JERA buys spot LNG as normalizing Hekinan operations uncertain: sources

Japan's largest power generation company JERA has bought at least several spot LNG cargoes amid uncertainty over normalizing operations at the 4.1 GW Hekinan thermal power plant in central Japan due to industrial water supply shortage, market sources told S&P Global Commodity Insights June 2.

A JERA spokesperson declined to comment.

JERA's additional LNG procurements came to light as Asian LNG market participants have been monitoring the company's demand for summer delivery cargoes as the peak demand season nears.

"We are hearing that JERA is vacuum purchasing LNG because of expectations that the Hekinan thermal power plant['s shut units] will not be restarted anytime soon," said a Japanese market source. "The sentiment has changed rapidly since yesterday [June 1]."

A few Japanese utilities were cautious as such prompt buying activities could reduce spot LNG cargo availabilities for summer and support prices further in an environment where prices of LNG are already elevated, according to market sources.

The Platts JKM July delivery was assessed at $23.711/MMBtu on June 1, according to S&P Global Commodity Insights data. This is significantly higher compared to JKM assessed June 1, 2021, and 2020 at $10.983/MMBtu and $1.938/MMBtu, respectively.

LNG stocks held by Japan's major power utilities rebounded 1% week on week to 1.99 million mt May 29, the Ministry of Economy, Trade and Industry said June 1.

The May 29 LNG inventory increased from 1.97 million mt May 22, when it marked the first decline in three weeks or since May 1, when it dropped 2% week on week to 1.93 million mt.

METI does not have comparable May 22 data for the previous year. However, at the end of May 2021, inventory stood at 1.94 million mt, with the four-year average for end-May at 1.98 million mt, the METI data showed.

Reduced output

JERA kept the 700 MW No. 2 coal-fired unit at its Hekinan thermal power plant shut despite the scheduled end of maintenance May 29 as part of its response to an industrial water shortage.

JERA's 4.1 GW Hekinan power plant has only the 700 MW No. 1 and the 1 GW No. 4 coal-fired units in operation, which are currently running at half their operable capacity, the spokesperson said.

JERA shut the 700 MW No. 3 and the 1 GW No. 5 coal-fired units at its Hekinan power plant May 25 due to reduced industrial water supply from the Aichi prefecture.

The moves by JERA come as its industrial water supply did not significantly increase following the May 20 resumption of intake in its water storage tank after supply restarted late-May 19. The supply was suspended May 18 because of a malfunction at the water intake works.

METI did not see an immediate impact on Japan's stable power supply from JERA's reduced output and shutdowns at the Hekinan plant, but noted the need to closely monitor ensuing situations, according to documents presented at its May 27 electricity and gas policy subcommittee.

METI has not yet taken the Aichi industrial water supply situation into account in Japan's fiscal year 2022-23 (April-March) electricity supply-demand balance.

The Aichi prefecture started increasing June 1 industrial water supply to users to about half of its normal level from a third earlier, following the installation of 162 pumps at the water intake works, a prefectural official said.

It remains unclear when the prefecture will be able to normalize its industrial water supply, the official added.