Page 4 - GLNG Week 44 2021

GLNG COMMENTARY GLNG

Japan’s oil demand jumps

amid surging LNG prices

The country’s power generators are looking to fire up their oil

generators as they baulk at near-record spot LNG prices

PERFORMANCE THE Japanese power sector’s fuel oil demand has While the country’s LNG demand has eased
soared in response to record spot LNG prices, somewhat in recent years, the country was
WHAT: with the country’s largest refiner acknowledging still the largest importer of it in 2020, purchas-
Japan’s largest refinery that it would struggle to meet demand. ing 74.4mn tonnes of the fuel. The rise in spot
has warned that it Eneos president Tsutomu Sugimori, who is prices to record highs, then, puts the country’s
may struggle to meet also the head of the Petroleum Association of gas users in a precarious position.
increased fuel oil Japan (PAJ), said last week that record high spot “Spot LNG prices have risen considerably and
demand. prices for LNG deliveries to Asia had led to a we have received requests from electric utilities
rising number of requests for oil supplies. that want to use oil as a substitute,” Sugimori
WHY: Price agency S&P Global Platts’ Japan-Ko- told reporters on October 27.
The power sector is rea-Marker (JKM), a benchmark for spot LNG He added: “We are not sure if we can respond
now competing with contracts, rose to a record high of $56.33 per to all requests as our supply chains, includ-
the bunker industry for mmBtu on October 6. While the spot price has ing ships, tanks and staff, for the utilities have
limited supplies. retreated somewhat since then, it remains high. shrunk considerably as demand has been
Japanese buyers have, in recent years, be dropping. But we’ll try to respond as much as
WHAT NEXT: reluctant to sign long-term contracts in the face possible.”
The surge in oil demand of a prolonged period of market oversupply. Sugimori noted that Japanese utilities’ typical
will be short-lived and They have preferred spot purchases or short- reliance on fuel was around 3% of their feed-
will peter out after the term contracts owing to the challenges in fore- stock needs.
winter. casting Japanese power demand. High sulphur fuel oil (HSFO) users have been
This position, however, has exposed the coun- the first to begin looking for supplies in prepa-
try’s gas buyers to pricing volatility and is driv- ration for the winter months, Platts quoted
ing many power producers to turn to fuel oil. unnamed market sources as saying on Novem-
ber 2.
Demand pressures Sugimori warned that international oil prices
Japan increased its dependence on liquefied nat- could climb beyond their current range if
ural gas (LNG) in the years following the nuclear OPEC+ failed to boost supply. The international
disaster, which took place in March 2011. Fol- Brent benchmarks settled at $81.99 per barrel
lowing the closure of the country’s nuclear reac- on November 3, while US West Texas Interme-
tors, the power sector had little choice but to rely diate (WTI) closed at $80.86 per barrel.
on fossil fuels to pick up the immediate slack. “We hope OPEC+ will decide to increase

Japan was still the
largest importer of
LNG in 2020.

P4 www. NEWSBASE .com Week 44 05•November•2021