The market has been oversupplied for the past few months, despite\nChina’s demand continuing to rise and a jump in deliveries to Europe. So what\nis the outlook for LNG demand for the coming summer and in the fourth quarter? <\/p>\n\n\n\n
With US LNG exports to ramp up over the second half of 2019, ICIS\ntakes a global view across the key importing markets.<\/p>\n\n\n\n
Softer summer in China? <\/strong><\/p>\n\n\n\n April marks the beginning of a lower demand season for domestic\nChinese gas. <\/p>\n\n\n\n Although the prompt spot LNG market into China is lucrative on paper\ncompared to domestic prices, high LNG terminal stocks and a lack of storage\ncapacity has curtailed spot demand. <\/p>\n\n\n\n LNG demand from industrial and chemical sectors has been dented by a\nraft of month\u00adlong plant safety inspections triggered by a recent major accident\nat a chemical plant.<\/p>\n\n\n\n A mild winter, which capped LNG consumption for winter heating, has\nalso contributed to high LNG terminal stocks. Chinese importers are trying to\nreduce these by cutting prices of truck-delivered LNG. <\/p>\n\n\n\n Spot LNG prices are lower than even the lowest city-gate price.\nPrices at coastal cities are much higher, with Shanghai at around <\/p>\n\n\n\n $8.7\/MMBtu. But most domestic city gas companies are unable to\nprofit from the ar\u00adbitrage, as they lack access to local terminals. <\/p>\n\n\n\n Chinese independent buyers Shenergy Group and Guanghui Energy do\nhave the ability to buy incremental spot cargoes. <\/p>\n\n\n\n But China remains the LNG growth market globally, and monthly\nincreases in LNG imports relative to one year ago are likely to continue. The\nmarket will closely monitor interest from the major Chinese buyers. <\/p>\n\n\n\n Nuclear impact on South Korea <\/strong><\/p>\n\n\n\n South Korea’s steady drop in LNG imports in the first quarter of\n2019 could continue into the summer even as concerns grow about air pollution\nfrom coal-fired plants and the government cuts taxes on LNG imports. <\/p>\n\n\n\n South Korea’s nuclear generation operated at close to 90% of total\ncapacity in early April, following the restart of two reactors at the Hanul\nnuclear power plant last month. South Korean nuclear availability is now higher\nthan at any point in 2018, reducing demand for LNG in the power mix. <\/p>\n\n\n\n Further nuclear additions are expected over the second half of 2019.\nSome dynamics of the South Korean energy market suggest a summer demand upswing\nfor spot prompt cargoes after a tax cut in LNG imports came into effect on 1\nApril as duties on imported coal were hiked. But sources are doubtful this in\nitself will drive a switch towards gas.<\/p>\n\n\n\n South Korea has shut four older coal plants with a capacity of 2.1\nGW from March to June to reduce air pollution. <\/p>\n\n\n\n The country relies heavily on coal for power generation and because\nof the sunk costs in existing plants, the country faces hard choices on pushing\nthe wider use of LNG, even as the world’s third-largest importer.<\/p>\n\n\n\n Last winter, rules came in to reduce the level of particulate matter\nto cut pollution on particularly bad days. This could see oil and coal power\nplant generation reduced with gas stepping in. But the measure was only\nimplemented on six days in the recent winter.<\/p>\n\n\n\n The huge capacity of incumbent KOGAS’ terminals still means\nopportunistic spot LNG buying can appear at short notice.<\/p>\n\n\n\n Japan manages oversupply<\/strong><\/p>\n\n\n\n Shipments to Japan were down by over 2m tonnes in the first three\nmonths of 2019 on mild winter demand and higher nuclear power generation, with\nlocal end-users facing high stocks at domestic terminals.<\/strong><\/p>\n\n\n\n Although Japanese buyers may buy incremental cargoes ahead of the\nsummer, spot demand<\/p>\n\n\n\n is expected to be capped as some utilities expect their inventories\ncould stay high. Japanese nuclear availability is expected to be up by about\n36% year on year, according to calculations by ICIS, up from around 49TWh in\n2018 to almost 67TWh in 2019.