Japanese LNG imports were flat y/y in July at 6.8 Mt, as record high temperatures spurred cooling demand, leaving aggregate power demand just shy of a six-year high. Despite much higher y/y nuclear availability, our balances show the heatwave has resulted in two consecutive months of LNG stockdraws, which will support restocking demand through the rest of the summer. With peak summer demand still pushing some gas into power, we forecast that Japan will import 0.18 Mt more y/y in Q3 18. In Q4 18, we expect imports to drop by 1.3 Mt y/y on mean temperature reversions and higher nuclear availability.
While the first half of July was cooler y/y in Japan, a heatwave rolled across Asia late last month, leaving total July CDDs at a 10-year high, although just 2% higher y/y owing to a very high 2017 base. The resulting high cooling demand pushed aggregate power demand up by a significant 4 TWh y/y to 86.6 TWh, the second-highest monthly total since August 2012. Some of that rise in power demand was likely met by increased nuclear generation—4.7 GW of nuclear capacity (out of a total fleet of 33 GW) has returned to service since mid-March 2018, leading in turn to a slump in power-sector gas demand in early summer. But peak summer power demand appears to still be driving some gas into power, as our balances show LNG stockdraws for June and July.
Those consecutive LNG stockdraws have left Japan with plenty of restocking demand to satisfy ahead of winter. JKM prices for September delivery have yet to return to their peak June highs, but they have stepped steadily higher since the heatwave struck in mid-July. Additionally, the extreme heat and strong power demand continued into the first part of August, supporting LNG deliveries. Cargo-tracking data by Kpler show August LNG imports on track to be a touch higher y/y, although some of the increase could be because some cargoes that had been set for late July may have been delayed because of powerful tropical storms along the Japanese coastline.
Looking further ahead, the Japan Meteorological Agency forecasts a high probability of above-average temperatures in September, but as absolute temperatures decrease and power demand eases from its summer peak, higher nuclear availability should be able to meet those y/y increases, leading to y/y drops in power sector gas use once again.
|Fig 1: Japanese LNG storage levels, Mt||Fig 2: Japanese fuel switch, $/mmbtu|
|Source: JODI, Energy Aspects||Source: Reuters, Energy Aspects|