDs y/y. The colder weather did contribute to the 0.18 Mt (7.4%) increase in residential and commercial gas demand, with that demand met by drawing on existing supplies (0.79 Mt implied storage draw in January). The Korean Meteorological Agency (KMA) however, predicts warmer than average weather for South Korea through to mid-March, which is unsupportive of a continuation of a draw on inventory.

Overall, with the Sabine Pass maiden cargo now on the water, and the start-up of Australia’s Gorgon now imminent, the LNG supply wave is just beginning to swell. We forecast supply will increase by 21 Mt (9%) y/y, while we expect demand to grow by around 16 Mt (9%) y/y.

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