Slowing LNG import growth in Asia is taking its toll on global prices this winter, leaving the Platts JKM this month at its lowest in three years, in a sign of rising headwinds for US LNG exporters.
In December, LNG imports to South, Southeast and Northeast Asia totaled the LNG equivalent of 1.07 Tcf, which was actually the highest monthly import volume on record, data compiled by S&P Global Platts Analytics shows. In China, an ongoing conversion of the residential heating market in favor of natural gas saw import volume surpass 289 Bcf in December � its second-highest monthly volume on record. In November, the country actually briefly surpassed Japan as the world's largest LNG importer, taking over 291 Bcf.
Despite those headline import numbers, some of the region's other large buyers, including Japan, India and Taiwan, saw cargo deliveries decline last month, compared to December 2017 levels.
In Japan, LNG imports last month were down about 4% compared to December 2017, driven partly by warmer temperatures, but also by a spate of nuclear restarts at previously shuttered facilities.
In Taiwan, warmer weather was likely to blame for lower import volumes.
Weaker demand from some of Asia's legacy importers is keeping prices in check this winter.
From December 1 to date, the prompt-month Platts JKM, the benchmark price for Asian LNG imports, has averaged just $8.69/MMBtu � its lowest for the peak-winter period since 2015-2016.
On Wednesday, the contract tumbled to $8.044/MMBtu for March-delivered cargoes and is now hovering just above a recent eight-month low, S&P Global Platts data shows.
While late-winter LNG prices in Northeast Asia typically decline along with seasonal gas demand in the region, this year's downturn has come much earlier than usual, and appears likely to stick.
For second-quarter 2019, JKM swaps markets are already betting on prices in the mid-$7s/MMBtu.
With Platts Analytics calling for lower second- and third-quarter LNG imports by major buyers, including Japan and South Korea, the onus for demand growth in Northeast Asia now rests squarely on China.
Trade tensions and concerns over a global economic slowdown have yet to affect Chinese LNG demand, but the recent and steep slide in crude oil prices could be an early warning sign.
With nearly 50% of US LNG cargoes now targeting Asian markets, exporters are already facing tough margins for profit. In early December, weak import prices in Northeast Asia and record-high shipping rates briefly combined to push US LNG netbacks into negative territory.
On Wednesday, the profit margin on a US cargo delivered from Sabine Pass to Japan/South Korea was estimated at $1.98/MMBtu, with the margin to West India lower, at $1.61/MMBtu.
Platts Analytics' LNG netback calculation includes the cost of feedstock gas, onshore transport, waterborne freight and related shipping fees, but excludes sunk-cost liquefaction.
With Northeast Asia's LNG import prices now headed toward $7/MMBtu, and a spate of US liquefaction terminals targeting a 2019 startup � including Freeport, Cameron and Elba Island � US offtakers are facing an uncertain and increasingly competitive market for export this year.
Source: Hellenic Shipping News Worldwide
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