Four Japanese power utilities restrict LNG use on outages, increased demand: METI

Four Japanese power utilities -- Chugoku Electric, Kyushu Electric, Hokuriku Electric and Shikoku Electric -- are restricting their use of LNG for power generation as a result of unplanned outages at coal-fired power plants and higher-than-expected consumption, which has led to one of these utilities arranging for an additional cargo for delivery in early December.

Chugoku Electric and Kyushu Electric are restricting their use of LNG at gas-fired power plants as a result of multiple unplanned outages at their coal-fired power plants, according to documents presented at the Ministry of Economy, Trade and Industry's electricity and gas policy subcommittee Nov. 18.

Chugoku Electric is currently in talks with its LNG suppliers for incremental supplies, advancing shipping arrangements and scrutinizing whether it will need additional procurements, while Kyushu Electric is in the midst of arranging for an LNG cargo to arrive in early December, the documents showed.

Chugoku Electric, which has also restricted its use of oil in order to keep stocks high for winter, had secured fuel oil for the maximum transport capability over November-February prior to its fuel restrictions, the documents showed.

Hokuriku Electric and Shikoku Electric are also restricting LNG use at their Toyama Shinko and Sakaide gas-fired power plants, respectively, as part of precautionary measures to avoid having to shut units in the face of higher than planned consumption, the documents showed. The two utilities are finding it difficult to seek additional LNG supply because their shipping schedules had already been fixed for one LNG storage tank each.

According to the documents, Shikoku Electric, which has also restricted its use of oil for fear of depleting its stockpile, is making an effort to procure oil domestically and from abroad because of prevailing market conditions and its fuel restrictions.

Chugoku Electric is restricting it use of LNG and oil over Nov. 7-30, while Kyushu Electric's restricted use of LNG from Nov. 11 until Nov. 26, when it receives its next LNG cargo, according to the documents.

Hokuriku Electric is restricting its LNG use over Nov. 13-15 and Nov. 20-22, with Shikoku Electric restricting its use of LNG over Nov. 9-Dec. 20 and oil for Nov. 6-30, the documents showed.

Speaking at the subcommittee, Estuo Sato, secretary general of the Electricity and Gas Market Surveillance Commission (EGC), said that the commission has requested major power utilities submit detailed reports by Nov. 30 on fuel restrictions as well as on "block bidding" in the spot electricity market, among other moves, to analyze the market impact.

Preventive measures

The power utilities' fuel restrictions came to light following a Nov. 5 amendment to the Guidelines for Proper Electric Power Trade, which require power utilities to report reduced power output from fuel restrictions in the HJKS system.

The move is part of METI's preventive measures aimed at tightening Japan's power supply-demand balance in winter after the country experienced a power supply shortage last winter, when demand surged during extreme cold spells in January, forcing local power utilities to restrict gas-fired power generation due to low LNG stocks.

This was exacerbated by glitches at coal-fired power plants, low hydropower generation due to droughts, fluctuations in solar power output due to weather conditions, reduced oil-fired power generation capacity, and low nuclear power output.

METI also formulated its fuel guidelines Oct. 25 as a rough standard for power utilities' fuel procurement -- part of a slew of short-term policy actions following last winter's tightened power supply-demand balance.

The fuel guidelines listed desired actions by the major power utilities, which have roughly 90% of Japan's LNG thermal power by capacity, including to ensure "appropriate" LNG stocks from both tank operations and procurements, especially during high demand seasons in order to avoid tightening the supply-demand balance.

"As written in the fuel guidelines, power utilities are expected to secure adequate stocks surely, which could meet fluctuations [in demand] by properly updating their LNG supply contracts for the winter high demand season," Masahiro Chikushi, director of the METI's office for electricity supply policy, told the electricity and gas policy subcommittee.

"In order to prevent fuel restrictions in winter, we request to maximize their efforts including on additional procurements," Chikushi said.

As of Nov. 15, Japan's major power utilities held 2.2 million mt of LNG stocks, up by about 600,000 mt from a year ago, after declining 16% month on month at the end of October because of an increase in power demand in October, the documents showed.

The end-October LNG inventories stood at 2.07 million mt, still above the highest level in the last five years, down from 2.46 million mt at end-September, the documents showed.