Japan may see some restarts of oil-fired power generation units this winter, amid soaring LNG and coal prices, Petroleum Association of Japan President Tsutomu Sugimori said Sept. 15, as refiners carry out contingency planning in response to the tightened power supply and demand balance over the past season.
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"If this steep rise continues, it would be a matter of comparing costs between oil, coal and LNG thermal power and looking at which sources are cheap and expensive," Sugimori told an online press conference. "By a simple cost comparison, competitiveness of oil-fired power will likely increase amid soaring coal and LNG [prices]."
"In case of oil-fired power being competitive, there is a possibility of seeing a part of oil-fired power plants being restarted," Sugimori said.
"In such occasion, we are uncertain how much we can meet supply requests," he added, citing the reduced oil share in the thermal power generation mix.
Refiners, however, will "maximize efforts" to ensure their fuel oil supply for power generation, he said.
Japanese refiners boosted their fuel oil supply for power generation in January, following an emergency fuel supply request from the Federation of Electric Power Companies of Japan to PAJ in the wake of LNG shortages after a surge in power demand following severe cold spells.
Fuel oil sales surged 43% on the year to 179,585 b/d in January, when there were domestic shipments of 751,109 barrels of crude oil for power generation, nearly double the 429,323 barrels in December 2020, while there were no crude shipments for power in January 2020, according to the Ministry of Economy, Trade and Industry data.
Power utilities -- which typically require a two-month lead time to adjust their LNG receiving volumes to balance their requirements -- are moving to secure fuels early for winter, with some having already secured enough LNG, coal and oil, according to industry sources.
Amid the rising spot LNG price, some Japanese power utilities have moved to secure fuel oil domestically, with some having filled their tanks in the summer, according to a source with one Japanese refiner.
The price of generation fuels has surged across the board, making life difficult for those Asian utilities that have yet to ramp up procurement.
Asia LNG spot prices have surged past $20/MMBtu, with the S&P Global Platts JKM for October assessed at $23.185/ MMBtu on Sept. 14. This is the second-largest JKM price spike on record since the assessment was launched in 2009, and a record high for this time of year.
In comparable terms, the price of 180 CST 2% sulfur fuel oil FOB Singapore was priced at $11.848/MMBtu on Sept. 14, after hitting a two-year high of $11.979/MMBtu last week. The price of Minas crude FOB Indonesia was around $11.924/MMBtu and naphtha CFR Japan was at $14.607/MMBtu on Sept 14, according to Platts data.
The benchmark prices of competing fuels are still much lower than LNG despite hitting record highs.
The Platts Northeast Asia Thermal (NEAT) Coal Index is at an all-time record high of $143.99/mt on Sept. 14, after trading at less than half this level for most of 2020. In thermal units, Platts Northeast Asian coal prices crossed $6/MMBtu for the first time on Sept .14.