Japan's power demand is shrinking despite economic recovery

Total electricity supply in 2013 by Japanese 10 major utility companies fell 1.9% on year to 917 billion kilowatt-hour, according to the Federation of Electric Power Companies. It was the third consecutive year-on-year decrease. Last year's Japanese electricity demand was even lower than 2009 when economy recession following the Lehman shock significantly depressed the country's power consumption.

Japan's monthly industrial production index have increased by about 5% from a year ago since September 2012, however, the country's electricity demand has sunk by about 1% on year during the same period. Japanese electricity demand continues to shrink even in the economic recovery period, since users are trying to improve efficiency and optimization.

On the other hand, use of liquefied natural gas for thermal power in Japan is increasing because all nuclear units have been shut again since October 2013. Although higher coal-burning and weaker electricity demand had cut the nation's LNG consumption for thermal power by 4.0% on year in the first half of 2013, the recovery in the second half eased the decrease to 0.9% on year for the full year of 2013. Moreover, LNG consumption by Japanese power companies reached the record high at 5.27 million tonnes in December 2013.

Meanwhile, petroleum consumption by power companies in 2013 slipped 22.8% from a year ago to 413,000 barrels per day. Power firms seems to try reduce utilization rates of aging petroleum-burning thermal power units.

LNG prices in Japan are not reasonable compared to coal and petroleum. International coal prices have decreased since early 2011, while current Asian LNG prices are even higher than the price rally in 2008 because of the steady demand from Japan.

Chinese power companies enjoyed record profits thanks to weaker coal prices in 2013. Meanwhile, strong LNG prices have hurt Japanese power companies profit structures and are pushing up regional electricity prices.

Japanese power firms are trying to improve thermal efficiency of power units in order to reduce LNG consumption. Nevertheless, Asian LNG prices are unlikely to start declining until massive supply from the north America will begin in late 2010s.

Crude oil prices could be weaker during 2014

NYMEX crude oil futures fell back from above $100 per barrel at the beginning of year 2014. How will prices move in the crude oil market through this year?

Crude oil prices are fluctuating with being stimulated by various factors in the short term, however, long term movements are eventually affected by the supply and demand situation. A supply shortage usually lifts prices, while the surplus tendency depresses the market.

Global petroleum supply and demand balance is forecasted at a little bit surplus during the first half of 2014 and predicted to turn into a shortage by 0.5-1.0 million barrels per day in the second half of the year, according to the latest energy outlook issued by the United States Energy Information Administration.

EIA expects WTI crude oil prices could move about mid-$90/bbl through the year. But prices might stay at the lower $90/bbl level in the first half and rise to above $100/bbl in the second half, if the supply and demand balance follows the institute's prediction.

Organizations other than EIA  like the International Energy Agency and the Organization of Petroleum Exporting Countries also forecast steady growth of petroleum demand in 2014. Meanwhile, they predict stronger increase of petroleum supply from non-OPEC producers. Therefore, needs for OPEC crude oil are expected to be below the 30 million bpd of production quota during 2014.

Since recent total crude oil production by OPEC member nations are estimated at the middle of 29 million bpd level, the world petroleum supply and demand could be balanced if OPEC keeps output at the current level.

However, Libya might be the uncertain factor. In the north African country, labour disputes and unsatisfied militia or tribes have occupied ports and oil production facilities over the past several months. Libyan crude oil production has declined from about 1.4 million bpd to near 200,000 bpd because of such sabotage.

A resume of supply from Libya is likely to affect the global petroleum supply and demand balance significantly. On the other hand, expectation for the lifting of sanctions on Iran is an another uncertain factor. International sanctions against the Islam republic has cut the nation's crude oil output by about 1 million bpd.

The total loss from the two countries is about 2.4 million bpd, however, increased supply from Saudi Arabia and Iraq has completely filled the shortage. The current sum of crude oil production by the four countries is actually higher by about 200,000 bpd than that in early 2009.

Even a part of resumption of crude oil supply from Libya or Iran could loosen the global petroleum supply and demand balance visibly and depress the world crude oil prices.