Strong global LNG supply, upside risk to Japanese gas demand in 2020, and low JKM prices should encourage an early Q4 19 stockbuild in Japan. September should mark the start of a year-long trend of higher Japanese LNG imports y/y, as heavier nuclear constraints y/y boost power sector gas demand. We now expect LNG stocks to start December around maximum capacity of 5.2 Mt, flat y/y, compared to our previous expectation of 4.5 Mt. Our forecast for H1 20 LNG imports is little changed at 41.9 Mt (+3.3 Mt y/y), but we stress that there remains both upside and downside risk to 2020 LNG imports due to uncertainty about possible nuclear safety shutdowns.
There have been no further developments regarding the 10 nuclear reactors facing a shutdown if found to be non-compliant with counterterrorism rules by Japan’s Nuclear Regulatory Authority (NRA). Our base case remains for 3.5 GW of capacity to be ordered offline next year by the NRA, with each plant shut down for three months. A 12-month shutdown of each plant would boost 2020 power sector gas demand by another 1.1 Mt, to 54.7 Mt.
This upside demand risk, combined with low JKM prices, should give importers an incentive to boost imports in September-November and fill storage to its 5.2 Mt maximum capacity by December. Cooling demand should boost gas-fired generation this month, especially since available nuclear capacity in September is scheduled to be down by 1.2 GW y/y, the first y/y drop in nuclear capacity since at least 2017. Japanese CDDs are forecast to remain above the five-year average and higher y/y into the first week of October, following on from an unusually hot 1-19 September.
There is considerable downside risk to 2020 LNG imports, if both Kyushu Electric Power and Kansai Electric Power manage to avoid any shutdowns at their nuclear plants. The current maintenance schedule shows that available nuclear capacity is set to rise sharply y/y from May 2020, averaging 2.9 GW higher y/y in May-December 2020. If none of the 3.5 GW of affected plants are forced offline, 2020 power sector gas demand should fall by 3.6 Mt y/y. Assuming seasonally normal cooling demand next summer, there would be a much smaller incremental rise in summer 2020 LNG imports, to just 36.8 Mt (+1 Mt y/y), vs 39.3 Mt (+3.5 Mt y/y) under our current forecast.
|Fig 1: Japan LNG storage, Mt||Fig 2: LNG imports & forecast, Mt, y/y|
|Source: METI, JODI, Energy Aspects||Source: METI, Energy Aspects|