With global LNG markets looking very well supplied this summer, the market is anxiously seeking any demand-side support. However, it looks increasingly clear that Japan will not provide much help. Weak LNG imports in May of 5.57 Mt (-13% y/y) will have kept Japanese stocks almost flat y/y (-0.02 Mt), but an expected continuation of very weak summer power sector gas demand should allow stocks to post a 0.35 Mt y/y surplus by the end of the injection season with just modest incremental LNG supply in the peak summer months of July-August (+0.67 Mt y/y). With June imports on track to be flat y/y at best, we expect that Japan will end November with stocks matching last year’s record highs, despite aggregate summer 2019 imports forecast to be 0.24 Mt lower y/y.
The major factors that could shift our remaining summer 2019 Japanese balances are sizable changes to the nuclear maintenance schedule and/or a shift to far hotter weather deviations vs the norm. So far, there have been no significant changes to this year’s nuclear maintenance plans. Those hoping for a repeat of last year’s scorching weather to support cooling demand will be disappointed. June has been mild and forecasts by the Japan Meteorological Agency now indicate that there is a higher probability of below-average temperatures in July and August.
Owing to weak imports across May-June, we have revised up our estimated end-June LNG stocks to 4.7 Mt, 0.37 Mt higher y/y. We still expect a small increase in LNG supply over peak summer. There have been no updates in the last month regarding the Nuclear Regulation Authority’s (NRA) decision to suspend operations at plants that have not installed counter-terrorism measures (see E-mail alert: Japanese nuclear reactors could be shut again on compliance deadline, providing upside to 2020 LNG demand, 24 April 2019), and with JKM prices so low, contango so high, and uncertainty surrounding 2020 power sector gas demand, there are good market incentives to restock this summer to ensure high stocks heading into winter.
Our balance shows that Japan will start December with stocks matching last year’s record high of 5.17 Mt. A seasonally normal winter and no changes to the current nuclear maintenance schedule will leave end-March 2020 stocks just under 4.7 Mt, 0.3 Mt lower y/y. Until the NRA or Japanese utilities provide more information regarding the 2020 counter-terrorism compliance status and potential shutdowns, the summer 2020 balance holds more uncertainty for the market.
|Fig 1: TTF, JKM, Henry Hub $/mmbtu||Fig 2: 2019 LNG imports & forecast, Mt, y/y|
|Source: Refinitiv, Energy Aspects||Source: Ministry of Finance Japan, Energy Aspects|