Page 5 - GLNG Week 44 2021

GLNG COMMENTARY GLNG

output ... in response to a request from Japan,” encouraging shipping companies to avoid bun-
Sugimori said, referring to Japanese Prime Min- kering detours. As such, this will only exacer-
ister Fumio Kishida’s comments last month that bate demand for fuel oil.
his government would call on global oil produc- Bunker traders noted that supply of both
ers to increase their output. HSFO and low sulphur fuel oil (LSFO) had
With high LNG prices driving demand started to tighten, with one noting that it had
among Japan’s power utilities for oil, the coun- suspended spot sales.
try’s refiners are reportedly prioritising this
demand over the bunker sector. Short-term shift
Japan’s oil demand has witnessed structural
Bunker buster declines for many years and, while volatility on
“For refiners, selling fuel oil to power companies the international gas market is boosting current
makes much more sense than selling it to [the] demand, this is set to continue shrinking over
bunker market as the prices for power compa- the long term.
nies are much higher,” Platts quoted an unnamed Japan’s refiners have been encouraged to
bunker trader as saying. consolidate and close inefficient refineries in
This is apparently beginning to strain fuel the face of reduced domestic fuel demand and The government
oil supplies, with Platts’ sources noting that rising regional competition for export market
local refineries were reluctant to increase their share. has its sights
throughput. The government has its sights set on set on expanding
The pricing agency said the higher middle expanding the share of renewables and
distillate crack spreads were curbing the down- nuclear in the power mix at the expense of the share of
stream sector’s enthusiasm for bunker oil pro- both LNG and oil.
duction. Platts quoted one bunker trader as The government has pledged to source renewables and
saying: “Refiners don’t want to increase fuel oil 36-38% of the country’s energy from renewables
production.” by 2030, up from 18% in 2020. While nuclear is nuclear in the
This will make things tricky, with demand also to see a boost – from 6% of the power mix power mix at the
for bunker fuel from the shipping industry to 20-22% – LNG is expected to see its slice fall
expected ramp up over the next few months. from 37% to 20%. expense of both
“Ships arriving in Japan after mid-November Tokyo’s determination to boost renewables
load bunker fuel for two voyages,” Platts quoted and nuclear energy’s presence makes envi- LNG and oil.
a shipping industry source as saying. The ships ronmental and strategic sense, particularly
stock up on fuel ahead of the New Year holi- in light of recent commodity market vola-
day period, when bunkering operations are tility. While surging LNG prices may stoke
suspended. oil demand over the winter, bunker market
While ships might have opted to secure bun- tightness is likely to ease in the spring as tem-
kering services at a cheaper port, Platts ship- peratures rise and demand from the bunker
ping sources noted that high freight rates were industry normalises.™

Week 44 05•November•2021 www. NEWSBASE .com P5