Ample LNG inventories, contracted supply to help Japan overcome hot weather

28 May, 2019

Japan is expected to experience average-to-warmer weather between June and August, the country's official forecaster said late last week, with eastern Japan, including its most densely populated city Tokyo, having a 40pc chance of higher-than-average temperatures during the period.

That hot weather, however, is unlikely to spur large demand for spot cargoes of LNG for power plants supplying electricity to the country's air conditioners as most Japanese utilities have more than enough contracted LNG volumes, the sources said.

"It is important to note that Japan is currently overcommitted with term LNG volumes," said Siddharth Kaul, a gas analyst at consultancy FGE.

"Should a hot week result in additional LNG demand, Japan is well positioned to meet this incremental demand from the existing term cargoes (that would have otherwise been diverted to other markets) and would likely not have to source for substantial additional volumes on the spot market," he said in an email.

While top LNG buyer JERA's trading arm bought a spot cargo for early July delivery last Friday during the S&P Global Platts market on close pricing process, it was not immediately clear if it bought the cargo for use in Japan or for trading purpose.

Buyers are grappling with a price disparity between oil-linked long-term cargoes purchased under contract and spot prices, which has caused some buyers to delay the delivery of those cargoes or opt for lower volumes.

High natural gas inventories in Japan has also reduced the appetite for LNG imports, the industry sources added.

Traders familiar with the Japanese market told Reuters utilities are likely to draw down the inventories first before turning to imports.

"The temperature in Japan is getting hot, but ... the buyers' inventories are still high, so there are not many buyers in the market looking for a cargo," a Japan-based industry source said.

Overall, with ample global LNG supply, any spot demand from Japan is unlikely to boost spot prices, traders said.

The prices for cargoes delivered into northeast Asia in July are currently at a seven-week low of $4.50 per million British thermal units.

FGE expects Japan's total LNG demand over July to September to remain flat from the same period last year.

"While last year's summer LNG demand was high due to a heatwave, this year we expect lower available nuclear capacity due to planned maintenance in the summer to increase LNG demand," said Kaul.

Copyright Reuters, 2019

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