<\/p>\n\n\n\n But nuclear generation is expected to flatten out in the third\nquarter of 2019 to similar levels as the previous year as maintenance kicks in.<\/p>\n\n\n\n In the event of a sustained heatwave, as happened in last summer,\nLNG demand could rise back, with utilities leveraging gas generation at short\nnotice to cover demand for cooling.<\/p>\n\n\n\n 2019 will see Japanese buyers become more prominent in the US LNG\nmarket. Chubu Electric and Osaka Gas are the two largest marketers from Train 1\nat Freeport LNG, with Mitsui and Mitsubishi each taking a third of supply from\nthe Cameron LNG project.<\/p>\n\n\n\n Slow progress on Indian terminals<\/strong><\/p>\n\n\n\n India will remain an important source of spot demand for the rest of\nthe year, with buyers keen to absorb gas when the price is competitive relative\nto oil products. <\/p>\n\n\n\n But the domestic gas market has slowed and the outlook for\nadditional demand from new import terminals is limited.<\/p>\n\n\n\n Indian imports fell in the first three months of this year and local\nsources said the upcoming federal election, which will be held from April to\nMay, had curbed downstream gas consumption from the industrial sectors.<\/p>\n\n\n\n This resulted in high stocks at the Dahej and Hazira import\nterminals, which account for around 90% of India’s imports. <\/p>\n\n\n\n Developer H-Energy has tendered for cargoes into the new Jaigarh\nterminal from October 2019 but supply can be delivered to other Indian\nterminals in case of issues at Jaigarh.<\/p>\n\n\n\n Commissioning of the Mundra terminal also remains uncertain, with\nproject partners GSPC and Adani still working out a conces\u00adsion agreement\nbefore the project can pro\u00adceed to commissioning. <\/p>\n\n\n\n The Ennore LNG terminal on India’s east coast was commissioned in\nMarch, but is not expected to take more than two to three cargoes this year\nbecause of limited pipeline connectivity, said a source from operator Indian\nOil. Indian February gas consumption – the latest official data available –\ndropped to a two-year low, according to data from India’s Petroleum Planning\nand Analysis Cell, down by 2.1 % year on year. <\/p>\n\n\n\n Middle East not yet tempted <\/strong><\/p>\n\n\n\n Middle Eastern LNG buyers have not yet been tempted by lower prices,\npreferring to meet demand with pipeline supply where possible. <\/p>\n\n\n\n Kuwait was the biggest regional LNG importer in both 2018 and the\nyear to date. <\/p>\n\n\n\n State buyer KPC had approached the mar\u00adket in March with a tender\nfor April delivery but later withdrew it, and traders this week said it had not\nsignalled buying interest since. <\/p>\n\n\n\n The second-biggest buyer in 2018 was Egypt, but rising domestic\nproduction means the country has been selling cargoes via ten\u00adder rather than\nbuying them. <\/p>\n\n\n\n Domestic fertiliser producers in Egypt have reported much improved\nfeed gas to their plants this year. <\/p>\n\n\n\n Jordan is well supplied from Egyptian pipeline imports and a\nlong-term LNG contract with Shell. <\/p>\n\n\n\n The government restarted imports from Egypt in September last year\nand in Janu\u00adary signed a deal to increase flows to meet around half the\ncountry’s daily gas demand of 9.3mcm\/day, with the other half coming from the\nexisting 1 mtpa LNG supply deal with Shell and modest domestic production. LNG\nimports have fallen so far in 2019. <\/p>\n\n\n\n A source at the energy ministry doubted demand was high enough to\njustify spot cargoes, saying on Tuesday 9 April that Egyptian flows often\nexceeded their target, rising to as high as 6.2mcm\/day in recent days. <\/p>\n\n\n\n Regional gas consumption tends to peak in the third quarter, so\nthere is still time for spot demand to emerge. But with prices flat\u00adtening out\nover the past week, the cheapest cargoes may have already gone. <\/p>\n\n\n\n Europe back in the LNG mix <\/strong><\/p>\n\n\n\n Tight spreads between global LNG markets suggest Europe will remain\na preferred option for flexible and spot cargoes over the summer. <\/p>\n\n\n\n Recent European gas prices have been vol\u00adatile, driven up and down\nby coal and carbon. This in turn has influenced sentiment globally on LNG with\na correlation between gas and LNG likely to continue over the summer.