Japan's largest power generation company JERA has bought an "unprecedented" volume of spot LNG cargoes totaling 3 million mt arriving over November 2020-February 2021, a company source told S&P Global Platts Feb. 18, as the company stepped up its procurement for the robust winter demand outlook.
"We secured an unprecedented level of spot LNG in a short period of time," the source said, adding that it had made additional procurement of spot LNG cargoes beyond October in anticipation of strong winter retail power demand.
JERA's spot LNG purchases arriving over the four months to February are up from just 70,000 mt in the same period a year ago, the source said.
The 3 million mt spot LNG cargo arrivals account for roughly 10% of JERA's total annual LNG consumption. In fiscal 2019-2020 (April-March) JERA's total LNG consumption was 29.01 million mt.
For the period April-December 2020, the company's total LNG consumption was 19.87 million mt, down from 21.61 million mt in the same period of the previous year, as a result of reduced power demand during the coronavirus pandemic.
JERA, a 50:50 joint venture between Tepco Fuel & Power and Chubu Electric, produces about 30% of Japan's electricity.
LNG price
Platts JKM, the benchmark price for spot LNG prices in North Asia, averaged $5.146/MMBtu for November delivery, $6.899/MMBtu for December, $8.173/MMBtu for January and $18.309/MMBtu for February arrivals.
Over the past year the JKM has plunged to a record low -- at $1.825/MMBtu on April 28, 2020 -- and more recently reached an all-time high of $32.50/MMBtu on Jan. 13, 2021 as LNG importers in Japan, South Korea and China were scouring the market for prompt cargoes, with gas inventories sinking to critical levels in some regions amid widespread cold weather.
The shortages were also exacerbated by a slow build-up of production issues at LNG export terminals in Trinidad and Tobago, Australia's Wheatstone, Gorgon and Ichthys LNG and Malaysia's Buntulu LNG complex.
On top of the nagging supply issues, shipping constraints in the Panama Canal forced vessels to take the longer shipping route around the Cape of Good Hope to Asia and for a short period spot LNG charters themselves were not available, forcing shipping rates to over $300,000/day.
METI scrutiny
JERA's increased spot LNG procurements for winter have come to light at a time when Japanese major power utilities, including JERA, are under scrutiny by the Ministry of Economy, Trade and Industry and the Electricity and Gas Market Surveillance Commission about their response during the recently tightened power supply and demand balance.
The Electricity and Gas Market Surveillance Commission plans to hold a public hearing with major power utilities on Feb. 25 on their rationale with regard to electricity tenders and LNG fuel restrictions during the country's recent power supply concerns.
METI has said the recent spike in spot electricity prices 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.
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 amid cold spells in the country, according to the METI documents released Feb. 5.
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.
