Collective purchases by Japan, South Korea, China, India and Taiwan are up 13.1% or 14.7mn tons year-on-year to 126.7mn tons for January-August 2017 (see chart). This puts volumes on track to smash 2016’s record 175.1mn tons (MEES, 10 March), which in turn accounted for fully two-thirds of the 263.6mn tons of global 2016 LNG imports.
Of course, the fact that imports have risen is largely due to the fact that exports have risen – with Australia and the US starting and ramping-up several projects. What has suffered is the price. Prior to the latest seasonal jump, the start-up of Australian and US LNG liquefaction plants had kept prices under pressure. The 8.9mn tons/year Wheatstone project off Western Australia is only the latest to start up (MEES, 13 October), with the first 5.5mn t/y train of Novatek and Total’s 16.5mn t/y Yamal LNG project in the Russian Arctic slated to follow suit next month.
The average $5.6/mn BTU price that #1 global buyer Japan paid for spot purchases between May and August this year represents a whopping $3.1/mn BTU discount to the average price the country paid for overall LNG imports over this period, the vast bulk of which are under long-term contracts. This ‘spot discount’ is the largest since spot prices crashed with those of oil in Q3 2014 (the price of term cargoes did fall sharply but not until the first half of 2015 given the oil price linkage in long-term LNG contracts comes with a delay of around six months).
WINTER REBOUND
Though, long term, prices are set to remain under pressure, those for Japan’s spot LNG purchases did jump to $6.9/mn BTU in September, the highest level since February, according to latest stats from the country’s Ministry of Economy, Trade and Industry (METI). The September spot purchases correspond roughly to cargoes set to arrive in October in advance of the winter ramp-up in heating demand.
Prices have since risen further. Latest Asian spot trade is at $8.5/mn BTU for November-delivery cargoes according to Reuters. This is in line with last winter’s peak prices, recorded in January and February this year. But, with new Australian export capacity continuing to ramp-up no-one expects the latest jump in spot prices to be anything other than a temporary seasonal phenomenon.
JAPAN: AUSTRALIA POCKETS GAINS
Japan remains by far the top global LNG import market, taking 57.31mn tons for the first eight months of 2017, up 2.02mn tons (3.6%) year-on-year. All the gains have gone to #1 supplier Australia, and then some. Australia supplied 17.4mn tons for January-August, 30.3% of the total and up 24% (3.3mn tons) year on year, putting Australia on course to smash 2016’s record 22.4mn tons. Qatar, which vied with Australia as top supplier as recently as 2012-13, supplied 7.1mn tons for January-August, down 8% year-on-year and a third below record 2014 levels. Japan is on track to take the least Qatari LNG since 2010. Malaysia, which overtook Qatar for #2 spot in 2015, also saw volumes fall by 6% to 10.1mn tons for January-August. Still substantially ahead of Qatar.
World’s Top 5 Lng Importers Collectively Take 13% More In Jan-Aug17* (Mn T)
KOREA: UP 13%, QATAR STILL TOP
Global #2 Korea imported 27.39mn tons of LNG in the first nine months of 2017, up 20% on the same period last year. This puts 2017 on track to be second only to 2013’s record 39.9mn tons. Korea is the only one of the four key East Asian markets where Qatar remains the number one supplier, though Qatar is also number one in global number four market India, where geographical proximity gives it a substantial comparative advantage over Australia (MEES, 10 March).
Korea took 5.4% more from Qatar in January-September versus a year earlier, with volumes rising to 8.70mn tons, but this was insufficient to stop the country’s market share falling 36% to 32%. Australia, only number four behind Indonesia and Oman for the same period last year, is now the undisputed number two with 5.24mn tons, up a whopping 83% year-on-year. Australia supplied 19.1% of Korea’s LNG imports for January-September up from less than 5% a year earlier. The latest data for September show Australia supplying a record 28.3% of the Korean market (MEES, 20 October for chart and full Q1-3 2017 Korean LNG import data).
