Global LNG Fundamentals

Published at 08:14 29 Sep 2015 by . Last edited 11:17 22 Aug 2019.

In August, LNG imports were generally weak across the main Asian demand centres. Chinese LNG imports returned to y/y declines, down by 0.17 Mt (-11%) to 1.41 Mt. Takes were also lower y/y in South Korea (-16%) and India (-3%). Japan posted its first y/y increase in imports in 2015, although it was a marginal one (0.2%).

Chinese LNG demand weakened over August after two months of positive growth. Chinese demand has been disappointing this year, with LNG imports down by around 0.45 Mt (-3.5%) y/y over the first eight months of 2015. With El Nino conditions promising another milder than average winter, the strength of Chinese LNG demand over the coming two quarters will largely depend on how cold temperatures get. In addition to the bearish weather forecast, China has added 22 GW of low carbon generation this year, which could provide further headwinds to LNG demand growth going forward.

The outlook for Japanese and Korean demand remains muted. The restart of the Sendai nuclear plant’s Unit 1 in August means that nuclear power has begun to return to Japan, which will weigh on LNG. In addition, weather forecasts continue to look unsupportive over the next two quarters due to El Nino. In South Korea, LNG imports have also been dampened by mild weather and nuclear restarts. In addition, burning coal in power plants remains much cheaper than LNG. Given these factors, the outlook for LNG demand in both countries remains poor.

Indian LNG imports fell by 0.04 Mt (-3%) y/y in August. New gas infrastructure updates have recently emerged in India, including news that GAIL has commenced welding work on its Jagdishpur-Haldia pipeline. In addition, reports have surfaced that the infrastructure needed to improve the utilisation of the Kochi LNG facility has been delayed beyond Q4 15. Given these developments, we now expect 2015 LNG imports to be down by around 0.3 Mt (-2%) y/y, rather than flat.

Total Latin American LNG imports fell in July, with y/y declines seen in the major importing countries. August weather in Latin America was mild, which indicates LNG demand was likely weak once again. Initial August data for Chile indicate LNG imports grew y/y by 0.08 Mt (32%) to 0.34 Mt. Indeed, Chile remains the only promising country for LNG demand in Latin America, which could still see some demand upside this winter. But various headwinds suggest y/y demand increments are likely to be short-lived even in Chile.

In terms of supply, the Yemen Balhaf terminal remains offline, while other exporters continue to struggle, with y/y losses still being recorded from Algeria, Indonesia, Oman and Trinidad. Egypt and Angola both remain shut-in. However, the market will begin to feel the force of the new liquefaction terminals in Q1 16, with export volumes expected to be up by 7 Mt y/y in that quarter alone. Even if Europe gets cold this winter, regional gas prices are still unlikely to go much above the 44 p/therm (6.7 $/mmbtu) level prevailing in Russian oil-indexed contracts given Russia’s capacity to increase exports if required. If northeast Asia has another mild winter, LNG prices would need to go below that level to push spot gas back to Europe, a phenomenon we expect to emerge in Q1 16.

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