Page 8 - AsianOil Week 44 2021

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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

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

P8 www. NEWSBASE .com Week 44 04•November•2021