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Asian LNG demand for industry continues falling, despite prices moderating, as output shrinks

  • Author
  • Michelle Kim    Sue Koh    Kamna Kapoor
  • Editor
  • Wendy Wells
  • Commodity
  • LNG Natural Gas Oil Petrochemicals

Asia's LNG demand from the industrial sector is continuing to wane, despite global LNG prices moderating from the record highs reached in the wake of Russia's invasion of Ukraine, due to a slowdown in activity in key downstream sectors, particularly refinery and petrochemical plants in China and India, and a higher update of alternative fuels, market sources said Nov. 14-18.

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South Korea's LNG consumption by its industrial sector fell 5.42% year on year to 2.235 million mt over January-August, while the sector's oil product demand rose 3.67% to 49.584 million mt and total energy consumption rose 1.12% to 98.69 million mt over the same period, latest Korea Energy Economics Institute data showed.

"High LNG prices hit by the Russia-Ukraine war and accelerated fuel switching to cheaper energy resources have curtailed gas consumption by the broad industrial sectors in the country," an industry source in South Korea said.

Gas demand by the industrial sector accounted for around 21% of South Korea's total LNG demand of 7,141 million cu m in 2021, behind power generation at 48%.

LNG demand from the country's industrial sector had been growing steadily since 2016, despite a pause in 2020 when COVID-19 lockdowns were imposed, amid government moves toward low-carbon energy and relatively stable LNG prices before the Russia-Ukraine war, market sources said.

In India, LNG demand from the industrial sector (excluding petrochemical and refinery) hit a near five-year low at 231 MMcf/d in August, Ministry of Petroleum and Natural Gas data showed. Over January-August, LNG demand from the refinery and petrochemical sectors fell 49.33% and 35.42%, respectively, which market sources attributed to high LNG prices and an ample supply of cheaper domestic gas.

LNG demand by the industrial sector including petrochemical and refinery accounted for 26% of India's total LNG consumption in 2021, according to S&P Global Commodity Insights calculations.

Weak margins

Lower run rates and weak production margins in key downstream refinery and petrochemical segments were exacerbating LNG demand destruction in industrial sectors across Asia, market sources said.

Northeast Asia is an industrial powerhouse for petrochemical products such as styrene monomer, phenol, caprolactam and others that require benzene.

Operating rates at SM producers in China have fallen below 70% of capacity and were even lower for downstream manufacturers, with some producers either shutting or running fewer lines, despite the tail end of the year being the seasonal peak period for producers to maximize petrochemical product output for festive goods-making.

The Asian benzene-naphtha physical spread, a barometer of the health of the aromatics sector, plunged to a more than two-year low of $95.17/mt Nov. 17 from $641.125/mt on June 10.

Gas consumption by the industrial sector accounted for 41% of China's gas demand in 2021, followed by power generation at 22% and residential 17%, according to S&P Global calculations.

Economic slowdown

Competitive prices of alternative fuels such as gasoil and fuel oil were accelerating a fuel switch away from LNG. Thailand's PTT was heard to have recently faced the 'tank-top' situation in diesel, indicating supply was ample, according to market sources.

The bearish economic outlook across Asia further heightened the gas demand destruction in the industrial sector.

China's Caixin/S&P Global Purchasing Managers Index stood at 49.2 October, below the 50 mark that separates growth from contraction for the third straight month.

Slower recovery due to localized lockdowns in China in recent months has exacerbated the LNG demand destruction in the key demand center.

In India, a depreciating rupee and inflationary concerns have further hit downstream demand, weighing over the overall outlook for the financial year. Key producers were seen opting for run cuts to support margins, market sources said.

"Previously, the high LNG prices due to the war reduced LNG demand from industry, but now poor margins and lower runs hit by the overall economic slowdown are reducing fresh LNG demand recovery from the broad industrial sectors, even although the LNG prices moderated," a market source said.

The Platts Asia JKM Japan/Korea DES Spot prices hit a historic high $84.762/MMBtu March 7 in the wake of Russia's invasion of Ukraine. It has since moderated to be assessed at $24.781/MMBtu Nov. 17, S&P Global data showed.