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Japan, Singapore lockdowns to stifle Asian gas, power demand further


Month-long stay-at-home curbs in Japan, Singapore

Electricity demand worst hit after transportation fuels

Singapore peak power consumption drops 8-9% on day one of lockdown

Singapore — Lockdowns in Japan and Singapore, two of Asia's most developed economies, could cut electricity and natural gas demand further at a time when energy consumption is already collapsing across economies as stay-at-home restrictions of varying degrees are enforced.

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The curbs are spreading to countries with a sizeable impact on gas demand -- Japan is the world's largest LNG importer -- and to countries such as Singapore which had drawn first blood in fighting the spread of the coronavirus pandemic but is still seeing the number of cases rise.

This has LNG and electricity traders worried and many cited uncertainty in assessing the impact of the restrictions, especially if secondary and tertiary waves of infection keep surfacing. Japan on Tuesday declared a month-long emergency asking citizens to stay at home, and Singapore implemented similar measures keeping only essential services operational.

"As the Japanese economy has already been negatively impacted by the crisis, the state-of-emergency declaration itself is not expected to slash additionally significant energy demand," senior analyst and head of the gas group at Institute of Energy Economics, Japan, Hiroshi Hashimoto, said, adding that Japan's declaration of an emergency was different from lockdowns in other countries.

"Having said that, the biggest impact on LNG demand from the crisis as a whole should be felt in the power generation and industrial sectors. The industry needs more time to assess the magnitude as it is still difficult to know exactly how long the trouble will last," Hashimoto said.

Japan's state of emergency

In the event of a lockdown, Japan's industrial sectors expected to the biggest drops in energy demand to be from construction at 92%, machinery 68%, ceramic engineering 67% and metal 54%, according to an analysis by IEEJ last week. Other sectors affected are chemicals, food and paper manufacturing.

IEEJ said household energy demand will actually increase as more people stay at home, with heating demand expected to rise 10%, and lighting by 15% on higher usage of personal devices and entertainment systems.

Sectors like schools and entertainment venues will be fully closed in a lockdown, offices and eateries are likely to be 70%-80% shut, hotels and other retail outlets by 50% and supermarkets at around 20%, the IEEJ estimated.

It said while automotive fuels will be worst hit, the second-largest impact would be on electricity consumption. This is in line with Japan's energy profile -- around 42% of its primary energy demand comes from oil, 27% from coal, 23% from natural gas and the remaining from nuclear, hydropower and renewables.

"We expect a drop in downstream demand for LNG and power but we are still calculating our estimates. It is hard to say what percentage of gas demand will fall but there is no doubt that it is going to move downwards from our initial forecast," an executive with a Japanese gas buyer said.

Another utility said factories which produce masks and paper had ramped up utilization rates in the region and it was difficult to predict power demand.

After Prime Minister Shinzo Abe's announcement on Tuesday evening, Japanese explorer Inpex said all its employees based at its Tokyo offices would work from home from Wednesday and that it was maintaining gas production at its Nagaoka production facility.

Traders said they were worried about the impact on Japan's LNG imports as the seven prefectures covered in the emergency declaration have major industrial hubs. The prefectures are Tokyo, Kanagawa, Saitama and Chiba in the east as well as Osaka, Hyogo and Fukuoka in the west.

"After the lockdown in India, Japan is the only other market which could move LNG prices by $1/MMBtu if the virus outbreak worsens. So we are monitoring the situation in Japan very closely," a Singapore-based trader said.

Singapore's circuit breaker

On Tuesday, Singapore implemented a "circuit breaker" that fell short of a full-fledged lockdown, but still brought the city state to a grinding halt.

On day one, peak electricity demand had already dropped by about 600 MW or 8-9% from the normal peak demand of 6.8-6.9 GW, a local power trader said. "We are getting hit quite badly. It keeps getting shaved," he added.

"The drop in power demand is mainly during the day, when factories, malls and offices close," the trader said, adding that the impact on natural gas demand was minimal.

"Technically everyone goes home to work, so the power demand is still there, but it's more inefficient as each unit of air-conditioning is run rather than one central one," he added.

Singapore's total electricity consumption was 50.4 TWh in 2018, of which the industrial sector accounted for 42.5%, commercial demand was 36.8% and household demand was 14.3%, latest official data showed.

More than 95% of Singapore's electricity is generated from natural gas, with pipeline supplies from Indonesia and Malaysia, and an LNG import terminal.