<\/p>\n\n\n\n Northwest Europe can absorb LNG but domestic storage sites are well\nstocked and this could limit demand to move gas into storage over the summer. <\/p>\n\n\n\n Terminal utilisation rates, especially in the northwest, have been\nvery high so far this year, with limited scope for further increases in some\ncases. <\/p>\n\n\n\n Utilisation levels in Spain remain among the lowest in Europe. <\/p>\n\n\n\n Strong production from Yamal and a rise in Qatari deliveries to\nnorthwest Europe offer stern competition for other suppliers. <\/p>\n\n\n\n Switch to gas generation <\/strong><\/p>\n\n\n\n Germany’s gas-fired power generation is forecast to exceed hard coal\npower output in 2019, according to the Power Horizon Model. 571Wh of\nelectricity is expected to be produced from gas-fired power plants, while 551Wh\nof electricity will be generated by hard coal. <\/p>\n\n\n\n This is a first for the German power mix, and is tied to the recent\nlower gas prices which have filtered through to the forward curve, in part\ncaused by the level of incoming LNG to European terminals. <\/p>\n\n\n\n Long term, any influence that LNG has on reducing European gas\nprices could support gas in domestic power mixes. But for this year, in\nnorthwest Europe at least, the scope for gas demand to rise substantially is\nlimited. <\/p>\n\n\n\n In southern Europe, early forecasts of a hot summer could support\ngas demand for power generation in Italy, which may in turn maintain interest\nin spot supply into the OLT Toscana terminal on the west coast. <\/p>\n\n\n\n Spain has missed out on the surge of incoming LNG seen into other\nEuropean ter\u00adminals. Some contract volume with Algeria is now supplied on a\nflexible basis and has so far this year been absent from the Spanish mix.\nPossibly this could return, although buy\u00aders including Endesa and Iberdrola\nwill soon start to lift from US contractual positions which will offer\nflexibility.<\/p>\n\n\n\n A hot, dry summer could hit hydroelectric generation and bring\nSpanish gas back into the mix, supporting LNG demand. But Alge\u00adrian pipe gas\nflows may also increase. <\/p>\n\n\n\n In the UK, spot opportunities will persist for LNG sellers but the\nlack of the major Rough storage site will limit injection demand over the\nsummer. <\/p>\n\n\n\n UK gas demand for power generation was steady in the first quarter,\naveraging 61 mcm\/day, up from 60mcm\/day in 2018. <\/p>\n\n\n\n Data from the ICIS power horizon model forecasts that gas for power\ngeneration ca\u00adpacity is set to be 34GW in 2019, the same as 2018. Longer term,\nthe case for cheap gas and LNG to boost a share in the UK generation mix is\nstrong.<\/p>\n\n\n\n High Turkish demand, but obstacles<\/strong><\/p>\n\n\n\n Demand for Turkish LNG could break record levels in 2019, as the\ncountry is taking advantage of falling global prices and its expanded import\ncapacity while renegotiating its supply contracts with Russia via the upcoming\nTurkStream corridor. However, Turkey’s ability to break the record may be held\nin check by internal market constraints, in the form of government regulated\ntariffs. In addition, even if the US dollar-denominated price of LNG were to\nfall further this year, there is a risk that the depreciation of the Turkish\nlira would make it unaffordable for the Turkish private sector. The currency\nfell 40% against the US dollar last year and has fallen another 4% this year\nlargely be\u00adcause of internal political turmoil. <\/p>\n\n\n\n On top of that, private companies licensed to import spot LNG also\nhave long-term sup\u00adply contracts with take-or-pay obligations and destination\nclauses. Unless Turkey succeeds in negotiating the scrapping of these terms