Although the Japanese government has approved the start-up of two nuclear reactors in July in order to avoid power shortages during peak summer demand, the removal of virtually all of Japan’s nuclear generating capacity following the Fukushima disaster in 2011 should continue to support LNG, fuel oil and crude imports in the medium term. Shifting import sourcing patterns for fuel oil and crude for direct burning at Japanese utilities have been supportive for Aframax demand, and this should continue, despite modest declines from the nuclear start-ups, said Poten & Partners in its latest weekly report.
It mentioned that "on July 1st, Kansai Electric Power Company restarted its 1,180-megawatt No. 3 nuclear reactor unit at its Ohi facility, the first Japanese reactor to come back on line following the Fukushima disaster in 2011. Japan had remained nuclear-free since May 5, but the Japanese government approved the start-up of the Ohi No. 3 reactor and the 1,180-megawatt Ohi No. 4 unit, in order to avoid summer power shortages. The sequential shutdown of Japan’s 50 nuclear reactors removed 46,148 megawatts of electrical generating capacity and prompted Japanese utilities to utilise costly fossil fuel units, leading to a sharp surge in LNG, fuel oil and crude imports. Japanese imports of fuel oil and heavy/sweet crude for direct burning in oil-fired power plants have surged since the Fukushima crisis. During the first four months of 2012, fuel oil imports and direct crude burn averaged 539 kbpd, more than three times the 2010 average of 152 kbpd before the tsunami and almost 80% above the 2011 average of 303 kbpd, according to data from the Petroleum Association of Japan (PAJ). Moreover, direct crude burn has provided the majority of the gains, rising to 381 kbpd during the first four months of 2012, versus the 99 kbpd rate in 2010, while fuel oil imports have risen by 105 kbpd during the period. While crude for direct burn has dominated the surge in oil imports for Japanese utilities, sourcing shifts in heavy/sweet crude imports have provided a dramatic jump in tonnemile demand" Poten mentioned.
In fact, tonne-mile demand from imports of fuel oil and crude oil for direct burn totalled 33.8 billion tonne-miles (btm) during the first four months of 2012, almost seven times the total for the first four months of 2010 and three times the total for the similar period in 2011. Traditionally, Japanese utilities have burned heavy/sweet crudes from Asia, such as Indonesian Duri crude and Vietnamese Su Tu Den, but as their needs have expanded, they have increased imports from more distant locations. Increased imports of Nile Blend crude from South Sudan boosted tonne-miles by almost 1 btm a month in early 2012, while the start of imports of Rabi Blend from Gabon added almost 2 btm a month to demand. As a result, the average voyage distance for crude imports for direct burn in 2012 has leapt by 69% over levels prior to the Fukushima crisis.
Aframaxes have benefited from the regional fuel oil and crude import demand from Japanese utilities. Excluding the imports from Gabon, tonne-mile demand during the first four months of 2012 were still four times the level before the tsunami. This incremental demand would be equivalent to roughly 15 Aframaxes, or 2.2% of the Aframax fleet, since the Fukushima crisis. With a shrinking orderbook and higher demolition, dirty Aframax net fleet growth has slowed to just below 4% year-over-year (yoy), or by 23 vessels during the past year.
Incremental Japanese utility demand has contributed to the supply/demand environment for Aframaxes, but the recent re-start of the Ohi nuclear units will provide a modest decline in fuel demand. Utility analysts have suggested that Kansai would reduce its more-expensive oil-fired generation, cutting fuel oil and crude oil demand by 60-70 kbpd. This would represent approximately 10-12% of recent demand, and would suggest the loss of demand worth two to four Aframaxes, depending upon sourcing.
"Although additional nuclear restarts would pose a threat to both LNG carrier and tanker demand, the Ohi restarts met with large-scale protests in Japan, suggesting that additional restarts may not be politically viable. Recent opinion polls have indicated that roughly 70% of Japanese voters want the country to abandon nuclear power in the long term, but the utilities still need to meet peak summer demand. For the near-term, Japanese utility demand should continue to support Asian Aframax demand, while the anticipated 400 kbpd expansion of the ESPO pipeline should boost demand for exports from Kozmino to Pacific Basin refiners late this year or early next year. With Aframax net fleet growth expected to slide below 1% yoy by year end on slowing deliveries, Asia could continue to provide relief to an unbalanced market" Poten concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide