Petroleum demand for thermal power in Japan is shrinking

Petroleum consumption for thermal power by Japanese ten major utility firms fell 24.7% to 1.78 million kiloliters or 374,000 barrels per day in April, according to the Federation of Electric Power Companies. It was the fourth consecutive months decrease and monthly declines have exceed 20% since February.
Warm weather seemed to reduce electricity demand in February and March, but lower demand in April looks serious situation.

Total electricity demand in Japan has decreased on year in the first four months in 2013, while nuclear power supply is rebounding on year since March. Therefore, demand of thermal power declines further.

Petroleum fuel usually suffers the biggest influence when thermal power demand decreases.
Use of petroleum, which includes crude oil and low sulphur fuel oil,  by ten major utility firms was peaked at 734,000 bpd in February 2012. Then the maximum consumption during the last summer was 559,000 bpd in August and the maximum demand in the latest winter was 629,000 bpd in December. Petroleum consumption for thermal power is in a downward tendency clearly.

Domestic weekly supply of low sulphur fuel oil has decreased by more than 10% since early April, according to the Petroleum Association of Japan. Declines in the latest three weeks were 40-60% from a year ago.
On the other hand, exports of low sulphur fuel oil, that had been stopped after September last year, are resuming in the latest six weeks. It suggests that domestic fuel oil market is still overflowing despite the decreasing supply.

Positive anticipation is expanding on Japanese economy recently, however, it is still unclear when energy demand begins rebound.
Electricity supply by Tokyo Electric Power Company fell 1.5% on year in the first half of May. It suggests that the company's power supply may continue to decline in this month.


LNG may be oversupply 10 years later

The United States will be a net Liquefied Natural Gas exporter after 2020, according to the Annual Energy Outlook 2013 by the US Energy Information Administration.
Massive LNG supply is expected in the future, while exports from the North America is still unlikely to be remarkable within the coming several years.

Traditional natural gas production in the US had peaked out below 20 trillion cubic feet at around 2000. Natural gas production has boosted by the shale revolution over the past several years following the declining until 2005. In 2011, the nation's natural gas output recorded 7.8% on year growth.

Although US gas production and consumption are forecasted to slowdown in 2013 and 2014, subsequent outputs are expected to exceed consumptions by about 1 percent point every year. The US currently imports 1.7 trillion cf per annum of natural gas, but it will turn to exporting country in 2020.

LNG is likely to be the main export. Currently the US re-exports imported LNG, however, it is scheduled to start exporting domestic sourced LNG in 2016. The nation's LNG exports is expected to grow to 1.6 trillion cf by 2027. Since total net natural gas export by the US is forecasted at 2.04 trillion cf in 2027, LNG will account for nearly 80% of total gas exports.

1.6 trillion cf of LNG is equivalent to 78 million tonnes.
Japan imported 8.73 million tonnes of LNG in 2012, while before the severe earthquake it imported 70 million tonnes in 2010.
The new US supply could cover almost 90% of Japanese LNG demand in the state in which to stop nuclear plants.

Since about one-half of US LNG exports will come from Alaska, it is apparent that the nation aims to develop the Asian market.

Current LNG prices in the North America is below $5 per million British Thermal Unit. The ample supply depresses natural gas prices in the region significantly. Meanwhile, LNG prices in the Europe are about $10 per mbtu. Europe is supplied natural gas both from Russian pipelines and Middle Eastern LNG. Asia doesn't have enough pipeline gas supply, so the region is depend on LNG supply from the Middle East, Southeast Asia and Australia. Prices in the area is about $15 per mbtu. Then prices in South America where is far from main LNG suppliers are the most expensive.

The big price gap makes people to think there is a enough business opportunities. However, consuming countries will also have to construct sufficient facilities to accept the massive new supply. Otherwise, large volume of LNG cargoes may flood in the market like current North American natural gas.

Demand in Asia, of course is expected to grow. But China seems not to convert existing coal-burning thermal power plants to gas-burning facilities broadly, because of the economic rationality.

Japan's imported LNG price in March was about 80 thousand yen per tonne, according to the Customs data. It is equivalent to 11.7 yen for the volume to generate 1 kilowatt-hour of electricity. Meanwhile, coal price was 3.5 yen and fuel oil price was 14.7 yen as well.

Even if massive supply from the North America depress the Asian LNG prices, the price level might not drop below European prices significantly. But LNG prices should decline to the current US price level in order to compete with coal prices.