South Korea Spot LNG Imports to Fall on Milder Winter

By Shinhye Kang and Dinakar Sethuraman

Jan. 8 (Bloomberg) -- South Korea, the world’s second- biggest Liquefied Natural Gas buyer, may buy fewer spot cargoes of the cleaner-burning fuel as a milder winter and the global recession reduce demand.

Korea Gas Corp., which imports more than 95 percent of the country’s LNG, may buy at least six cargoes in December and January this year from the Atlantic Ocean region, according to AIS Live on Bloomberg, compared with 21 a year earlier. Prices of the fuel have declined by about half from a record in September because of a 71 percent plunge in crude oil prices since July.

“Korea will not buy until they have a real need, unlike in the past when they stocked for the winter in summer,” Tony Regan, an independent consultant and a former Royal Dutch Shell Plc executive, said in Singapore.

South Korea typically uses about 70 percent of its LNG between October and March to meet heating demand. A milder winter will cut demand for city gas while generators may use less fuel as factories cut their output because of the global recession.

“The country had its first winter cold wave alert earlier than last winter but overall winter temperature this year will be higher than past years’,” said Kim Seung Bae, a spokesman at the Korea Meteorological Administration.

Average temperatures from Dec. 1 to Dec. 25 this year was 2.0 degrees Celsius (36 degrees Fahrenheit), up from 1.9 Celsius degree in the same period last year, according to Kim.

Indian Competition

“There isn’t competition for spot cargoes as India is not buying,” Regan said. “Naphtha prices have gone so low that India has stopped buying spot LNG.”

There were no LNG imports since November by Shell in India, according to ship tracking data. That compares with an average three it bought every month this year. Naphtha now trades at less than $8 per million British thermal units in India on energy equivalent basis compared with $13 for imported LNG.

Competition for cargoes from Taiwan and Japan has dropped after demand for electricity declined in both nations because of the global recession. Tokyo Electric Power Co., the world’s biggest buyer of LNG after Korea Gas, has reduced imports for a second month in November.

Slowing Output

South Korea’s industrial production fell by the most on record in November, confidence among manufacturers tumbled and exports declined by the most in almost seven years in November, adding to concern the economy is headed for its first recession in a decade. Macquarie Securities Ltd. forecasts the economy will contract 2 percent next year and UBS AG said it will shrink 3 percent.

Domestic sales at Korea Gas, the country’s dominant gas provider, fell for a third month in December. Power producers’ consumption dropped 25 percent, Korea Gas said in a regulatory filing today.

“Demand from power producers was much worse than we had expected,” said Kim Sang Gil, an investor relations official at Korea Gas. “The trend will continue at least for a couple of months as slower economic growth reduces electricity use.”

Hyundai Motor Co., South Korea’s biggest automaker, temporarily halted operations at some production lines, while LG Display Co., the world’s second-largest maker of liquid-crystal displays, and Hynix Semiconductor Inc. have joined global rivals in cutting output to cope with cooling demand. Posco, Asia’s third-biggest steelmaker, will cut crude steel production for the first time in its 40-year history.

Falling gas consumption has increased the LNG stockpiles in South Korea, company and government officials said.

Rising Stockpiles

“Inventories are high and the tanks are full,” said Kim In Kee, an investor relations official at Korea Gas. The country consumes about 220,000 kiloliters of gas a day during the winter season in November through March.

The nation’s storage capacity at 5.44 million kiloliters is equivalent to about 9 percent of the country’s LNG imports last year, Koh Hun, an assistant director at the energy ministry, said without providing details on LNG inventories.

Falling oil prices may prompt electricity suppliers to switch to fuel oil, curbing demand for natural gas, Korea Gas’s Kim said. The movement of LNG prices usually lags behind changes of crude prices for two to three months.

Korea Western Power Co., one of six generating units of Korea Electric Power Corp., bought 160,000 metric tons of high- sulfur fuel oil for January delivery on Dec. 5. Last year, the power producer bought 60,000 metric tons of fuel oil for January.

“Weather, economic condition and fuel oil prices will decide Korea Gas’ sales volume this winter,” Kim said.

LNG is natural gas that has been reduced to one-six- hundredth of its original volume at minus 161 degrees Celsius (minus 259 Fahrenheit) for transportation by ship to destinations not connected by pipeline.

To contact the reporters on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net; Shinhye Kang in Seoul at skang24@bloomberg.net.