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Japanese utilities unlikely to face LNG shortages, analysts, officials say

A string of potential closures of Japanese reactors starting in March 2020 is unlikely to trigger a tightening of the supply of LNG for the country’s utilities, industry officials and analysts said.

Japanese utilities would shift to natural gas-fired generation in the event of reactor closures, Satoru Katsuno, chairman of Japan’s Federation of Electric Power Companies, said at a press conference May 17.
“But we’re not concerned much about tight supply” of LNG, he added.

Katsuno and two analysts said that power companies’ long-term purchase contracts with LNG suppliers and their procurement of gas from the spot market, as well as the development of new LNG sources in Australia, will help the utilities get a stable supply of LNG. Meanwhile, power demand in Japan is likely to remain stagnant, the analysts added.

The country’s Nuclear Regulation Authority said in April that it will order Japanese power companies to shut their reactors if they miss the deadlines for completing safety facilities designed for the units to mitigate an accident or terror attack.

NRA made the decision after three Japanese utilities — Kyushu Electric Power Co., Kansai Electric Power Co. and Shikoku Electric Power Co. — told NRA last month that the completion of such safety facilities for their 10 reactors will likely be delayed by between one and two and a half years after the deadlines.

Kyushu Electric could be forced by NRA to shut its 890-MW Sendai-1 and-2 for the most of the next fiscal year starting in April 2020 as the utility has said that the completion of the safety facilities for those units will likely be delayed by about a year from the deadlines. Similarly, Kansai Electric could be ordered by the regulator to close its 870-MW Takahama-3 and -4 also for about a year, staring from August of next year. Six more units, with a combined capacity of more than 5,700 MW, would close if they miss the deadlines.

An LNG trader at a Japanese power company said in an interview May 14 that unless all of those reactors are shut at the same time, demand for LNG as an alternative fuel source to nuclear power is unlikely to surge. “In an already over-supplied LNG market, I doubt that market fundamentals will change that much,” he added. He spoke on the condition of anonymity as he is not authorized to speak to the media.

The potential shutdown of the Sendai and Takahama plants is estimated to lead to an increase of 1.3 metric tons a year in LNG imports to Japan, equivalent to about two cargoes worth of LNG per month, Andre Lambine, senior LNG analyst at S&P Global Platts Analytics, said in an interview May 21. That compares with imports of 80 mt in 2018, he added. Typical additional buying in summer will not be a problem for Japanese utilities as well, he noted, given that there is sufficient import capacity in Japan, and the fact those incremental cargos are a fraction of average imports.

“Demand for LNG would increase on reactor shutdowns but there should be room for enough LNG supply,” Hidetoshi Shioda, an analyst at Circle Cross, an independent research company, said in an interview May 19. Japanese power companies are extending their supply sources from Indonesia and Malaysia to Australia, where several new LNG fields have been developed, he added.

Electricity demand in Japan has been stagnant, and is estimated to edge down to 884.6 TWh in the fiscal year starting in April 2023 and 882.1 TWh five years later, from 890.5 TWh in the current fiscal year that started in April 2019, according to the Organization for Cross-regional Coordination of Transmission Operators of Japan. OCCTO, a trade group of Japanese utilities, attributes the slight drop to energy efficiency efforts and population decreases.

Still, shifting to gas-fired generation from nuclear power will likely have an economic impact on Japanese power companies.

Kyushu Electric, for example, estimates that halting operation of its Sendai-1 and -2 will cost about Yen 8 billion ($72 million) per month, or Yen 96 billion per year, for the utility to secure alternative fuels such as LNG. Shutting down Takahama-3 and -4 would cost Kansai Electric about Yen 9 billion per month.
Source: Platts

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