Japan's LNG imports to reach physical limit

Decreasing nuclear power generation has lifted demand for thermal power output. Liquefied Natural Gas is the main fuel for the thermal power generation but the capacity of landing LNG is approaching to the physical limit. Petroleum is more likely to be used to make up for further nuclear power shortage.

Kyushu Electric Power Company ceased a 1.2 MW unit at Genkai Nuclear Power Plant on Sunday for the regular maintenance. The company has lost entire power supply from its total 6 nuclear units. Meanwhile, any details to resume the units are not decided because both local and central governments have not allowed.

Only 6 of total 54 nuclear units are still operated in Japan and these units are also scheduled to be shut for mandatory maintenance works within few months.

Japanese electric power suppliers have boosted thermal power generation to make up with the lack of nuclear power supply following the severe earth quake in March. Domestic thermal power supply in the first eleven months in 2011 rose 15.9% from a year earlier to 500 billion kWh, while nuclear power supply sunk 40.6% on year to 152 billion kWh in the same period, according to the Federation of Electric Power Companies of Japan.

LNG has been the main fuel resource for the power generation. LNG-burning power supply was estimated to account for 280 billion kWh of 500 billion kWh total thermal power generation in the Jan-Nov period. Coal-burning power generation was estimated at 149 billion kWh and petroleum-burning power generation was seen to 71 billion kWh.

Vigorous demand from the electricity sector lifted Japan's LNG imports during the Jan-Nov period by 12% from a year ago to 71.36 million tonnes.

However, industry sources expect Japan is not able to import more than 86 million tonnes annually because of the limited landing capacity. The amount of LNG supply in 2012 may not exceed the more than 5% level from a year ago.

Thus petroleum is likely to be more important fuel resource for Japan's power generation.

Meanwhile, fears of a lack of electric power supply capacity due to the nuclear outage will require Japanese consumers to save more electric power than this year.

Current Japan's domestic total electric power generation capacity is about 230 million kw and 180 million kw will remain after ceasing entire nuclear power plants. But reasonable available generation capacity may stay about 154 million kw because maintenance works and unexpected outage prevent full capacity operations.

The maximum electricity demand in the 2011 summer season was 158 million kw. Japanese electric power suppliers still held 13 million kw of nuclear power capacity at that time, while the absence of nuclear power might cause about 4 million kw of power shortage if the maximum electricity demand in 2012 reaches to the similar level a year ago.

Japanese electricity users are likely to reduce power consumption by 3-5% on year to avoid the serious power outage.

If Japanese users save 3% of electricity usage, petroleum consumption for power generation is likely to increase by about 380 barrels per day by offsetting of lower electricity demand and the absence of nuclear power supply.

Petroleum demand for power generation increased by 69% on year after the March earthquake, but the additional amount was only about 120 bpd. The increase of petroleum demand accompanying the ceased nuclear power plants will visibly expand from now on.


How absence of US troops affects Iraqi oil output?

The Iraq War officially ended and remaining U.S. troops are scheduled to withdraw by the end of this year. How the entire withdrawal of foreign troops affect on Iraqi oil production?

Iraq produced about 2.5 million barrels per day of crude oil before the break of Iraq War in March 2003. The country's crude oil output nosedived to nearly zero and recovered to around the 2 million bpd level after major battle was over.
The production, however, was interfered because of the aggravation of the peace until late 2007.

The peace is the important factor for the stable oil production.
Iraq was seen to produce about 2.7 million bpd of crude oil in November 2011. It is close to the nation's current output capacity of 3 million bpd.

Iraq is one of the world richest oil reserve country that have 115 billion barrels of reserve. Iraqi potential crude oil production capability is estimated at 13 million bpd.
Wars and disputes over the past three decades prevented the nation from developing the rich oil resources.

Iraq released its oil field for the international players in 2008 and foreign companies acquired development rights of total 11.1 million bpd of anticipated crude oil output through the bidding in 2009.
Further biddings for the unprospected mining area are also scheduled in early 2012.

Iraqi government is very optimistic following the aggressive investments by foreign companies.
It anticipates 6.5 million bpd of crude oil production in 2014 and 12 million bpd of output by 2017.
But the International Energy Agency forecasts that Iraqi oil production is likely to be about 4 million bpd and won't surge like Iraqi government expects.

Crude oil shipment capacity in the country is also expected to increase from the existing 2.5 million bpd in line with the rising production capacity.
The nationwide peace keeping is required because the country's oil fields are widespread from south to north.

The following chart shows the number of civilian death increased sharply between 2004 and 2007 although the large-scale battles ended within 2003.

The U.S. government says that the increased troops helped to calm the situation in late 2007. But the main reasons for the peace recovery were recognized as that the U.S. and Iraqi government gave funds to anti-Americanism militia organizations and conciliated them for the al-Qaeda-linked organizations annihilation.

