ENEOS sees Apr-Sep fuel oil demand for power doubling on year amid high LNG prices: chairman

Japan's largest refiner ENEOS sees its April-September fuel oil demand for power generation doubling year on year amid high LNG prices, ENEOS Holdings Chairman Tsutomu Sugimori said April 20.

Amid LNG prices at "extremely high" levels, ENEOS is seeing a significant increase in its fuel oil demand in the first half of fiscal year 2022-23 (April-March) as an alternative fuel for power generation, Sugimori told a press conference as the president of the Petroleum Association of Japan.

"We are in the midst of assessing our capability to respond to this demand in the first half," said Sugimori, adding that ENEOS would not be able to meet the fuel oil demand fully, citing a 60% year-on-year increase in its fuel oil supply for power in the second half of FY 2021-22 (October 2021-March 2022).

"We will consider how best we can meet this [demand," he added.

Some Japanese power utilities that can use fuel oil for power generation see fuel oil as among the alternatives in the face of high LNG prices since winter 2020-21, despite limited capabilities for fuel switching, according to market sources.

Sugimori's comments came after the Ministry of Economy, Trade and Industry said April 12 that Japan is expecting an unprecedented level of risk in power fuels procurement in FY 2022-23 (April-March) amid increased uncertainty over the war in Ukraine and high fuel prices as the country commits to reducing its Russian coal imports in phases.

"[Japan's] fuel procurement risk has risen to a level like never before as international fuel prices continue to hover at high levels," METI said in documents released at its electricity and gas policy subcommittee.

Japan's fuel oil sales averaged 114,227 b/d over April-September 2021, up 23% from a year earlier, METI data showed, as local power utilities boosted their fuel oil procurements to make up for their depleted stocks as well as to stockpile for winter amid high LNG prices.

The Platts JKM for May delivery reached $38.045/MMBtu March 24 and has since been assessed lower in the range of $24-$26/MMBtu, data from S&P Global Commodity Insights showed. Additional supply and lower prices in the Atlantic, as storage levels increased in Europe, has pushed prices lower.

The JKM for June delivery was assessed at $24.775/MMBtu April 19, still significantly higher than assessments on April 19 in 2021, 2018, 2017 and 2016 at $8.56/MMBtu, $7.525/MMBtu, $5.50/MMBtu and $4/MMBtu, respectively, S&P Global data showed.

Prevailing prices were essentially supported by strong downstream demand for winter 2021-22, resulting in additional LNG demand from Japanese and South Korean importers for January-March delivery as well as supply uncertainty from Malaysia's Bintulu project.

Russian alternative

ENEOS, which has suspended signing any new Russian crude oil contracts following Russia's invasion of Ukraine, is confident of securing alternative supply from Middle East oil producers such as Saudi Arabia, Abu Dhabi and Kuwait, Sugimori said.

"We suddenly decided to suspend purchase of [Russian crude] following the abrupt invasion of Ukraine," he said. "Hence we are facing the need of alternative procurements suddenly."

"Our Russian crude oil procurement stood at about 3%-4% prior to the Ukraine invasion," Sugimori said. "Despite the [oil market] being tight, we expect to be able to secure alternative supply for this portion."

Sugimori added that the largest Japanese refiner does not plan to resume its procurement of Russian crude without any resolution of the situation in Ukraine and Western economic sanctions on Russia.

Russia supplied 4% of Japan's total crude imports of 2.48 million b/d in 2021, with the Middle East supplying 92%, according to finance ministry data.

Japanese Prime Minister Fumio Kishida said April 8 that the country will ban coal imports in phases as part of additional sanctions against Russia following the latest commitment by leaders of the G7 nations, marking the country's first commitment to curb any commodity imports from Russia.

G7 nations aim to expedite efforts to cut reliance on Russian energy, including phasing out and banning Russian coal imports and cutting Russian oil dependency, the leaders said in a joint statement April 7.

Commenting on domestic oil products demand, Sugimori said that Japan's domestic gasoline demand was expected to fall 2% year on year in April after a 3% decline in March, and to be roughly 10% below pre-pandemic 2019 levels in both months.