in\nits Russian contracts, Turkish companies would be locked out of the global LNG\nmarket. <\/p>\n\n\n\n In Greece, summer LNG demand has typi\u00adcally been limited to one or\ntwo cargoes per month. Greece was a much more obvious spot buyer over the\nlatest winter but this level of interest will not continue into the summer. <\/p>\n\n\n\n The Revithoussa LNG import terminal is shut for maintenance from 9\nApril to 9 May. <\/p>\n\n\n\n Argentina enters peak demand <\/strong><\/p>\n\n\n\n Argentina’s state-run gas distributor IEASA is entering its peak\nwinter demand season, with the bulk of its imports expected between May and\nSeptember. <\/p>\n\n\n\n In 2018, IEASA imported 2.53m tonnes between April and September,\npurchasing a total of 56 cargoes on the spot market. At least two of the\ncargoes purchased in 2018 were rescheduled for 2019 delivery. <\/p>\n\n\n\n So far, IEASA has purchased 23 cargoes for 2019 delivery.<\/p>\n\n\n\n Demand in 2019 is expected to be similar to the previous year,\nsources said, expect\u00ading that IEASA would tender for the same number of\ncargoes, except that the volumes would only be delivered to Argentina’s\nEsco\u00adbar terminal. <\/p>\n\n\n\n The remaining cargo windows are expect\u00aded to be sought for August\nand September delivery, and potentially in May, depending on winter\ntemperatures, sources said. As such, IEASA would benefit from lower market\nprices given its dependence on the spot market. <\/p>\n\n\n\n The Shell chartered 138,000cbm Gemmata arrived at the Escobar\nterminal on 29 March, bringing a partial cargo into the floating import\nterminal, but the vessel was meant to be deliver\u00ading volumes to commission the\nnewly-installed small-scale liquefaction barge at Bahia Blanca. <\/p>\n\n\n\n The Tango floating LNG export project is under charter by\nArgentina’s state-run producer YPF. Market sources, however, do not expect Tango\nFLNG would be ready to produce any LNG until after the end of the southern\nhemisphere winter, which would be by September or October.<\/p>\n\n\n\n Brazil motivated to optimise <\/strong><\/p>\n\n\n\n State-run Petrobras could have an appetite to import more spot\ncargoes, given that prices have become low enough to incentivise optimisation. <\/p>\n\n\n\n Given that Petrobras has its own char\u00adtered shipping length and the\nability to pur\u00adchase cargoes on a free-on-board (FOB) basis, the buyer has the\nability to wait for prices to become attractive enough and may buy even if the\ncountry’s generation matrix is well sup\u00adplied, one source said. <\/p>\n\n\n\n In the first quarter of 2019, low rainfall and hot temperatures\ncaused a strain on Bra\u00adzil’s power price, as hydropower generation fell. In the\nfirst quarter of 2019, Brazil’s LNG imports were four times higher than in\n2018. <\/p>\n\n\n\n Volatility in Brazil’s demand is a hallmark of the country’s heavily\nreliance on hydro\u00adpower generation. <\/p>\n\n\n\n Increased domestic gas production has enabled Petrobras to become\nmore self\u00adsufficient, although extended production maintenance periods have\nspurred occasional spot LNG purchases. <\/p>\n\n\n\n Mexico to take pipeline gas<\/strong><\/p>\n\n\n\n Increased gas pipeline capacity from the US means that LNG demand\nfrom Mexico’s state run utility CFE will eventually be displaced by US imports.\nBut pipeline infrastructure delays continue, particularly around the long-haul\ntransportation projects that have encountered right-of-way issues and technical\nglitches. <\/p>\n\n\n\n This means that LNG could still be relied upon in the short to\nmid-term given that the terminals still provide supply access to imbalances in\nMexico’s grid. For the first three months of 2019, Mexico imported 832,000\ntonnes of LNG, 20% lower than the first quarter of 2018. <\/p>\n\n\n\n CFE has purchased at least 16 spot cargoes for 2019 delivery, seven\nfor its Altamira termi\u00adnal on the Gulf Coast and nine for its Manza\u00adnilla\nterminal on the Pacific coast. CFE could tender for deliveries for May