The crucial pre-winter shoulder months of August, September and October will determine the level of LNG storage at which countries will start the winter.
Commodity analytical company ICIS estimated that Japan and South Korea bought a combined 5.5 mill tonnes of spot LNG during this period last year.
China alone bought 1.5 times this combined amount last year. However, it is unlikely to be competing for much spot LNG in the coming months, due to high prices and a slowing economy.
ICIS forecast that Japan and South Korea will seek to secure slightly more than 5 mill tonnes of spot LNG this month and in September and October – assuming that there is not much flexibility or uplift available from their long-term contract suppliers.
This amount is less than the two countries bought last year, but is still the equivalent of almost 80 spot LNG cargoes just before the winter season sets in.
To secure these cargoes during the current gas shortage occurring in Europe, the North Asia spot price will need to close the gap with the European gas price.
Yesterday, South Korean energy statistics provider KESIS confirmed that the country’s storage inventory is around 1.8 mill tonnes. This is 0.9 mill tonnes lower than ICIS had forecast, which is estimated to be the ‘normal’ level of inventory for previous early Augusts.
In addition, the mandated 90% storage needed by the end of October will mean that an additional 0.5 mill tonnes of LNG will be required to fill the gap.
Consequently, ICIS Analytics predicted that the country will seek to purchase 2.4 mill tonnes of spot LNG this year, some 0.3 mill tonnes more than in the same period of 2021.
ICIS also estimated that Japan’s storage inventory level should be at 4.9 mill tonnes. This is 26% higher than the past five years’ average, but just slightly below the record high for the same month in previous years. There are signs, however, that a few storage outlets could be full soon, creating logistical and storage management problems going into the winter.
This is likely, due to several factors, such as over-stocking the summer demand and the general sentiment to maintain a high level of storage, especially when transitioning into the second half of the year.
ICIS said that it expected companies to draw down another 0.6 mill tonnes of LNG this month, as Japan goes through its summer peak, followed by three months of gas input into storage, well into November.
Japan is forecast to buy nearly 2.7 mill tonnes of spot LNG in the coming three months, 20% less than in the same period last year. This will lead to a decent storage level of 4.9 mill tonnes by the end of October and 5.4 mill tonnes by November, just before the winter withdrawal season begins.
Overall, ICIS believed that the North Asia spot market will be tight in the coming pre-winter months, as the two countries will be looking for around 80 spot LNG cargoes to reach the storage levels needed, competing with Europe for the cargoes.
However, the competition would have been even stronger, if China was buying more LNG, but it is currently less active and being priced out of the spot market.
