Petrotahlil :The decision would see up to a quarter of the country's coal-fired power plants offline through the peak energy demand months of December and January. This is likely to generate additional demand for LNG, but the volume required and the impact it will have on the wider Asian LNG fundamentals and prices remain unclear.
"The coal situation is still very uncertain. It should result in additional LNG demand, but it could be anywhere between an additional one to two cargoes to eight to nine cargoes per month," an LNG trader said Thursday.
Others have taken a more conservative view, with S&P Global Platts Analytics estimating that one LNG cargo/month would be sufficient to fully offset the shortfall in coal capacity, if the country's remaining coal plants were to operate at 80% from the start of the proposed shutdown.
"If gas were to replace the potential shut-in of coal power plants for these two months, the impact would only be 4.5million cu m/d higher demand in December and million cu m/d in January, the equivalent of just above one LNG cargo per month," said Andre Lambine, senior power analyst with Platts.
EYES ON CHINA
LNG market participants were also monitoring buying patterns in China this week, noting that Chinese importers were the most likely to inject pricing strength into the key Asian markets, should domestic buyers step in for spot supplies.
"If Chinese buyers start to buy, then market prices will go up," another LNG trader said.
So far, China's approach to its coal-to-gas campaign, launched two years ago, seems to have softened, as Beijing seeks to aid a sluggish economy and avoid being faced with another shortage of energy supplies during the peak of winter.
Platts JKM, the benchmark price for spot deliveries to northeast Asia, rose Wednesday for the first time in five trading sessions, amid potential demand from South Korea. However, the benchmark remains at record lows. It averaged $4.58/MMBtu in October, the lowest October JKM on record, followed by October 2009, when it settled at $5.13/MMBtu.
AWAITING FINAL DECISION
According to a proposal by the National Climate Change and Air Quality released Monday, South Korea should shut down up to 14 coal-fired power plants from December to February and up to 27 plants in March as the country fights air pollution.
The presidential committee, chaired by former UN Secretary General Ban Ki-Moon, proposed that the country should shutnine to 14 coal-fired power plants during winter and 22 to 27 plants in March.
In addition, the committee had also proposed to keep the operating rate at other coal-fired power plants during thosemonths at 80%.
The committee said it will submit a final report to the government later this week and will propose suggestions for amid-to-long-term policy for next year, according to local media.
There are a total of 60 coal-fired power plants in the country.
Market sources in South Korea said the proposal is likely to be accepted as the current government has taken a serious stance to curb pollution.
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