Japan's METI launches probe into power utilities' fuel operations during demand surge

Tokyo — Japan's Ministry of Economy, Trade and Industry is undertaking a probe into major power utilities to scrutinize their response to the recent upsurge in power demand, with a focus on their restrictions on fuel use amid low LNG inventories, according to documents presented at a Feb. 5 regulatory meeting.

The documents suggest that utilities had to cap their electricity supply on a kilowatt-hour basis earlier in the winter because of fuel restrictions, with reduced LNG stocks occurring during peak demand periods, even when they had sufficient power generation capacity on a kilowatt basis.

The METI inquiry aims to verify the utilities' "justifiability on fuel restrictions" and the "validity" of their fuel operations during the recent upsurge in power demand, according to the documents presented at an expert meeting at the Electricity and Gas Market Surveillance Commission Feb. 5.

In its inquiry, METI is looking into seven power utilities that restricted their regasified LNG thermal power generation during the current winter period.

METI said it is investigating the utilities' fuel restriction methods by examining their reported LNG inventories, shipping arrangements -- both in terms of imports and schedules -- and their estimated demand.

However, METI has so far not found any incidence of wrongdoing in the utilities' fuel restriction methods, which are based on setting the lowest limit in tank operations, including in terms of inventories, shipping schedules and demand outlook, according to the documents.

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METI noted that it has noticed some differences in the utilities' risk evaluation methods for setting the lowest limit in tank operations, as well as in the timing of triggering fuel restrictions.

According to the ministry's survey, only one out of the seven power utilities started its fuel restrictions in mid-December, with most of the others starting to restrict their fuel use from late December, following their assessments of LNG stocks, and demand outlook from cold spells.

Enhanced surveillance

METI's probe into the fuel restrictions is based on an analysis of the recent spike in spot electricity prices that it said was due to a combination of increased power demand from cold spells, decreased gas-fired power output from reduced LNG inventories and electricity being sold out on the wholesale market.

In the wake of the recent spike in wholesale spot electricity prices, the Electricity and Gas Market Surveillance Commission has enhanced its surveillance of sell tenders from nine power utilities.

The commission's enhanced surveillance looks at whether the utilities could be overestimating their tender restrictions, especially in terms of fuel, as well as scrutiny of the conditions of the tenders. It will also look at utilities' reserve capacity and demand.

In order to verify and analyze the utilities' sell tenders, the commission is conducting a survey of the utilities' fuel restrictions, requesting that the companies report their rationale for sell tenders on a daily basis, as well as requesting detailed data from electricity sources as samples.

Peak demand

Japan's power demand rose 7.6% year on year to 86,427 GWh in January, after having risen 8% year on year in the second half of December to 43,189 GWh because of cold spells, according to the documents released Feb. 5.

The country's power demand in the first half of December, however, dipped 0.3% year on year to 38,393 GWh.

In line with increased power demand, Japan's spot electricity prices on the wholesale market rose to an all-time high of Yen 251/kWh on Jan. 15, although it then fell back significantly after METI approved a special action to cap the imbalance tariff at Yen 200/kWh from Jan. 17 onwards. The daily high spot electricity price stood below the Yen 10/kWh level as of Feb. 5, according to the documents.

Japan's LNG stocks held by power utilities have started increasing again after dropping to a multi-month low of 1.16 million mt on Jan. 11, as the country is now past its peak power demand for the winter period, according to a survey released by METI Jan. 19.

LNG stocks held by Japanese utilities hit a seasonal high of about 1.9 million mt around Dec. 9, after increasing from the second half of November, before dropping to a Jan. 11 low of 1.16 million mt.

Stocks rose to 1.43 million mt on Jan. 17 as the country recovered from its recent cold spell, according to the METI survey of Japanese power utilities.

The rebound in LNG stocks likely shows that Japanese utilities have overcome the worst of the gas shortages that led to record high power prices in recent weeks and contributed to Asian LNG spot prices hitting an all time high of $32.50/MMBtu.