Business | Oil & Gas
High stockpiles could dampen Japan LNG demand
Japanese demand for wintertime liquefied natural gas (LNG) may fall short of high expectations after utilities moved quickly this summer to bolster stocks, keeping spot market sellers cautious on potential price gains.
- Reuters
- Published: 23:12 August 16, 2007
Singapore: Japanese demand for wintertime liquefied natural gas (LNG) may fall short of high expectations after utilities moved quickly this summer to bolster stocks, keeping spot market sellers cautious on potential price gains.
Spot LNG cargoes from the Atlantic Basin for delivery in the peak of winter demand have been offered to buyers in South Korea and Japan at around $12 to $13 per million British thermal unit (Btu), up from prompter spot trades at about $10 to $11 per mmBtu, market sources said.
Although state-run Korea Gas Corp (Kogas) is set soon to begin buying its usual batch of extra winter cargoes, it remains unclear whether any winter deals have been done, and sellers have been surprised by the lack of apparent interest from Japan.
"When you ask the Japanese how much LNG they've bought over the past month, they say only one thing: 'Enough'," said one trader with an LNG producer. "Tokyo Electric Power Co. [Tepco] went out to source actively before they were desperate, and that's keeping sellers from trying to get higher prices."
Talk of spot deals for August or September cargoes at just above $10 per mmBtu has circulated since about a week after Tepco shut down its Kashiwazaki-Kariwa nuclear power plant, the world's biggest, after a July 16 earthquake.
Appetite
It has said it will need an extra 1.3 million tonnes of LNG in the year through next March, but traders say it appears to have little appetite for winter cargoes at the moment.
Industry sources in Japan say domestic gas stocks are particularly high following a warm winter and cool summer than curbed demand. Japanese importers have also refrained from striking any time-swap deals with South Korea, which means they will keep all their winter cargoes for themselves.
"It seems reasonable to think that Tepco has or will soon have purchased the majority of the additional cargoes they need for this financial year," said Cecile Jovene, principle consultant on the gas team at FACTS Global Energy in Singapore.
"That said, I don't see Tepco procuring the whole of it - summer is not over and that might affect the volumes they need."
In fact temperatures hit record highs in Japan yesterday, as a heatwave swept the country, raising the risk that Tepco will have to crank up operations at gas-fired plants more than expected following an unusually mild summer so far.
Tepco has said it may struggle to meet peak power demand from the capital if temperatures go above 35.3 degrees Celsius, as they have done for the last few days.
On the supply side, traders said conditions should be better than last year thanks to more readily available spot supplies.
New projects include the 3.4 million tonnes per year (tpy) Equatorial Guinea LNG, which is being marketed by BG, and Statoil's 4.3 million-tpy Snovhit, by December. One cargo from Equatorial Guinea has been sold into Taiwan.
"That can do a lot toward easing the spot market. Certainly on the supply side I think that makes a difference," said Gabriel Wayne, head of LNG at consultants PFC Energy.
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