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India's pandemic, Japan's restrictions dampen Asia's spot LNG demand

Highlights

India's spot LNG demand dries up, power demand drops

Japan's LNG imports hover near year-ago pandemic levels

Concerns over tank-tops, worsening pandemic crisis in India

Singapore — Asia's LNG demand has been dampened by the worsening pandemic in India, that is expected to curb gas and power demand, with spot cargoes already impacted, and the declaration of emergency in Japan, where imports are already hovering near year-ago levels.

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While the adverse impact of India and Japan on the LNG market will be offset by stronger growth in other regions like China, and spot Asian LNG prices remain supported at more than $8/MMBtu, downside risks have increased especially with the deteriorating situation in India.

Indian buyers typically account for three to four spot LNG cargoes per week, but spot demand has been curtailed since the start of April as lockdowns spread across several states, and end-users were unlikely to award previously issued tenders, or make spot purchases for deliveries in May and June.

"Demand for spot LNG cargoes has completely dried up. Domestic demand is uncertain. And at the same time, prices in the summer season are what we see normally during the winter. I would think regasification volumes are down by double-digit levels," an India-based LNG trader said.

A senior official at a state gas company said: "Domestic demand for gas is down by at least 10% from the usual levels since most of the sectors are feeling the impact of COVID-19." He added that India's gas demand during normal times was around 22 million-23 million mt/year.

State-run Bharat Petroleum Corp did not award an April 20 buy tender for two May and June deliveries, according to traders. Privately-held Reliance Industries has an ongoing tender, which closes April 27, for a June 1-6 delivery into Dahej LNG terminal, and market participants are watching its results closely.

One Indian end-user, that typically buys one or two LNG cargoes a month, said it might cancel near-term purchases in anticipation of lower downstream power and gas demand. "Going forward it might be more [of a fall] depending on the lockdown situation," the end-user said, adding that no force majeure notices, or deferment requests has been issued.

LNG traders cited widespread concerns of terminal inventories reaching full capacity, or 'tank-top', this week, but when contacted, terminal operators declined to confirm this trend.

While local restrictions are not as stringent as last year, the fall in spot demand could depress Indian spot LNG prices and widen the JKM-WIM LNG spread even further, according to an LNG supplier. On April 26, Platts had assessed the JKM-WIM price differential at 40 cents/MMBtu.

Downstream demand impact

Market participants said India's city gas distribution sector was more impacted than industrial demand, as most factories were still operating despite localized lockdowns, but residential gas demand was stable.

Power demand, however, started to contract in April, with industrialized states like Karnataka, Kerala, Tamil Nadu and Gujarat showing initial declines.

Average power demand in India was 165.6 GW during the first week of state lockdowns in April, which is only about 2.7% lower than the previous weeks, Andre Lambine, senior power analyst at S&P Global Platts Analytics said. During the same week in 2020, power demand was only 122 GW.

"There is a lot of uncertainty on how long the lockdown will last, and if other states will implement similar restrictions. For now, we do not assume a nation-wide shutdown in India, and have only factored in a reduction in power demand until May 3," Lambine said.

Japan's state of emergency

Japan LNG imports

In Japan, LNG imports in March and April are already trending near 2020 lows when the pandemic first hit. Japanese power and gas utilities see demand negatively impacted from such closures, but expect some to be offset by household demand as people refrain from going out.

On April 25, state of emergency restriction measures were declared for Tokyo, Osaka, Kyoto and Hyogo prefectures until May 11 as a precaution ahead of the Golden Week national holidays over late April to early May.

This is the third round of measures since April 2020, covering 24% of Japan's total population, and comes a little over a month after the last state of emergency was lifted on March 21. Under them, large commercial and recreation facilities such as department stores, and amusement parks in the imposed prefectures must remain closed.