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North Asian LNG Demand in Net Decline as Nuclear Returns and Economic Growth Slows

The roster of North Asian LNG importers has seen their demand for the fuel drop by 7.68mmt (-4.7%) in the period January to October compared to the same period last year, our LNG Market Tracker shows. The region includes the world’s three largest imports – Japan, China, South Korea – and Taiwan.

Growth in 1H 2019 almost stagnated

Whilst representing broadly stable demand, its significance lies in the absence of significant year-on-year growth. Demand growth in the first half of 2019 almost stagnated, reaching only 0.2% over the first half of 2018.

Taiwan only major importer with broadly steady demand

The island nation of Taiwan was the only one that has kept LNG imports broadly steady as its power sector is less nuclear-centric and government policy aims to reduce coal reliance.

Japanese demand decline driving factor

The driving factor of this development lies in Japan’s demand decline. Comparing the periods of January – October for 2018 and 2019 reveals that the country has reduced its imports by 10.11mmt (-14%). Notably, much of the country’s formerly suspended nuclear power capacity is back online, if underutilised. As a result, although Japanese LNG demand remains elevated by historical standards, it has been considerably below last year’s level.

Japanese government to steer against lower gas demand

Meanwhile, the Japanese government has pledged an additional $10 billion (¥1.1 trillion) in LNG project financing in Asia to help spur demand by expanding the fuel’s supply base. Japanese funds have already been earmarked for Novatek’s Arctic 2 project in Russia. Although clearly a longer-term strategy aimed at the next decade, it underscores the Japanese administration’s pro-gas perspective.

Gas demand may see a boost next year if nuclear safety deadlines not met

Some power operators warned they would be unable to comply with new nuclear safety measures approved in June before the deadline in May next year, which could force the renewed closure of capacity and cause a potential surge in Japanese gas demand next year.

New nuclear capacity weighing on South Korean LNG demand, too

Nuclear power also played a role in lowering South Korea’s demand by 2.28mmt year-on-year for the period of January – October. Following the suspension of some capacity last year, this year nuclear power generation has rebounded as some plants have come back on line. Moreover, the Shin Kori 4 reactor, which shares the top spot in terms of capacity with its Shin Kori 3 counterpart, began loading fuel in February and commenced commercial operations in September.

Despite some growth, China was unable to reverse the prevailing trend amid maturing GDP growth

China, meanwhile, grew imports by 6.01mmt in the period of January-October despite a steep drop by 38% to 4.23mmt in February 2019. However, this was not enough to reverse the prevailing regional trend. Accordingly, even Chinese demand has seen a net decline of 18% from June to the end of October. As a result, the country has not yet begun growing monthly imports in the run up to the historically high demand period of winter. Notably, the country’s current 5-year plan has put less emphasis on gas, which has impacted the country’s coal-to-gas switching. Concurrently, the country’s economic growth is maturing, further dampening demand growth for expensive LNG imports.

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