can china’s lng demand balance the asian market?€¦ · china and india drive global spot lng...
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Can China’s LNG demand balance the Asian market?
24 July 2020
Ed Cox – Global LNG Editor
Tom Marzec-Manser – LNG Analyst
Joachim Moxon – LNG Analyst
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Asian LNG demand in a low-price environment
Agenda
01
China – by far the hottest market 02
India – growth but infrastructure challenges03
Japan, South Korea – LNG getting squeezed04
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China and India to lead Big Five LNG growth
1%LNG demand across the top 5 Asian importers to grow 1% in 2020
China China LNG demand is forecast to rise by 6% in 2020
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Actual and demand forecast
Japan actual Japan forecast China actual
China forecast South Korea actual South Korea forecast
India actual India forecast Taiwan actual
Taiwan forecast
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Cuts in US LNG production hit global growth
• Lowest LNG production growth since 2015
• July US LNG production down 60% from March
• Q4 spread to Europe/ Asia better for US LNG producers but what about next year?
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Growth in global LNG production
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Oil-indexed winter LNG prices falling closer to spot
• Cheaper oil-linked LNG prices filter through in Q3
• Tight EAX/ TTF spreads to continue
• Window opens for US LNG exports
• Limited winter contango – outturn prices could look different!0
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Henry Hub settle Henry Hub forward
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China and India drive global spot LNG demand
6.6Indian short-term LNG demand hit 6.6m tonnes in 1H 2020
33%Of the largest four Asian buyers, 33% was on a short-term basis in 1H 2020
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China 1H2019
China 1H2020
Japan1H2019
Japan 1H2020
South Korea1H 2019
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China and India drive spot LNG demand
Long term Short term Not assigned
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China
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China
65.2mt2020 6.4%
69.7mt2021 6.9%
Game-changers for China LNG imports:
• Cut in domestic gas production target
• Ability to limit pipe gas imports
• Spot LNG prices driving switching
Market uncertainties:
• Speed of government-led market reform
• Prospect of W-recovery in gas consumption
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Production
• Beijing has slashed 2020 domestic production targets to 180.9bcm, up just 4.3% year on year
• Lowest annual increase since 2016
• H1 ‘20 gas production was up 10% year on yearo ICIS had expected full year
production increase of 8%
• Interpreted as deliberate attempt to centrally balance the market
• To hit new annual target H2 ‘20 production needs to fall by 2%o But will production actually fall? -4
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% c
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China domestic production
Production % change YoYSource: NDRC
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Pipe imports
• CNPC has cut pipeline imports
• H1 ‘20 imports 18% lower than expected
oRussian and Kazakh volumes should have been higher year on year
• Actual year-on-year H1 ‘20 imports down by 7%
• Force majeure issued but price now the major influencing factoro But lower off-take from
pipe imports will not last
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Cheap spot LNG
• Greater activity from 2nd tier Chinese buyers as spot LNG undercuts passed-on costs from Big Three
o Both in pipeline gas and trucked-LNG
o BP has signed two re-gas deals this month
• Impact of 2019’s regasification slot re-sale from CNOOC
• Big Three increasingly sharing infrastructure
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Uncertainties ahead in the short/medium-term
• Limited storage capacity on China, which may already be close to full
o Likely to lead to particularly weak Q3 ‘20 LNG flows
• Mandate to build more conventional and LNG storage
o Sinopec’s Wen 23’s commissioning is absorbing 4.3bcm this year
o CNPC’s Xiangguosi expansion partially ready by December 20
• Commissioning of planned extensions of Power of Siberia
o Link to Beijing in November 20
• ChinaPipe’s creation to lead to yet more third-party access at terminals
• Relaxing regulation of city-gas prices
• Reform of upstream sector
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Demand recovery
• Industrial sector’s recovery is key
• Any sign of a W recovery will resonate through China gas market and onto international market
• Overall coal-to-gas switching in industry could have importance diminished during recovery
• Power sector backfilled coal in Q1 ‘20, but this may not last
• City gas demand was boosted early on, but that was in the winter
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Industry City Gas Power Petchem % change YoY
Source: CQGPX,
ICIS assumptions
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India
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Indian LNG imports up by almost 2m tonnes
16%Indian LNG imports increased by 16% YoY in the first six months of 2020
• The Dahej terminal took the biggest hit from the Covidlockdown in Q2
• Commissioned in January, the Mundra terminal has received near 1m tonnes
• Indian imports reached record-highs in February, buoyed by high spot buying
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Dahej terminal back on growth track
4mIndian LNG imports are expected to increase by 4m tonnes in 2020
• Dahej utilisation highest in Q3, while Dabhol remains closed
• New pipeline connections and expansion projects pushing demand higher
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The Kochi-Mangalore pipeline is
expected to start commercial operations
in early August 2020
Other pipeline projects are also
underway to develop untapped markets
in the north, northeast and southeast.
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Gas-fired power generation – Growth trajectory continues
• LNG consumption in the Indian power
sector increased by 44% in the first five
months of 2020
• Regasified LNG consumption reached
over 400mcm in May, about 90% of which
was based on spot deals
• Spot buying activity has started to pick up
again in low price environment
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Japan & South Korea
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Decline setting in for Japan and South Korea
2.1mJapanese LNG imports were down by 2.1m tonnes in H1 2020
3.8mtInstead of drawing down through winter, April LNG stocks were at a 2020 high
• Weak economy and low power consumption weighing
on Japanese LNG demand despite lower nuclear
• South Korea moving from high growth in Q1 2020 to
weak outlook for rest of year
• Coal restrictions in Q1 resulting in higher availability
later in the year
• High storage inventories in both Japan and South
Korea
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Japanese power consumption continues to languish
• Japanese nuclear output continues to decline in 2020
• But new coal and weak overall power consumption limits LNG demand
• Kansai Electric could re-start idled nuclear reactors in September
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South Korean nuclear generation set for new high
• South Korean nuclear generation is forecast to reach a record 170TWh in 2020.
• 1.4GW Shin Kori 4 started commercial
operations last year
• 1.4GW Shin Hanul 1 scheduled to start
commercial operations in October, not
included in forecast
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Conclusion
• Positive structrual gas and LNG demand outlook from China
• Developing Indian LNG/ gas infrastructure will support growth
• Spot LNG winter curve is competitive
• Structural weakness for Japanese LNG demand
• Concerns over impact of second coronavirus wave
• Mild winters often lead to a weak Q2
• Plenty of supply can turn on if prices rise
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LNG Edge Product Manager: Martin [email protected]
LNG Edge Forecasts
24-month rolling view
Supply: Global
Demand: Japan, South Korea, Taiwan, China, India
Coming soon: SE Asia, Europe, LatAm