LNG: High Japanese Appetite to Hit Spot LNG Supply

High Japanese demand keeps spot LNG prices high, which remain just below the crude oil on energy equivalent basis. As the winter sets in the northern hemisphere a further boost in demand and prices could render LNG unviable for Indian importers. Indian natural gas players could see a dip in volumes in such an event.
Japan’s imports of LNG have grown substantially since the Fukushima nuclear disaster in March ’11. Today, nearly 80% of the country’s nuclear power capacity is offline and the power companies are trying to make up the shortage through LNG and coal.
Japan is approaching its winter season, with power demand peaking from December to February. The colder weather has a direct impact on kerosene, fuel oil and LNG consumption for power and heating.
According to the Federation of Electric Power Companies, Japan, the LNG imports of top ten power companies grew at 28.3% in October and November 2011 after growing at 21.3% in the April-September period. The total imports stood at 34.6 million tonne for the April-November 2011 period — up 23% against year ago.
Higher imports by Japan have directly impacted the availability of spot LNG cargos and boosted prices. The spot LNG prices in Asia have moved up from around $16 per MMBTU in September 2011 to $17.5 in December. While in the same period, the benchmark Brent crude oil prices have marginally eased from $113 to $106 per barrel. As a result, on an energy equivalent basis, the differential between spot LNG and the crude oil prices has narrowed to just $1-1.5 from $3-3.5 a couple of months ago.
Industry experts fear that if the situation were to worsen from here on, Indian consumers could find liquid fuels cheaper to the imported natural gas. The result will be a reduction in India’s LNG imports — at least temporarily — that can impact revenues of companies such as Petronet LNG and Gail.
Things may not be too bleak at present, with South Korean LNG demand going down substantially of late. Platts, the leading energy information provider, noted that the country’s LNG imports fell 35% in November to 2.32 million tonnes due to inventory buildup. Media reports suggested Japan could face a similar inventory glut in January — there was a 1.8 million-tonne differential between the LNG purchased and consumed by Japan’s power companies till November ’11. Any easing of LNG prices will be a great relief for Indian companies in the natural gas sector.