and\nbeyond. <\/p>\n\n\n\n LNG imports could be a solution if there are further delays on the\nconstruction of the 2.6 billion cubic feet (bcf)\/day Sur de Texas\u00adTuxpan\nsubmarine pipeline, which is to con\u00adnect south Texas to Veracruz, Mexico. <\/p>\n\n\n\n Sources said the pipeline could start up around June, but testing\nand other connec\u00adtion work would likely mean several months before a full ramp\nup. <\/p>\n\n\n\n Community consultations also have been ongoing around the Villa de\nReyes and Tuxpan-Tula pipelines developing downstream of the submarine Tuxpan\npipeline. <\/p>\n\n\n\n The Villa de Reyes pipeline could come online in late 2019, while\nTuxpan-Tula is not expected to be online until 2020, although timelines have\nboth slipped for these projects. <\/p>\n\n\n\n LNG imports into Altamira quadrupled in 2018 compared with 2017, as\nCFE relied more heavily on the spot market to make up for imbalances on the\nSistrangas pipeline system. But in the first quarter of 2019, just 255,000\ntonnes was delivered to Altamira, according to LNG Edge, about 45% less than\nthe year before. <\/p>\n\n\n\n ILNG into Manzanilla could still be sought on an occasional basis,\nconsidering that CFE has two CCGT power plants at Manzanilla that are currently\nnot supplied by the grid. <\/p>\n\n\n\n The La Laguna-Aguascalientes gas pipe\u00adline was due to start up in\nNovember 2018, which would bring down supply from the Waha gas hub in western\nTexas through cen\u00adtral and western Mexico. Delays pushed the pipeline start\ndate back to May. <\/p>\n\n\n\n The connecting Villa de Reyes-Aguascali\u00adentes-Guadalajara pipeline,\nwhich also would connect to the industrial areas in southwestern Mexico, has\nalso been delayed to May 2019.<\/p>\n\n\n\n Chile incentivised by low prices<\/strong><\/p>\n\n\n\n Low spot prices in the global market have incentivised some demand\nfrom buyers such as Chilean consortium GNL Chile. On 3 April, GNL Chile issued\na spot tender for two cargoes for delivery in the second half of September and\nthe first half of November for its Quintero terminal. <\/p>\n\n\n\n Chile typically is well supplied with long\u00adterm contract volume\nbetween portfolio seller Shell and members of the GNL Chile consortium. But the\nlow LNG prices have been attractive enough for the consortium to consider\nbuying on the spot market com\u00adpared to alternative fuels such as oil-fired\ngeneration, coal and hydropower generation. <\/p>\n\n\n\n Natural gas makes up about 19% of in\u00adstalled generation capacity,\naccording to Chile’s National Energy Commission 2018 figures. <\/p>\n\n\n\n Partial cargoes for the Caribbean<\/strong><\/p>\n\n\n\n Any appetite this year from Caribbean importers is likely to come as\nsmaller deliveries to meet incremental demand, particularly as partial cargoes.\nPuerto Rico’s EcoElectrica, which typically is supplied by long-term cargoes by\nSpanish energy company Naturgy and France based ENGIE, could be looking for a\nspot cargo in October, sources said. <\/p>\n\n\n\n Colombia’s consortium Calamari, which purchases for the Cartagena\nFSRU, is not likely to need any spot LNG given that the company awarded partial\ndeliveries to Naturgy in late 2018. The terminal was installed to bring in LNG\nduring an El Nino year when the country experiences drought conditions and\nhydropower generation could be curbed. <\/p>\n\n\n\n In Jamaica, utility Jamaica Public Services is supplied through a\nlong-term contract with US developer New Fortress Energy, which, in turn,\nsecured cargoes on a mid-term basis from UK-based Centrica. Sources said New\nFortress Energy could be looking for new supply in 2019. A partial cargo in\nFebruary delivered into Jamaica was supplied by trading company DXT to New\nFortress Energy. However, it was unclear whether New Fortress Energy had\npurchased any other supply.<\/p>\n\n\n\n![\"\"](\"https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2019\/04\/Asia-LNG.png?resize=492%2C231&ssl=1\")
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