Asia's slowing LNG demand growth to curb spot market buying

Singapore

ASIA'S demand growth for short-term, or spot, cargoes of liquefied natural gas (LNG) could dip as the region's thirst for LNG will increase less than last year on forecasts for a warmer winter and as nuclear power plants erode the need for gas.

The lower demand for spot cargoes this winter could help to cap prices which have climbed after China's gasification push last year sparked higher imports, lifting the country to become the world's second-largest LNG user after Japan.

However, the country's spot purchases should slow as Chinese buyers have signed longer-term deals for steady deliveries throughout the year rather than in one period and on limited infrastructure, traders and analysts said.

Consultants Wood Mackenzie and FGE forecast slowing overall LNG demand growth in Asia for the winter months, from November this year to February 2019.

During the period, FGE predicts LNG demand in Asia to rise by 0.8 per cent to about 84 million tonnes while Wood Mackenzie sees slightly more positive growth of 9.8 per cent to about 90 million tonnes. Both forecasts are sharply down from the actual demand growth of 11.9 per cent during the same time last year, based on Refinitv Eikon data.

"This growth is slower than what we saw when we compare 2017's winter with 2016's winter as we foresee declines in imports in Japan due to all the nuclear power plants which will be online by the coming winter," said Kittithat Promthaveepong, a senior analyst at FGE.

Falling LNG demand in Japan, the largest LNG importer globally, will contribute to the slower Asian growth as gas is replaced by nuclear energy.

Japan is expected to have about 9 GW of nuclear capacity online by this winter compared with 3.5 GW last winter, said Mr Promthaveepong.

A warmer winter predicted in Japan is also expected to curb spot LNG purchases.

Chinese companies have been securing term supplies to meet anticipated demand increases this winter instead of waiting until winter to procure them.

PetroChina has inked mid- to long-term deals ahead of this winter while Sinopec is currently in talks for a mid-term deal.

"We think there's more of a downside risk than upside risk," said Nicholas Browne, senior gas analyst at Wood Mackenzie.

China has been "actively buying and putting gas into storage this year," he said, adding that the country has about 500,000 tonnes more gas in storage compared with last winter.

Furthermore, downstream infrastructure constraints in China, including distribution pipelines, and LNG receiving capacity in northern China will limit demand growth over the winter, FGE's Mr Promthaveepong said.

China's heating gas demand growth may also decline to 15 per cent this winter versus about 33 per cent last year as coal-to-gas switching slows, Mr Browne added.

The supply situation should improve for the winter as about 11 million tonnes of LNG is expected to be added this quarter globally compared with the same period last year, he said.

"Supply isn't going to be as tight as last winter . . . we think there's a little bit of softness on Asian price," he added. REUTERS