Tsutomu Sugimori, the president of the Petroleum Association of Japan, said that Japanese utilities would likely restart some of their oil-fired power generation units this winter to avoid swelling gas and coal bills. Sugimori said power producers would compare which fuel is more economical to burn to generate electricity, whether it is oil, coal, or LNG. He believed that oil would emerge as a competitive choice if LNG and coal prices continued to increase.
Sugimori said Japanese refiners would “maximise efforts” to ensure their fuel oil supply for electricity production, although it remained unclear how much they could meet supply requests. Domestic refiners ramped up their fuel oil production for power generation in January after the Federation of Electric Power Companies of Japan requested PAJ for an emergency fuel supply amid LNG shortages and surging power demand during severe cold spells. In January, fuel oil sales surged 43% year-on-year to 179,585 bpd. In the same month, 751,109 barrels of crude was shipped for power generation, nearly doubling from the prior month.
Utilities typically need two months to adjust their LNG import volumes. Hence, they are now moving to secure cargoes for winter. However, some Japanese utilities have moved to grab domestic fuel oil cargoes amid rising spot LNG prices, industry sources said.
As of September 14, Asia LNG spot prices have climbed to above $20 per MMBtu. The benchmark prices of other fuels have also hit a record high but remained lower than LNG. The benchmark thermal coal prices for Northeast Asia rose above $6 per MMBtu, while the price of 180 CST 2% sulfur fuel oil FOB Singapore stood at $11.848 per MMBtu. The price of naphtha CFR Japan was at $14.607 per MMBtu, while the price of Minas crude grade FOB Indonesia came in around $11.924 per MMBtu.
