Milder weather to curb Japan, Korea winter LNG demand

Higher-than-normal temperatures forecast for Japan and South Korea in February are expected to limit incremental spot LNG demand in these countries for the rest of the winter season.

The Japan Meteorological Agency (JMA) on 28 January forecast a 60pc or higher likelihood of above-average temperatures across large parts of the country from 30 January to 28 February. Only the Tohoku, Hokuriku and Hokkaido regions are less likely to have milder-than-usual weather in the period, at a 30pc likelihood.

The Korea Meteorological Administration (KMA) on the same day forecast around a 40pc chance each of normal and above-normal temperatures throughout South Korea across 8-28 February. The highest probability of above-normal temperatures, at 70pc, will come in the week ending 14 February.

Higher-than-usual temperatures in February are expected to reduce demand for heating, potentially slowing LNG consumption and keeping stock levels for March sufficient.

The milder winter forecasts come despite expectations of colder weather in the next couple of days. Extremely strong winds are expected in most of western and northern Japan from 29 January, with the strongest wind speeds and heaviest snowfall forecast in Hokkaido and Niigata a day later, according to the JMA.

But the brief period of low temperatures is unlikely to spur additional LNG purchases, with most Japanese utilities holding enough stocks to tide them through a cold spell lasting no more than a week.

Higher-than expected electricity demand because of a cold snap in Japan from late December to mid-January drew down inventories at a faster-than-expected rate and prompted buyers to step up their LNG spot purchases. South Korea and Japan were hit by colder-than-usual conditions and heavy snowfall, with temperatures in Seoul and Tokyo averaging 5.9°C and 1.7°C respectively over 1-11 January.

The ANEA price, the Argus assessment for northeast Asian LNG deliveries, reached an all-time high of $27.655/mn Btu on 13 January. The price gains were fuelled by increased restocking activity in northeast Asia, especially Japan, following the plunge in temperatures and a series of supply outages in the Pacific and Atlantic.

Most Japanese power utilities have since secured sufficient LNG stocks.

Japanese utility Kyushu Electric Power purchased a cargo for 21-25 January delivery from the 7.8mn t/yr Gorgon LNG facility in Australia at the mid-$30s/mn Btu in early January. Japanese importer Jera likely bought two cargoes from Chevron, for 27 January-2 February delivery at $27/mn Btu and 20-24 February delivery at $11-11.10/mn Btu, on 18 January and 14 December, respectively.

Major South Korean importer Kogas has also been actively buying in the spot market in the last few weeks, having purchased around 6-8 cargoes for deliveries across December-February, market participants said.

By Subethira Ahrumugam and Joey Chua