Price gap between LNG and coal/oil widens in Asia

Retail electricity prices in September in Japan are scheduled to be mixed depend on regions. Electric power companies that are depending on liquefied natural gas for their thermal power fuel will raise prices, while the others will cut prices. 

Japanese utility firms revise retail power prices every month based on fuel prices during the previous three months. Imported LNG prices were firmer during April-June period, while coal and crude oil prices were weaker. Retail electricity prices set by seven of total ten companies will be record high.

Asian natural gas prices have been sole higher than other energy prices.

Regional coal prices have been under downward tendency since January 2011 and Dubai crude oil prices are in long-term declining since March 2012. Although Asia natural gas prices have ceased further rising after surged by 50% following the severe earthquake hit Japan in March 2011, widened price differential against European gas prices has not shrunk yet.

The reason why Asian natural gas prices have been hovering at expensive from other region's gas prices is Japan's demand for thermal power, of course.

If demand from emerging countries like China is supporting Asian natural gas prices, why prices need to be standstill since early 2012?

LNG consumption by Japanese electric power companies have reached to the physical limit since early 2012, when thermal power generation by LNG-burning power stations exceeded 35 billion kilowatt-hour in January 2012, more than 80% of generation capacity was used.

Japanese utility firms are unlikely to buy more LNG without building new facilities, while they cannot reduce purchase of LNG significantly without resuming nuclear power plants. Thus gas prices are stable at relatively high level.

Japanese power companies have reduced LNG use slightly from a year ago since the beginning of this year, because they expanded coal-burning thermal power capacity. But higher coal-burning power generation is difficult to be alternative to LNG-burning power output, since LNG is account for nearly 60% of Japan's total thermal power generation in Japan.

Japan's nationwide electricity demand in June rose 0.6% on year, posted the first year-on-year increase since December 2012, according to the Federation of Electric Power Companies. Electricity supply by Tokyo Electric Power and Kansai Electric Power also rose around 2% on year in July. Power demand in Japan is recovering. On the other hand, Japan's trade debt is increasing sharply due to LNG imports. Therefore, active discussion about resume of nuclear plants might be seen in the near term.