What a difference just a few years can make. In the aftermath of the 2011 Fukushima nuclear disaster that eventually saw Japan’s 50 nuclear reactors shut down due to safety concerns, the energy anemic country was forced to turn to even more LNG imports. The situation for Japan over the next few years became dire as it’s growing gas demand forced spot prices in the region to new highs, breaching the $20 per million British thermal units (MMBtu) price point in February 2014 – with little relief in sight at the time.
In order to regain control over both exorbitant prices and unfavorable contract conditions, two of Japan’s largest electric utilities, Tokyo Electric Power and Chubu Electric formed JERA, a JV intended to combine both firms buying power to be able to strike more favorable deals. And it worked. Within a few years not only had the JV secured better LNG contractual terms but the group started trading the super-cooled fuel, a proposition that was unthinkable just a few years earlier.
Moreover, in the ensuing time, the somewhat limited supply of LNG that faced Japan in 2011 to around 2014 also ended, and a historic supply overhang of the fuel kicked in, mostly due to more production coming online from new Australian and U.S. projects. Now, Japan’s LNG imports are steadily falling amid these new market dynamics.
Fourth month of reduced LNG imports
Japan’s LNG imports fell for the fourth consecutive month in February, on a year-on-year basis, tumbling 11.4 percent to 7.35 million tonnes, according to trade figures released by the nation’s Finance Ministry on March 18. The pace of decline picked up from the 8.7 percent drop in January.Related: China Can’t Get Enough Of Brazilian Crude
Despite their volume falling, the imports’ price tag rose. In February, the cost of Japan’s LNG imports increased by 8.6 percent from a year earlier to about $4.19 billion (465.5 bn yen). LNG imports accounted for 7.7 percent of Japan’s overall imports in terms of value in February. In February, Japan imported 2.044 million tonnes of LNG from the 10-member Association of Southeast Asian Nations (ASEAN), which includes Indonesia and Malaysia, down 20.0 percent from a year earlier.
Japan imported 1.547 million tonnes of LNG from the Middle East, which includes Qatar, in February, up 1.8 percent year-on-year. Qatar is the world’s largest LNG exporter and has a liquefaction capacity of some 77 million tons per annum (mtpa), with that amount to increase to a staggering 110 mtpa by the end of 2023 or early 2024 as the countries continue to bring more production online from its already prolific North Field.
The Japanese Finance Ministry figures do not show the specific volume of LNG imports from Indonesia, Malaysia, Qatar and Australia, Japan’s largest LNG exporters. The ministry figures also showed that Japan’s LNG imports from Russia reached 604,000 tonnes in February, down 15 percent from a year earlier. Japan also imported 335,000 tonnes of LNG from the U.S. in February, up 139.6 percent year on year. Though Japan moved away from nuclear power in 2011 and subsequent years, this dynamic is easing off, though, as some nuclear reactors are being brought back online. The volume of Japan’s LNG imports in 2018 reached 82.854 million tonnes, down 0.9 percent from 2017.Related: Alberta Oil Inventories Rise Despite Production Cuts
Reverse arbitrage opportunities
Japan’s procurement of LNG on the spot market also dropped due to an unseasonably warm winter season in the northern hemisphere. Usually, spot prices for LNG in the Asia-Pacific region spike during cold winter months, enter a trough during the spring and trend upward again during hot super months as more air conditioning usage places a greater demand for gas.
Earlier this month, spot prices for LNG in the Asia-Pacific region plunged to multi-year lows as buyers spurned spot procurement of the fuel. Spot prices for LNG cargoes to be delivered into Northeast Asia in May fell last week to a nearly three-year low of $4.30/MMBtu, according to several trade sources.
The spot price for Northeast Asia LNG LNG-AS was last assessed at $4.65/MMBtu on March 21, Refinitiv Eikon data showed. The price quoted by the trade sources is the lowest since the week of April 15, 2016, when Refinitiv data showed it at $4/MMBtu, the lowest ever for data going back to 2010. Gas inventories in Asia are high, due to warmer temperatures this past winter, ample storage levels in Japan, China and South Korea, the region’s and the world’s three largest LNG importers, respectively, while buyers are shunning cargoes and re-directing them to Europe – a reverse arbitrage situation that historically has seen cargoes leave Europe for higher prices in Asia.