Japan set for cold weather Dec-Feb, spurring gas, power, oil demand

The winter weather forecast for Japan, released Sept. 20 by the Japan Meteorological Agency, showed that most regions are forecast to experience either a 30-year-average, or below average, temperatures over December-February, in a sign that the country's winter gas, power and oil demand are likely to be supported during peak demand months.

The latest weather outlook is bullish for Japan's additional LNG demand for winter as local utilities have secured sufficient fuels for the average winter weather, while the country's oil industry is heading into winter with relatively low kerosene and fuel oil inventory levels.

The northern Japan region is forecast to have a 40% chance of experiencing below average temperatures, with 30% chance each of experiencing average or above average temperatures during the winter demand months, the JMA said.

The eastern and western Japan regions are forecast to experience below 30-year average or average temperatures with a 40% probability each, and a 20% chance each of above temperatures during the three months period, the agency said.

The southwestern Okinawa and Amami regions are forecast for a 40% chance of the below average temperatures with a 30% chance each of average or above average temperatures for December-February, the JMA said.

The severity of the country's winter weather has direct impact on city gas and kerosene demand for heating as well as on power generation fuels -- coal, LNG, and oil.

The JMA weather forecast is closely watched by the energy industry as an indicator of Japan's potential demand for winter fuels.

Analysts views

"With the weather forecast suggesting a high probability of colder-than average temperatures nationwide for this winter, Japanese utilities would have stronger outlooks for natural gas demand for power generation and heating," said Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp.

"That would create some moves for additional LNG procurements mainly for December-February deliveries."

Given the high natural gas prices, Nogami added that he expects to see some demand for switching from gas to relatively cheaper oil for power generation and heating.

"With kerosene and fuel oil stocks were below almost 10% from a year ago most recently, it is possible to see accelerating moves toward stockpiling kerosene and fuel oil," Nogami added.

Analysts at S&P Global Commodity Insights forecast Japan's gas-to-oil switching is expected to be stronger by about 70,000 b/d in the fourth quarter, compared with August outlook due to high LNG prices, as well as estimating Q4 kerosene/jet fuel demand to rise 35,000 b/d from a year ago.

Winter preparation

Japan's major power utilities have mostly secured sufficient fuels required for average-level demand for this winter, the Ministry of Economy, Trade and Industry said Sept. 15, as utilities could still undertake additional spot procurements in the event of any supply shortages.

"For this winter, major power utilities have mostly secured fuels required for the average demand," METI said in its documents presented at its electricity and gas policy subcommittee.

The Japanese power utilities' fuel procurements were released based on METI's survey with the utilities, which also noted that multiple companies reported their concerns about possible difficulties over additional procurements in the event they face a significant change in supply and demand amid soaring fuels prices.

At least two Japanese refiners said Sept. 20 that the companies see relatively strong heating demand for kerosene this winter, while acknowledging needs for kerosene imports.

The view from the refiners come as a number of local traders pointed out an expected shortage of kerosene during this winter amid low inventory levels, coupled with unprofitable import economics of the middle distillate.

Another Japanese refiner also said that the current high inflation would have negative impact on the kerosene demand for this winter amid absence of imports by traders while refiners are boosting jet fuel exports, leading to shortages in the domestic market.