September 29, 2021

Japanese LNG stocks surge ahead as the country seeks to avoid a supply crunch this winter

As the northern hemisphere winter approaches and LNG cargo availability remains tight, countries all over the world are paying close attention to the volume of gas held in storage. Unlike Europe and the United States, Japan is heading into winter more prepared for the upcoming heating season than last year.

The country has taken active steps to monitor the rebuild of its LNG inventory levels following a sticky situation in January when extreme cold weather caused a spike in power demand and a sudden rush to securecostly spot cargoes. According to a survey by the Agency for Natural Resources and Energy, Japan’s major power utilities have consistently increased their LNG storage levels since May, reaching a peak in mid-September of 2.5 Mt. September levels were roughly 40% above the four-year average and 50% above prior year levels.

LNG stocks held by Japanese power utilities(Mt)

Japan’s LNG stock levels typically fall inAugust when gas demand for cooling purposes ramps up. But this year, stocks have bucked that trend and the agency say power utilities are now sufficiently stocked ahead of winter.

One or two utilities may return to the spot market to seek a few winter cargoes, but most utilities expect to rely on term deliveries, having arranged for additional cargoes under long-term contracts or signed short-term deals that will help tide them through the winter season. Alarge change in demand and supply could dent LNG stock levels, but the agency said “that is not expected at this time.”

According to Kpler data, Japan has imported 57.6 Mt of LNG in the nine months to September, up by 1.60 Mt or 2.7% year-to-date. But LNG imports fell to just 5.5 Mt in September, the lowest level for September since records began in 2009 as cooling demand subsides and nuclear power production ramps up. The 826MW Mihama 3 and 1.18GW Ohi 3plants returned to service in June and July, while the 846MW Ikata 3 plantis due to restart in mid-October, increasing the total number of available reactors to 10.

Japan monthly LNG imports (Mt)

Another cold winter on the way?

Like all winters, traders will be keeping their eyes on temperature forecasts as the region moves into peak demand season.

Medium-term weather forecasts suggest Japan could face another cold winter. A recently released weather forecast for December to February by Japan’s national weather agency suggests that the country could face a 40% probability of below-normal temperatures in most of its 12 regions, except for Hokkaido and Tohoku for which it is predicting a 30%likelihood of below-normal temperatures.

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