Japan imported 8.14 Mt of LNG in March, largely unchanged y/y and only slightly above the 8.05 Mt January-February average. Over Q1 17, Japanese LNG imports are up by 1.4 Mt (6%) y/y at 24.2 Mt. Japanese LNG imports have been healthy so far this year, in part as a result of colder weather than last year.
Lagged data show Japanese gas demand totalled 8.8 Mt in February, higher by 0.33 Mt y/y, a 4% increase. Demand increased across the main sectors and was especially healthy in the power sector, where gas consumption increased by 5% y/y. Strong demand from power is consistent with the 5% y/y rise in LNG imports in February. Give the cold weather and strong demand in March, it is likely that Japan drew down some of its LNG stocks over the month.
Japanese power generation climbed by 5.1 TWh y/y in March to 78.9 TWh, helped by colder weather, with Japanese HDDs up by 13% y/y and 9% on the five-year norm. The cold, possibly related to La Niña conditions in the Pacific earlier this year, likely boosted space heating demand.
In late March, the Osaka High Court lifted the March 2016 injunction preventing the restart of Kansai Electric’s Takahama Units 3 and 4. With the reactors thus ruled safe to operate, the company is preparing to restart them, though no timeline for operations has been given. We expect that the two units will be online by June, as Kansai will be keen to start reducing its cost base and start-ups are certainly technically possible in that time frame. To the extent the nuclear generation displaces gas-fired plants, the Takahama restarts will likely reduce Japanese LNG demand by around 0.17 Mt per month—a maximum reduction of 1.2 Mt of LNG over 2017 assuming an early June restart. We had previously assumed that the Takahama units would return in October, so the impact on estimated Japanese gas demand is limited to the additional four months of generation from the two units, or some 0.7 Mt. We still expect the two Genkai reactors to restart in October, after Kyushu Electric won permission from the Mayor of Genkai to restart the units in February.
Forecasts from the Japan Meteorological Agency for the April–June period suggest a 40-50% probability that the country (all regions) will be warmer than normal. Though the weather is looking supportive of stronger LNG imports this summer, the outlook for 2017 is more bearish given the Takahama ruling. On this basis, we have adjusted our LNG import assumptions, and we now expect a y/y decline of 1.5 Mt in 2017 (up from our previous estimate of 1.2 Mt) and then a further 2.2 Mt y/y fall in 2018.