Japan imported 6.5 Mt of LNG in October, up by 0.4 Mt (7%) y/y, as the country made an estimated stockbuild of almost 0.9 Mt. November has been very mild, so Japan is on course to make another net stockbuild in November, with power sector gas demand likely to be low due to mild weather and higher nuclear generation. The 0.9 GW Ikata 3 reactor restarted in late October as scheduled and, combined with the 4.7 GW of nuclear capacity that returned to service earlier this year, will continue to push gas out of the power sector. We have revised our forecast for Q4 18 LNG imports—we now see a 0.5 Mt y/y drop, compared to our previous view of a 0.34 Mt y/y fall. A seasonally normal December–March would see inventories end winter nearly 1 Mt higher y/y, leading us to soften 2019 takes by 2.5 Mt y/y to 80.2 Mt. Three more reactors are expected to be online by the end of H1 20, taking total 2020 imports down by 2.1 Mt y/y to 78.1 Mt y/y.
Winter 2018/19 power sector gas demand in Japan has been looking bearish for some time owing to the restart of 4.7 GW of nuclear capacity earlier this year. Yet strong LNG imports in late summer continued into the first month of winter, with receipts posting a 7% y/y rise. The flurry of buying in Japan in Q3 18 and early Q4 18 is consistent with the robust pace of imports across the rest of Asia over the same period, with all of the key NE Asian importers keen to be well-stocked for the start of the heating season. While Japanese stocks headed down to a historically low 2.9 Mt by the end of July, according to JODI data, the stockbuilds since then have taken total stocks back up to an 18-month high of 4.6 Mt at the start of November.
A lack of sectoral demand data leaves it difficult to establish an exact monthly stockbuild, but based on weather and power demand we think that Japan made a net injection of about 0.9 Mt in October, pushing total inventories to 4.2 Mt. Mild weather in October likely helped curb residual heating demand and softened total power consumption by 0.4 TWh (1%) y/y, preserving LNG stocks. That trend is set to continue this month, with November HDDs on track to be 26% lower y/y. Preliminarily Kpler data put November imports at 6.2 Mt, which would be consistent with a 0.4 Mt stockbuild and push stocks to just above 4.6 Mt—a step below the record high of 5 Mt in October 2015.
A return to seasonally normal weather in December–March, paired with the expected slump in power sector gas demand, would see end-winter inventories around 3.7 Mt, 1.0 Mt higher y/y. Given current high stocks and forecasts for yet another build this month, we have adjusted our 2019 balances lower, with total expected imports down by about 2.5 Mt y/y. The sharp reduction in gas demand in 2019 would reflect both less gas needed for restocking and the base effects of some nuclear power plants being online, although that nuclear impact is more acute in H1 19 than in H2 19. A colder-than-normal Q1 19 would help shrink some of that y/y reduction in imports.
One issue that has perplexed us has been a growing divergence between JODI estimated storage figures and our implied storage numbers over 2018. Prior to this year, the two sets of data tended to revert towards each other, so we had continued to use our own implied numbers. The failure this year of that realignment to occur has led us to now align our numbers with JODI, as this is the only currently available published source. This does mean that some of our historical data has been altered to align our numbers.