Japanese LNG imports rose by 0.3 Mt y/y in August to 7.6 Mt, as three months of unusually hot weather has left the region with plenty of late summer restocking demand. Higher y/y LNG imports will continue in September-October, although power sector gas demand should ease from the second half of September, with the country’s nuclear fleet able to meet power demand now that the peak summer heat is over. We forecast that Japan will import 0.83 Mt less y/y in Q4 18 and 1.3 Mt less y/y in Q1 19 on mean temperature reversions and higher nuclear availability.
Summer 2018 proved to be an unusually hot season for Japan, with CDDs up to 28% higher y/y and well above the historical norm from June-August. The associated cooling demand has resulted in a hefty, sustained boost in aggregate power demand since early summer, with the y/y increases growing considerably during the peak Q3 18 heat. In August, total power consumption was up by a chunky 4.4 TWh (5%) y/y to 85.3 TWh, the second-largest y/y increase since March 2017. So while LNG imports eased y/y in Q2 18 because of a significant 4.7 GW y/y increase in nuclear availability, robust power demand pushed gas into power and drew down LNG stocks in June-July, encouraging stronger y/y LNG imports in August and September to help replenish stocks.
While absolute temperatures have edged down m/m in September, temperatures are still higher than the seasonal norm, which will have continued to support some power sector gas burn in the beginning of the month. Restocking efforts will continue in September, with LNG deliveries on course to rise by about 0.5 Mt y/y, according to cargo-tracking data from Kpler. Our balances then suggest another 0.10 Mt (2%) y/y rise in October LNG imports, before the region begins the winter stockdraw in November.
So far, forecasts from the Japan Meteorological Agency suggest a mild start to winter, with a higher probability of above-average temperatures in October-November. With Japan adding plenty to stocks in August-October, a warm start to the winter should keep any further restocking demand limited and will help facilitate the y/y reductions we expect to see over the peak winter months.
|Fig 1: LNG imports & y/y power demand, Mt/GW||Fig 2: Japanese fuel switch, $/mmbtu|
|Source: Bloomberg, Energy Aspects||Source: JODI, Energy Aspects|