Asia’s demand for liquefied natural gas (LNG) continued to fall in the first quarter of 2023 compared to last year, despite lower global prices and ongoing gas demand destruction in Europe.
Declining LNG imports in the key Asian markets of Japan, China, and South Asia outweighed increasing demand in South Korea, Taiwan, Thailand, and Singapore, according to data from IHS Markit and Bloomberg New Energy Finance (BNEF).
The results represent the sixth consecutive quarter of year-on-year (y/y) declines in Asian LNG imports, a trend which began even before the Russian invasion of Ukraine rocked global LNG markets.
The invasion caused Europe to increase LNG imports by 60% last year, pulling cargoes away from Asia and causing spot market prices to spike. As a result, Asia’s annual LNG demand fell by 7% in 2022.
A record warm winter, along with healthy storage levels and gas demand destruction in Europe, has brought global LNG prices down since the start of the year. Even so, European LNG imports increased 6.6% y/y in the first quarter and global prices remain well above historical averages.
Meanwhile, LNG demand in the two largest markets, Japan and China, has fallen even from lower baseline levels in 2022.
China’s LNG demand fell by 2% y/y in the first quarter of 2023 and 14% compared to the first quarter of 2021. Many expect Chinese LNG demand to recover sharply this year after Chinese buyers reduced purchases by 20% in 2022 due to high prices and a COVID-19-related economic slowdown.
However, a surge in China’s domestic production and increasing imports of pipeline gas from Russia will likely squeeze the need for LNG — a more expensive, flexible gas supply source. In 2022, pipeline imports and domestic gas production were up 9% and 6%, respectively, as LNG imports plummeted. This year, China has re-exported record high volumes of LNG to other countries, indicating weak domestic demand.
In Japan, healthy LNG storage levels and nuclear restarts caused first quarter LNG imports to fall 7% y/y, following a 3% annual decline in 2022. The government has accelerated efforts to bring idled nuclear facilities back online in the wake of global LNG market disruptions caused by the Russian invasion of Ukraine.
This year alone, Japan could bring 4,400 megawatts of existing nuclear capacity back into service, according to BNEF. IEEFA estimates this could reduce LNG demand from the power sector by up to six million tons per annum, or 8% of the country’s LNG imports in 2022.
Nuclear generation presents a similar risk to South Korean LNG demand, though coal retirements and coal-to-gas switching may support LNG imports, which increased 6% y/y in the first quarter of 2023. In the longer-term, however, the country’s most recent power development plan calls for a 20% reduction in the share of LNG-fired power generation through 2036.
In South Asia, prices have not fallen low enough to encourage an all-out return to LNG spot markets. BNEF data shows the region’s LNG demand fell y/y by nearly one million tons combined in February and March.
Pakistan, which often paid upwards of US$20 per million British thermal unit (MMBtu) for spot cargoes last year, now appears unable to afford volumes at US$13.4/MMBtu due to an ongoing foreign exchange crisis. As a result, the government no longer plans to build more LNG-fired power plants over the next decade.
Signs of recovery?
Despite the overall decrease in Asia’s LNG demand in the first quarter, several markets are showing signs of recovery, which could boost competition for limited global supplies.
Thailand has issued five buy tenders since the start of the year for 29 cargoes.
Bangladesh returned to the spot market in February after halting spot market purchases in June 2022. But the government has also been forced to increase energy and power prices and cut subsidies, which totaledUS$2.55 billion in the 2022 financial year.
India’s LNG imports have escalated in recent months, according to official customs data, as several state-owned LNG buyers have reentered spot markets. The country’s power demand has been increasing at its fastest rate in three decades, while a heat wave may keep gas and power demand high in the second quarter.
However, prices may need to fall further to encourage sustained demand growth. A recent tender for eight LNG cargoes through May 2024 to supply India’s newly commissioned Dhamra LNG terminal went unawarded, as the lowest offer was reportedly 18% of Brent crude. This is above the oil parity level of 17.2%, meaning LNG would be more expensive than a barrel of oil in energy equivalent terms.
The Philippines purchased its first ever LNG cargo, scheduled for April delivery. Yet, two ongoing power contract disputes demonstrate the difficulty of pricing LNG into the Philippines market and cast doubt on the economic viability of the country’s LNG expansion plans.
Emerging Asian economies are widely forecasted to be the largest growth market for LNG demand globally over the next several decades. However, IEEFA expects that tight global markets and elevated prices may continue to restrain Asia’s LNG demand growth until significant new supply capacity comes online starting in mid-2025.