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Japan set for record August LNG spree

Japanese utilities could buy and consume record amounts of liquefied natural gas (LNG) this August, according to a new Petroleum Economist forecast

August purchase volumes by the country’s 10 utilities are expected to reach 4.62 million tonnes, while consumption for power generation is set to hit 4.71 million tonnes – up by 8% and 13%, respectively, over August 2010. As the weather cools, buying and consumption is likely to fall, with September purchases dropping to 4.3 million tonnes and volumes to slide even further in October to 3.85 million tonnes – although still up by 9% and 18%, respectively, over the same months last year.

Reasons for higher LNG purchases and consumption

LNG buying for the next three months is expected to be high because of warmer temperatures increasing power demand for cooling and continuing nuclear power outages, stemming from the earthquake and tsunami in March.

August temperatures were above seasonal averages in northern and central Japan, and average in the south, according to the Japan Meteorological Agency. September and October weather for the whole of the country is also forecast to be above average, indicating additional power demand for cooling.

With Tohoku Electric Power’s and Tepco’s nuclear reactors showing no sign of restarting in the near future, additional gas-fired generation (and LNG) is needed to compensate for lost nuclear output. The utilities operate in centre of the country and northern Honshu island, which is forecast to see the warmest weather over the next three months.

Adding to the pressure on utilities, Tepco is shutting down the 1.1 gigawatt Kashiwazaki-Kariwa 1 nuclear reactor for routine inspection in early August. The outage is expected to last two months.

Meanwhile, Japan’s manufacturing production rose by the sharpest rate in five months, according to financial information company Markit. July manufacturing Purchasing Managers Index (PMI) rose to 52.1 from 50.7 in June, indicating sector expansion, which is expected to increase electricity consumption.

Reasons for lower LNG purchases and consumption

But although Japanese manufacturing is recovering, a national agenda to reduce electricity consumption, to avoid power outages, means domestic consumption is down. June power purchases were 5.4% lower year-on-year, while July purchase fell by 8.6%, according to data from the Japanese Federation of Electricity Companies. This energy-efficiency drive is likely to continue for the foreseeable future, until Japan feels confident its power capacity can meet demand.

Bringing some relief, the 912 megawatt Tomari nuclear power plant, on the north island of Hokkaido, resumed operation on Wednesday, reducing some demand for LNG. But it is unlikely to trigger a wave of other reactor restarts: the new unit was already generating electricity during its final inspection phase before the March earthquake so has not been subject to all the tougher approvals needed in post-Fukushima Japan.

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