Revenge is an important factor for the Middle Eastern disputes. People have to do revenge when their relatives are killed even if the killed person was not justice. People who lost their relatives by the anti-terrorism fights are likely to hate and attack foreign troops.

Withdrawal of foreign troops is likely to reduce opportunities to spread the hate. On the other hand, the confrontation structure among Iraqi people --the Shia and Sunni Muslims, Kurdish, al-Qaeda-linked groups, etc-- deepened in the growing process of the self-warning organizations.

Meanwhile, the stability of the Iraqi society, and favorable oil resource development may ease the global balance of oil supply and demand that lead oil prices lower. It must be an unpleasant situation for Iran that is decreasing oil production due to the absence of resource development caused by the international sanction.


Does rebounded oil demand lift China's economy?

China's crude oil imports and throughput in November showed recovery from the sluggish movements over the past few months. Does it mean steady economic growth in China?
According to the Chinese government, the country's crude oil processing rose 3.2% on year to 37.87 million tonnes in November. The daily crude oil processing volume posted the highest level for the first time since December 2010.

Crude oil imports also rose 9.1% on year to 22.69 million tonnes in November. The largest year-on-year increase in this year lifted the import volume to the highest level since September 2010.

Meanwhile, China's automobile production and ethylene output in November rebounded sharply from the slump over the July-September period.
But the November car production was 1.3% lower than the same period a year earlier and the growth of ethylene output stayed at only 1.9% on year.
These numbers were improved from the previous quarter, but the growth of industrial activities was not strong enough.

The following chart shows the trend of year-on-year growth of Chinese industrial indications.
The growth rates improved in 2009, peaked out in 2010 and are fading this year.
The recovery of crude oil throughput in November was not enough to cease the downtrend of the growth rate. The year-on-year growth rate of electric power generation in China has stayed below 10% in the past two months.

The growth of energy demand under the downtrend may be reflecting the slowdown of economic growth in the country.


Iran oil output shows decrease

The U.S. and the European Union are accelerating sanction on Iran. The U.S. has required Japan to reduce crude oil imports from Iran.

France has already decided to cease Iranian crude oil import and other EU members are likely to follow it. But France only imports about 50 thousand barrels per day of Iranian crude oil and purchases by Germany and U.K. are less than that. The EU's import ban could be effective if bigger buyers such as Italy and Spain participate in the movement.
Meanwhile, China is the current largest Iranian Oil importer at nearly 600 thousand bpd, followed by Japan and India.

China's Iranian crude oil imports in the first half of 2011 rose by 50% from a year earlier. It means that China has absorbed excess Iranian crude oil supply following the sanction by other nations.

Even if the EU and Japan reduce imports from Iran, China could take the excess oil.

Iran's crude oil production, however, is clearly decreasing. You can see the tendency when you compare the Iran's crude oil output to the OPEC total production. While entire crude oil production by OPEC 12 members increased this year in order to compensate for the supply shortage caused by the conflicts in Libya, Iran's production has reduced month by month.

The UN Security Council imposed sanctions for 4 times since December 2006. While the international society has blocked the nuclear development of Iran based on the sanction resolutions, the U.S. also performed extra sanctions.

Foreign companies that had developed energy resources in Iran were required to withdraw.
Japan gave up the development of huge Azadegan Oil field as well.

The withdrawal of foreign companies causes reduction of crude oil output in Iran. The country's crude oil production during the first six months in 2011 decreased by 9% on year.

Iran's crude oil production is estimated to shrink by 400-700 thousand bpd annually because of the stagnated development and less output from old wells. Actually reduced output over the past 12 months proves it.

While a slump in the production, Iran's crude oil export in this year shows the year-on-year increase. Thus crude oil supply for the domestic market is estimated to decrease sharply.

Iran's domestic crude oil refining capacity is also prevented from expanding due to the absence of foreign companies.

Gasoline consumption in the country has been reported declining due to the cut of subsidy to save the energy. I'm not sure how the less gasoline consumption affects economic activity in the country. But the inconvenience of daily life might fuel Iranian people's antipathy to the sanctions.


Shrinking oil demand shows near-term US economic slump

Supply of petroleum products in the U.S.A. has dropped below the 18 million barrels per day level for the first time since June 2009, according to the data released by the U.S. Energy Information Administration.

U.S. weekly petroleum products supply has shifted around 19 million bpd after 3Q 2009, despite the petroleum demand used to stay above the 20 million bpd level before the Lehman Shock.

Petroleum demand in the U.S. had partly rebounded after the global economic crisis led the U.S. petroleum consumption to below the 18 million bpd level in 2Q 2009.

But recent data suggests that the another round of slump in the petroleum demand has offset the recovery from 2Q 2009 entirely.

We have seen a series of improved U.S. economic indicators recently.
Meanwhile, supply of petroleum products had increased in the second half of October and the first half of November.

I think the economic recovery data reflected the rebounded petroleum consumption.
Then, falling petroleum demand in the last couple of weeks may generate worse economic indicators in the near term.