Global LNG Fundamentals

Published at 10:32 28 Oct 2015 by . Last edited 11:17 22 Aug 2019.

In September, LNG demand was generally weak across Northeast Asia. Chinese LNG imports continued to post y/y declines, down by 0.1 Mt (-7%) to 1.29 Mt. Takes were also lower y/y in Japan, where imported volumes declined by 0.35 Mt (-5%) to 6.92 Mt. South Korea was the only country in Northeast Asia to post y/y growth, with imports increasing by 0.3 Mt (13%) to 2.6 Mt. India also saw some improvement in demand, with PPAC numbers indicating imports up by 0.16 Mt (13%) in September.

Chinese demand continues to disappoint, with LNG imports down by around 0.59 Mt (-4%) y/y over the first nine months of 2015. This year’s strong El Nino event has produced milder than average summer temperatures in China, which have weakened demand. Looking ahead, El Niño is also promising a warmer than average winter in China, which is not overly supportive of demand. In addition to the bearish weather forecast, China has added 24 GW of low carbon generation this year, which could provide further headwinds to LNG demand growth going forward.

Another challenge for LNG is that nuclear power continues to recover slowly in Japan, with the Sendai nuclear plant’s Unit 2 restarting in October. Nuclear generation should be higher over Q4 15 as a result, which is further bearish news for LNG imports. Apart from the second Sendai unit, no other plants appear likely to come online before H2 16. In addition, as in China, weather forecasts continue to look unsupportive over the next two quarters due to the effects of El Nino.

Although South Korean imports were up y/y last month, the country’s broad demand story remains weak. Similar to Japan, nuclear restarts and mild weather will weigh on the country’s appetite for LNG. In addition, burning coal in power plants remains much cheaper than LNG.

Indian LNG imports rose in September as the country experienced hotter than average weather. Although we forecast imports will be down y/y by 0.3 Mt this year, the outlook looks rosier for 2016 and 2017, when the completion of new infrastructure projects (the Jagdishpur-Haldia and Kochi-Bangalore pipelines) should support more incremental demand.

In Latin America, August LNG imports were lower y/y by 0.29 Mt (-15%) at 1.69 Mt. Brazil accounted for the majority of the losses, with imports down by 0.23 Mt (-38%) y/y while Argentina’s declined by 0.03 Mt (-6%). Chilean takes were largely unchanged y/y. Mexico was the only major country in the region to post a y/y increase, with imports up by 0.05 Mt (15%). Initial September data for Chile indicate LNG imports were up y/y by 0.02 Mt (12%) at 0.23 Mt.

Global prices have recently weakened on new incremental supply being offered into a market affected by weak underlying demand, as evidenced in the September data. Although prices may see a brief period of support as we enter the heating season, they are unlikely to stay higher for long as a wave of new supply is about to hit the market. The new supplies are coming in Q1 16 with Sabine Pass, Gorgon, Angola, and PFLNG (Petronas) all commissioning, and Yemen (Balhaf) potentially restarting, depending on the direction of the conflict in that country.

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