Warmer Nov to limit Asian spot LNG demand

Northeast Asian countries are facing higher than usual LNG inventories ahead of winter, resulting in expectations of limited incremental spot LNG demand throughout their typically high-demand winter season.

Higher than usual temperatures at the onset of winter have likely curbed LNG consumption for power generation to meet heating needs during the month, limiting regional inventory drawdowns.

South Korean LNG inventories for November are estimated to be at an all-time high, much higher over the same period compared with the past three years, according to forecasts from Korea Electricity Statistical Information System.

Japan's main utilities had 2.52mn t of LNG stocks as of 13 November, which was higher by 16.7pc from 2.16mn t at the end of November 2021 and higher by 29.2pc against 1.95mn t, the average of end-November stocks during 2017-21. The latest update on Japan's inventories this week was unavailable with a public holiday on 23 November.

South Korea's state-owned LNG importer Kogas has requested at least one Japanese utility for temporary storage space over 2-3 days to manage its high inventories, underscoring the extent of the surplus that the country is currently facing.

A Chinese national oil company (NOC) is also currently considering delaying the arrival of some of its scheduled deliveries over the next few days, which will likely put off its purchasing plans for the rest of the winter. This may imply that the gas supply glut in China may be more severe than previously expected.

High inventories in China have also seen several offers for domestic swaps between gas companies and utilities in the past 1-2 weeks as they attempted to manage higher than expected inventories. The need to keep inventories at at least 80pc full by the end of October, according to regulations laid out by China's main economic planning agency the NDRC, coupled with weaker than expected gas demand with continued small-scale rolling Covid-19 lockdowns has further exacerbated the supply glut in China.

Around 22 LNG cargoes are expected to arrive in China over 23-30 November, according to Vortexa.

Warmer prelude to winter

Temperatures in China will be 1-2°C higher than usual in east China, while temperatures in north China will be 2-4°C higher than usual for the next 10 days, according to forecasts from the China Meteorological Administration (CMA) last week. That was the fourth time that the CMA has issued above average temperature forecasts since October.

The Korea Meteorological Administration forecasts around a 40pc chance of both normal and below normal temperatures throughout South Korea across 28 November-11 December in its one-month outlook issued on 17 November. The probability of normal temperatures then rises to 50pc over 12-25 December.

The situation is likely less severe in Japan, where a drop in temperatures this week has created expectations that LNG withdrawals may soon increase. Maximum temperatures in Tokyo have dropped to 12-18°C over 20-25 November compared with 15-24°C over 13-18 November.

A Japanese importer is currently on the lookout to buy a few January cargoes. But market participants suggested that this is likely not a firm requirement, as it will more likely continue to monitor LNG consumption levels over the next 1-2 weeks.

The Japan Meteorological Agency's latest forecast for January and February published on 22 November is predicting a 40pc probability of lower than usual temperatures throughout most of Japan, except for the northern half of the country during the latter month.

But most Japanese buyers are unconcerned, with many being confident that they will have sufficient LNG inventories even in the event of a significantly colder winter.

Limited seasonal demand

At least one Chinese NOC has put off its plans to buy spot LNG for the rest of the winter season.

South Korea is also expected to have limited spot demand for the majority of winter, after the country's trade, industry and energy ministry announced its plan to reduce LNG consumption for power generation during the peak power demand period by maximising output from nuclear reactors and coal-fired power plants.

At least one Japanese utility may also have completed spot purchases until February on expectations of balanced inventories and plans to buy supplies from the domestic power market if additional power is needed urgently. The utility had probably bought at least two January cargoes from the spot market previously.

But market participants are wary of continued spot price volatility with threats from Russia's state-controlled Gazprom to cut gas deliveries through Ukraine from the start of next week. This could amplify Europe's appetite for LNG deliveries over its peak heating season, supporting European gas hub prices and pulling up Asian LNG prices as a result.

The ANEA price, the Argus assessment for spot LNG prices, climbed on 23 November to $27.73/mn Btu and $28.21/mn Btu for first and second-half January respectively. This was after the December Dutch TTF contract price closed at $36.718/mn Btu on 22 November, $2.40/mn Btu higher than its close the previous day.

By Subethira Ahrumugam