Japan's 2012 Summer Oil Demand for Power to Hit 10-Year High

Source:

"The country's nuclear utilization rates have a direct impact on crude, fuel oil and LNG consumption for thermal power generation."

Japan's crude and fuel oil demand for power generation is estimated to be about 700,000–800,000 barrels per day (700–800 Mbbl/d) during the peak summer season—probably the highest level in at least 10 years, industry sources and analysts told Platts June 1.

Japan's summer power demand season normally runs July–September, when hot weather and, this year particularly, nuclear utilization rates have a direct impact on crude, fuel oil and liquified natural gas (LNG) consumption for thermal power generation.

The estimates compiled by Platts are based on widespread expectations that a majority of nuclear plants would remain offline during summer this year. None of the country's 46.15 gigawatts (GW) of nuclear capacity, spread over 50 reactors, is currently on line. That capacity represents 20% of Japan's total installed power generation capacity of 225.667 GW.

Japanese Prime Minister Yoshihiko Noda is now in the final process of making what he calls a "political decision" to allow restarts of Kansai Electric's Ooi No.3 and No.4 reactors. The units, with a capacity of 1.18 GW each, at the plant in western Japan, may be restarted after securing consent from local government authorities.

After securing all necessary approvals, Kansai Electric is expected to restart the two reactors to ensure stable power supply during the peak demand season.

But Kansai Electric would need at least six weeks to restart the two reactors because it cannot start up both units at the same time, a company source said. It would need at least three weeks each to bring the reactors online after restarting the No.3 reactor first, the source added.

The restart of the two nuclear reactors would have minimal impact on overall oil consumption by Japanese power utilities during the summer as their capacity only accounts for 1.3% of the total installed capacity in Japan excluding nuclear reactors, according to industry sources.

Over July–September, Japan's fuel oil demand for power generation is estimated to be about 420–480 Mbbl/d, while the country's demand for crude for thermal power generation is expected to be about 280–320 Mbbl/d, industry sources said.

Japan's estimated oil demand for power generation during the July–September period will probably be the highest in at least 10 years, according to Platts tracking of data compiled by the Federation of Electric Power Companies.

It will likely be well over double the 330 Mbbl/d or so consumed by Japan's 10 major power utilities last summer, according to FEPC data. The highest level for power generation in the past 10 years was the 390 Mbbl/d of oil consumed in July–September 2008.

During the peak winter oil demand season this year, the major Japanese power utilities consumed as much as 730 Mbbl/d of crude and fuel oil in February as the largest monthly consumption in the season as a result of colder-than-last year temperatures and increasing nuclear outages in the country had boosted consumption of oil, according to FEPC.

Crude, Fuel Oil Procurements by Japanese Refiners and Traders

Meanwhile, Japanese suppliers of crude and fuel oil for local power utilities have already secured a majority of their oil requirements until July, industry sources said.

Some Japanese suppliers have secured their basic crude needs for power generation both from term contracts and on a spot basis over July–September, and will respond further, depending on the actual power demand, industry sources said.

Demand from Japanese generators for prompt spot cargoes of crude for direct burning is thought to be likely for end-July and August as requirements for next month are largely secured, according to regional market sources.

In the wake of the March 2011 earthquake and subsequent nuclear outages in the country, Japan has hiked its imports of low sulfur crudes from Southeast Asia, Australia, Russia and Africa to be used as direct-burning feedstocks or feedstocks to produce low sulfur fuel oil, which will be used for thermal power generation.

Japanese trading houses are said to have bought up Bach Ho cargoes offered by Vietnam's PV Oil for loading end-May and early June after more was made available due to an outage at the Dung Quat refinery. The companies were said to have bought the cargoes on a premium to dated Brent basis, at a lower level than previous prices pegged to Indonesia's Minas grade using Platts and APPI prices, according to sources. Precise details were unable to be confirmed.

Platts assessments for Bach Ho drifted lower in May, with premiums down to $6.97/b above dated Brent on May 31 from over dated Brent plus $10/b in early May.

Minas crude, another direct burning grade sought by Japanese power utilities, especially since the nuclear shutdowns, had premiums to dated Brent fall to $8.41/b on Thursday from over dated Brent plus $10/b a month earlier, based on Platts assessments.

A trader in Singapore active in fuel oil expected further Japanese spot demand for July low sulfur fuel oil cargoes. Japanese refiners may concentrate more on meeting domestic gasoline demand and rely on fuel oil imports. This is despite large stockpiles that have already built up in expectation for the summer and that have recently seen to have held up some vessel discharge.

For fuel oil requirements sought by the power utilities, Japanese refiners also have made arrangements to secure low sulfur fuel oil through a number of term deals over July–September, industry sources said.

Industry sources also said that local refiners are opting to import LSFO rather than hiking their output because the companies would not want to increase output of heavier products in the summer, when Japan will also be in the midst of its peak gasoline demand season.

Takeo Kumagai and Hector Forster
Platts

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