LNG importers in China, South Korea, Japan and India are currently grappling with near tanktop situations at their terminals after lower-than-expected LNG consumption in the region.
A combination of weak domestic demand and warmer weather so far in the run-up to the winter have left one to two terminals in each country with brimming inventories, after drawdowns were much slower than expected.
The situation could currently be the most severe in China, where LNG vessels waiting to discharge at several terminals of Chinese state-owned PipeChina and CNOOC have been delayed by up to five days, market participants said, but this could not be confirmed. PipeChina's 6mn t/yr Tianjin LNG terminal will likely continue to experience delays for another three to four days, some market participants added, but this too could not be confirmed.
A relentless zero-Covid-19 policy in China because of a recent resurgence of the virus and a weak economic outlook have drastically limited industrial and power generation demand for the super-chilled fuel in the country. Inventories were already kept relatively high at at least 80pc, as required by the country's main economic and planning agency the NDRC before the start of the heating season in mid-November, market participants said, further exacerbating oversupply.
Growing domestic gas production and weak downstream demand for LNG has also seen limited drawdowns from LNG terminals in India. LNG cargoes that were scheduled to discharge at the 5mn t/yr Hazira terminal on India's west coast and the 17.5mn t/yr Dahej receiving terminal in Gujarat state this week have been delayed by around one to two days, market participants said.
The Hazira and Dahej LNG terminals have so far received four LNG cargoes across 1-10 November, significantly less than the 7, 8, and 14 cargoes they received in the first ten days of October, September and August, according to oil analytics firm Vortexa.
The Hazira terminal last received an LNG cargo, the 214,176m³ Al Huwaila, on October 29, while the Dahej terminal last received the 136,026m³ Disha on 6 November.
Situation similar in Japan and South Korea
Japanese utilities had 2.52mn t of LNG inventories as of 6 November, higher by 29.2pc against average end-November levels of 1.95mn t during 2017-21. Inventories have remained consistently higher than average since at least the third quarter of this year.
A Japanese buyer saw a delay to one of their LNG deliveries this week by just 10 hours, suggesting that the severity of the delays varies widely from country to country.
Japanese buyers are keeping an eye on weather conditions which could potentially drive LNG consumption higher, which has remained more or less stagnant because of mild autumnal weather so far.
There is a 70pc chance of higher-than-normal temperatures for most of Japan across 12-18 November, according to latest forecasts by the Japan Meteorological Agency (JMA) on 10 November. The probability of the same scenario drops to 60pc for south Japan, and to 50pc for north Japan across 19-25 November. Temperatures have only about a 40pc chance of falling to below-normal levels during 26 November-9 December.
At least one Kogas-owned terminal in South Korea could be nearing or at tanktop currently, but the situation is not as severe as in previous years, with Kogas likely able to absorb a few more cargoes by peak winter in December-January, market participants said.
Will the situation ease?
The tight availability at the Asian LNG terminals can be expected to largely sort itself out by December-January, which is also the peak heating season that typically drives higher LNG consumption, market participants said.
But the current situation is worth monitoring as it could potentially make several more spot LNG cargoes available to the market, others added.
Some industries in China are also considering earlier-than-usual shutdowns in the run-up to the lunar new year holidays in end-January next year. This could further weigh on demand for LNG, and will likely encourage some Chinese national oil companies (NOCs) to consider selling off some surplus supplies into the international market, market participants said.
There could also be a possibility of Indian importers diverting away scheduled deliveries this month, especially as most power producers and refineries in the country have already made the switch to alternative fuels like LPG or fuel oil.
A later-than-expected start to the winter season in India could also exacerbate the problem of excess gas in the country. Maximum temperatures in Delhi are expected to average 24.7°C in the first two weeks of December, compared to 22.7°C in the same period last year. Potential diversions from India and the sale of surplus supplies from China could further add to availability, exacerbating a spot market supply glut, market participants said. But the situation in Europe going into winter is also worth attention, as it grapples with the need to sustain high underground inventories for winter and the coming summer with highly reduced Russian pipeline gas supply. This could incentivise the region to maintain inventories and maximise LNG imports, resulting in greater competition between European and Asian LNG buyers.
