JKM slumps to record low on Asian LNG demand destruction, supply glut

Spot LNG prices in North Asia are languishing at record lows of below $2/MMBtu amid wide-scale demand destruction in major importing locations due to the COVID-19 pandemic, and abundant availabilities following deferments and cancellations of spot and term cargoes.

JKM, the benchmark price for spot LNG in Northeast Asia, plunged to a historic low of $1.90/MMbtu on Monday, falling 63.5% from the beginning of the year, S&P Global Platts data showed.

In an oversupplied spot LNG market due to a milder than usual winter and increased production from Australia, Russia and the US, the pandemic has further exacerbated the supply glut due to the limited buying appetite of importers such as Japan, South Korea, Taiwan, China and India.

Platts takes a closer look at the demand landscape of five key Asia Pacific locations, namely Japan, China, South Korea, Taiwan and India. Together, these locations accounted for 218.5 million mt of imports in 2019, or 62% of the global import volume.

A demand-side analysis showed that first-quarter demand from all five importers, especially that of India, which leapt 43% from a year ago, and South Korea, rising 21% year on year, was exceptional. However, the pandemic has caused demand from these locations to evaporate, losing 16.4% year on year so far this month.

Japan: Buyers defer cargoes on tank-top concerns

The Japanese government declared a state of emergency in seven large prefectures on April 7 and extended it nationwide on April 16 to contain the spread of the virus.

Expectations of downstream demand declining 5%-10% from some utilities and industries has pushed Japanese LNG importers Kansai Electric, Osaka Gas and Tokyo Gas to defer cargoes to later dates, market sources said.

Japan's Inpex was reported to have issued a tender on April 23 from its Darwin LNG facility for May 24-26 loading due to tank-top concerns at its Naoetsu terminal.

While Japan's Q1 LNG imports were almost flat on the year at 21.2 million mt, imports to-date in April are lagging at 4.3 million mt, compared with 5.3 million mt a year ago, according to cFlow, Platts trade-flow software.

China: Hardest hit, but recovery continues

China, the first country hit by the coronavirus, had gone under lockdown long before others, starting with Wuhan on January 24. Its LNG imports dropped 3%-4% year on year in January and February, Platts cFlow showed.

China's LNG imports are showing signs of improvement with a 1.5% year on year uptick in March imports and a 6% year on year increase so far in April to 4.3 million mt. Nevertheless, market participants expect Chinese imports to slow as exports in general take a hit.

"Demand aspects of China are not so optimistic. There are three pillars to China's economy: investment, exports, consumption. Investments and exports are down currently," a Singapore trader said.

South Korea: High inventory

South Korea's largest LNG buyer, KOGAS, is reported to have high inventories as downstream consumption took a hit after COVID-19 cases spiked in the country in March. KOGAS was heard to have deferred 10-20 cargoes, many of which were from Qatar, due to lower demand expectations.

While South Korea was one of the few bright spots for LNG demand in Q1, imports up to-date in April is around 2.5 million mt compared with 3.4 million mt a year ago, Platts cFlow showed.

South Korea's high inventories was due to substantial spot volumes traded by buyers capitalizing on low spot prices in Q1.

"Kogas continued receiving their term cargoes on top of the cargoes that China couldn't take in March. We are only seeing the effects [of drop in demand] recently after Kogas started deferring cargoes," a Singapore trader said.

Taiwan: Resilient demand in face of pandemic

One of the few North Asian locations not severely impacted by COVID-19, Taiwan was still reported to have deferred LNG cargoes. However, this could not be verified.

CPC had issued a tender to purchase six cargoes over June-December, but postponed the close of the tender to May 5, from April 24.

Taiwan's Q1 demand rose 15% year on year to 4.3 million mt, but imports may be flat in April with inflow at 1.1 million mt so far in April, compared with 1.3 million mt a year ago, Platts cFlow data showed.

India: Downstream takes a hard knock from lockdown

India's lockdown, which started on March 24 and extended until May 3, posed a challenge for several LNG importers as they grappled with potential demand destruction and tank top concerns in its two busiest ports of Dahej and Hazira.

LNG importers GAIL, Petronet LNG and GSPC declared force majeure to its suppliers due to the challenges posed by the lockdown, as demand from industrial, city gas distribution and power sectors plunged.

While Indian buyers were bargain hunting for LNG at record low prices in Q1, importing 7.1 million mt, up 43% year on year, monthly imports into the country till April 28 stands at 1.3 million mt compared with around 2 million mt a year ago.

The West India Marker, the spot LNG price for cargoes delivered to West Coast India, was assessed at a record low of $1.763/MMBtu on April 23, Platts data showed.

Despite COVID-19 causing wide-scale demand destruction across several countries, an unabated influx of supply continues, with sellers like Petronas, Sakhalin, Tangguh, Ichthys, Bontang issuing tenders for multiple cargoes and others supplying additional cargoes due to delayed planned maintenance to limit capital expenditures and logistical challenges.