June 25, 2019 / 6:46 AM / 22 days ago

Northeast Asia's LNG import demand growth declines on economic headwinds

* June imports to fall from May, first time since 2013

* Global LNG supply set to grow 14% by end-2019

* LNG pressured by slowdown in economies, rise in renewables

By Jessica Jaganathan

SINGAPORE, June 25 (Reuters) - Economic headwinds are limiting the appetite for liquefied natural gas (LNG) in Northeast Asia, home to the world’s biggest importers of the fuel, even as global supply is expected to rise by 14% this year.

The growth in monthly import volumes of LNG into Northeast Asia during the first half of 2019 will decline for the first time since 2015, according to Reuters calculations based on Refinitiv shiptracking data. The region includes Japan, China, South Korea, which are the world’s three largest LNG importers, and Taiwan.

Further underscoring the weaker demand, LNG imports into the region in June are set to fall from May, for the first time ever, according to Refinitiv data going back to 2013. Imports typically rise in June as gas demand increases to generate power for air conditioners during the Northern Hemisphere summer.

This slowdown is occurring as additional volumes from Russia, the United States and Australia are expected to swell overall LNG supplies to 365 million tonnes by the end of the year, from about 320 million tonnes currently, according to consultancy Wood Mackenzie.

The main driver of the slowdown is China, whose LNG imports for June look set to drop by 9% from May as the country’s coal-to-gas switching has moderated amid weaker economic growth.

“Asian LNG demand this year so far has been dampened due to a range of factors including mild weather, high storage levels, and a lower policy emphasis on coal-to-gas switching in China,” said James Taverner of consultancy IHS Markit.

“New export volumes look likely to come online faster than they can be absorbed in the Asian market.”

While China’s long-term LNG demand is still set to grow, the rate will be slower compared with 2017 and 2018, said Wood Mackenzie analyst Nicholas Browne.

This is due to factors including “uncertain industrial growth, regasification capacity constraints and the reduced pace of coal-to-gas switching,” he added.

In South Korea, the start up of three new nuclear power plants are expected further curb LNG imports.

Japanese LNG demand is expected to be relatively flat in 2019, though there may be some upside in the third quarter when some nuclear plants undergo maintenance, said Giles Farrer, research director, global LNG, at Wood Mackenzie. Overall, they forecast LNG demand in Japan, South Korea and Taiwan next year to be 9 million tonnes below 2018.

LNG demand has also been pressured by the rise of renewables in power generation, especially in Europe.

LNG industry participants are meeting in Singapore this week for a conference where Asia’s demand growth will likely be a key topic of discussion.

The global gas glut is expected to persist until at least next year, Bank of America Merrill Lynch’s global research team said last week.

“The trade wars are taking their toll on global growth projections, which poses downside risk to global gas demand and prices,” they said.

Reporting by Jessica Jaganathan, additional reporting by Aaron Sheldrick in TOKYO; editing by Christian Schmollinger

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