Though Oman has fallen back to a distant number three in the ranks of Korea’s LNG suppliers, volumes are nonetheless up 5% at 3.20mn tons for January-September (versus 3.05mn tons). The picture is similar for Oman’s other key customer Japan – 1.97mn tons for January-August 2017, up from 1.91mn tons.
This modest increase in Oman’s LNG export volumes comes as the country lowers gas injection at oil fields. Last month’s start-up of the 1bn cfd Khazzan field (MEES, 29 September) is likely to see the year-on-year gains strengthen for the remainder of 2017.
The Gulf’s only other LNG exporter, Abu Dhabi, saw sole customer Japan import 3.35mn tons for January-August, down 5% year-on-year. This suggests down 5% year-on-year. This suggests a further fall from 2016’s 4.99mn tons, which was already the lowest figure since the 1990s. Soaring domestic demand has seen volumes available for export dwindle despite Abu Dhabi bolstering domestic supplies with the receipt of 18bcm/year of Qatari gas via the Dolphin pipeline (MEES, 15 September). Though UAE/Qatar relations are highly strained this relationship is a nice earner for Abu Dhabi: it pays less than $2/mn BTU for Qatari gas, whilst Japan paid an average of $8.7mn BTU for January-August 2017 Abu Dhabi LNG supplies.
US supplies, meanwhile, continue to edge up. Korea imported a record 270,000 tons – five cargoes – of US LNG in August, over 10% of total imports. For the first eight months of 2017 Korea took 910,000 tons from the US, Japan 760,000 tons and China 600,000 tons. Together with smaller volumes from Taiwan and India the five key importers took a total of 2.6mn tons of US LNG, 2% of their total imports. Save for India’s first ever US cargo in July 2016, volumes were zero for the same period last year.
CHINA: THE NEW #2?...
Though Korean volumes are up strongly, it is number three importer China that has been the key driver of this year’s regional and global LNG demand. Chinese imports are up a massive 44% or 4.5mn tons year-on-year. Indeed, whilst China’s total imports for the first eight months, at 22.18mn tons, remain 2.85mn tons lower than those of Korea, but such is the pace of Chinese growth that it has been ahead of Korea for three of the past four months (see chart). And with Korea importing just 2.37mn tons in September, China is likely to maintain its lead – Chinese September stats are due next week.
Korea will likely hold on to the number two global importer spot for 2017 as a whole, but it is set to be overtaken by China next year. And this is despite the fact that Korea’s LNG imports are also set to rise in the coming years in line with Seoul’s stated policy of phasing out nuclear power, albeit not until 2060 – which accounted for 29.2% of the country’s 2016 power generation, some 153TWh.
…IF THE PRICE IS RIGHT
Globally speaking it is the massive ramp-up in Chinese buying that is to thank for LNG prices not having slumped further still. Indeed, the lower prices and ramp-up in Chinese buying are interlinked – Chinese demand, at least at the margin, is heavily price sensitive. China has the potential to absorb much of the actual and planned increases in global LNG exports, but only if prices are competitive with (though not necessarily cheaper than given that political and regulatory pressures favor gas) competing coal as a power and industrial fuel. This effectively puts a cap on LNG prices for years to come – the other key potential growth market, India, is also highly price sensitive. Australia has been the key beneficiary of increased Chinese buying, but volumes from Qatar and other suppliers are also up strongly (see charts).
Global #4 buyer India saw imports rise by a relatively modest 7.6% to 9.90mn tons for the first seven months of 2017. Qatar remains India’s overwhelming number one supplier though its volumes fell to 5.58mn tons (56% of India’s total imports) from 6.14mn tons (67%) for January-July 2016. Pakistan is another shortish-haul market where imports are set to grow strongly and Qatar is set to retain a dominant position. Whilst Pakistan imported just 3.6mn tons in 2016, this was up more than threefold on 2015 and some 75% came from Qatar (MEES, 17 February).
However Egypt, which was second only to China in terms of last year’s LNG import increases (MEES, 24 February), has seen volumes fall this year as domestic output ramps up. Cairo hopes to end imports altogether by the end of 2018.
