China’s monthly LNG imports exceeded those of South Korea for the first time in May. Some 2.9 million tonnes (mt) were discharged at Chinese terminals, 104 per cent more than in May 2016. South Korea’s 2.49mt represented a 12.4 per cent year-on-year jump.
China is the fastest-growing major market for LNG, on course to overtake South Korea to become the world’s second-largest LNG importer. The big question is when.
Until recently, it appeared that South Korea’s long sojourn as the second-largest importer might be over as early as the end of this year. However, the May 2017 election of President Moon Jae-in has signalled the country’s resurgent interest in LNG.
South Korea is a mature market for LNG, with imports stable around the 35 million tonnes per annum (mta) mark for many years. However, President Moon is promoting, for environmental reasons, an energy policy to ease the country’s heavy reliance on coal and nuclear power, making greater use of LNG and renewables.
Heading for crossover
The prospect of the two countries switching positions in the league table has gained traction as South Korea’s commitment to LNG purchases has wavered. Following two years of slightly declining import volumes, South Korea increased its inbound shipments in 2016, by 2.3 per cent on-year, to 33.4mt.
South Korea’s turnaround last year was spurred by outages at several nuclear power plants and by a cold second half of the year. But its annual growth rate in LNG imports paled in comparison to that of China.
Chinese LNG purchases jumped by 32.6 per cent in 2016 to reach 26.1mt. This was due to the government drive to reduce atmospheric pollution in the nation’s many cities, to new production volumes contracted in Australia and to the general availability of competitively priced LNG.
The robust growth in Chinese LNG imports has continued over the first five months of this year. The country received nearly 12.9mt over the period, 38 per cent more than in the first five months of last year.
South Korea’s rebound continued into the new year, even before President Moon took office. Cargo discharges at the country’s receiving terminals during the first five months of 2017 reached nearly 16.3mt, a 7 per cent increase on the same period a year earlier.
If we extrapolate the five-month expansion rates for the two countries of 38 and 7 per cent over the whole year, China will have imported 36mt of LNG in 2017 and South Korea 35.7mt.
South Korean infrastructure
The majority state-owned energy companies – Korea Gas Corp (Kogas) and China National Offshore Oil Corp (CNOOC), PetroChina and Sinopec in China – dominate LNG receiving terminal activities in the two countries. However, these entities are beginning to face more competition.
South Korea depends on LNG imports for virtually all of its natural gas and Kogas accounts for around 95 per cent of these shipments. The government intends to deregulate South Korea’s gas sector by 2025, ending Kogas’ virtual monopoly over the purchase, import and wholesale distribution of natural gas.
Other companies can import LNG, as long as they only use the gas for their own purposes and as long as the price does not exceed the Kogas long-term contract prices.
One private South Korean energy company seeking LNG to fuel its power plants is SK E&S. The firm brought the 3 mta Boryeong LNG receiving terminal onstream in January this year in a 50-50 joint venture with GS Energy. Situated 190km south of Seoul, Boryeong is the country’s sixth and its second private LNG terminal.
SK E&S, which has rights to 2 mta of the capacity at Boryeong, has augmented its LNG supply portfolio by signing up for 2.2 mta of the output from Train 3 at Freeport LNG in the US Gulf. Freeport Train 3 cargoes will begin loading in 2019 under this 20-year contract, most of them destined for Boryeong.
Two 180,000m3 LNGCs ordered at Hyundai Heavy Industries last year will transport a substantial proportion of the Freeport volume. The pair will be delivered in 2019 and will be operated by the group’s SK Shipping affiliate for SK E&S.
Vessel bunkering is also set to boost the spread of LNG in Korea. The country’s shipbuilders want to win the lion’s share of orders for new LNG-powered ships and its marine authorities want to set up LNG fuelling arrangements in the country’s ports.
South Korea’s first dedicated LNG-bunkering facility is scheduled for completion at the Kogas receiving terminal in Tongyeong later this year. Similar arrangements will follow at the Gwangyang, Boryeong and Incheon LNG terminals.
These infrastructure initiatives have recently been augmented by an order for two 7,500m3 LNG bunkering/coastal distribution tankers, South Korea’s first such vessels, at Samsung Heavy Industries, for delivery in 2019.
Chinese terminal spread
China now has 16 operating LNG-import terminals, including three small-scale facilities, with an aggregate capacity of 50.6 mta. About 50 per cent of this capacity is being utilised.
Three additional Chinese import terminals are being built, totalling 10 mta in capacity, set to open in the next 12 months. Several more are planned, and several have completed the statutory permitting process.
The newest is Guanghui Energy’s 0.6 mta Qidong terminal, commissioned in June with the discharge of a 60,000-tonne cargo by Grace Acacia. Like Jovo’s Dongguan facility, another Chinese small-scale import terminal, Qidong is privately owned.
Jovo and Ganghui, both gas-distribution companies/domestic gas suppliers, are enabling third-party access to China’s LNG import terminals for the first time through their new installations. Ganghui’s Qidong terminal is a joint venture with Shell and will increase its throughput capacity to 3 mta by 2019.
ENN, China’s largest private gas distribution company, is building one of the three terminals due for completion by mid-2018. This terminal, a 3 mta facility at Zhoushan in Zhejiang province, will also offer third-party access.
Chevron has signed up to provide 0.5 mta of LNG to Zhoushan for 10 years from its Gorgon project in Australia. Total will supply ENN with the same volume over the same period from its global portfolio.
Parting of the ways
South Korea began importing LNG in 1986; China only in 2006. Both countries are growing and diversifying their LNG regasification and transport infrastructures, although market liberalisation is more advanced in China.
LNG World Shipping predicts that, due to President Moon’s pro-LNG policy and the difficulty in maintaining close to a 40 per cent growth rate in China, South Korea’s import volumes will remain the second highest in the world this year.
However, China will move into second place, strongly, next year, supported by a sustained buyers’ market for LNG. And we expect the two countries’ LNG-import totals to continue to diverge thereafter.
One source reports that, thanks to President Moon’s entry into office, South Korean LNG purchases could well reach 45 mta by 2030. However, Shell, in its LNG Outlook 2017 published in March, predicted that China’s annual LNG imports will top 80mt by 2030.