Cold spell across North Asia in coming week to boost gas burn for heating

North Asia, including parts of Japan, South Korea and China, is likely to be hit by a spell of extremely cold weather in the next one week, which will boost overall energy and natural gas demand for heating and help reduce high gas inventories in the region, according to national weather forecasts and market participants.

This is likely to be the coldest spell of the current winter season, reversing several weeks of warmer-than-expected temperatures that has led to high stockpiles at gas storage sites, weakened demand for LNG imports and capped spot LNG price levels so far this year.

The cold weather will coincide with the Lunar New Year celebrations in China, when most of the country shuts down and workers head home for week-long holidays.

China's Central Meteorological Observatory issued a weather forecast for the holiday season on Jan. 19, saying that two waves of cold air are expected and the temperature is expected to drop by more than 4 degrees in most of the country, and in some areas the temperature may drop by as much as 16 degrees.

On Jan. 21, the daily minimum temperature in northern Heilongjiang, one of the coldest parts of China, could drop to its lowest on record or even set a new record low, CMO said. However, CMO typically issued alerts for extremely low temperatures and it has not done so for northern Chinese provinces yet.

In Japan, all regions except the Amami/Okinawa in the southwest, are set to experience temperatures below the 30-year average this month, with the coldest spell projected so far this winter over Jan. 21-27, the Japan Meteorological Agency said Jan. 19.

Heavy snowfall could hit Hokkaido in the north to Niigata, Hokuriku and Sanin regions from Jan. 21, with a possibility of snowfall in Tokyo on Jan. 23, a JMA official said.

In South Korea, temperatures in the capital Seoul are forecast to drop to a maximum/minimum of -10/-17 C next week, from median temperatures of around 1 C on Jan. 19, according to the Korea Meteorological Administration. More details are awaited.

Japan gas stocks

The cold spell comes at a time when the country has ample LNG stocks after experiencing relatively mild LNG demand for power generation following moderate weather in recent weeks.

"Japan's LNG inventory could decrease from the arrival of this cold snap but unless it prolongs and substantially cuts the inventory, the Japanese utilities would not move to procure additional LNG as a result of tightening the LNG supply and demand balance," said Takayuki Nogami, chief economist at Japan Organization for Metals and Energy Security.

LNG stocks held by Japan's major power utilities rose 5.6% on the week to 2.62 million mt Jan. 15, the Ministry of Economy, Trade and Industry said Jan. 18, marking the highest level in five weeks.

The Jan. 15 LNG inventory was the highest since Dec. 11, when the stocks stood at 2.69 million mt.

Meanwhile, Japan is experiencing robust kerosene demand for heating, particularly in the north.

Estimated domestic kerosene shipments in the week to Jan. 14 doubled from the previous week to 3.23 million barrels, according to S&P Global Commodity Insights calculations based on Petroleum Association of Japan data released Jan. 18.

Estimated domestic kerosene shipments during Jan. 8-14 were the highest in 48 weeks since 3.49 million barrels over Feb. 6-12, 2022, according to S&P Global's calculations. Japan's kerosene stocks retreated 6.3% on the week to 13.72 million barrels Jan. 14.

According to the month-long weather forecast by JMA, there is a 60% probability that all regions, except Amami/Okinawa, will likely experience below-average temperatures over Jan. 21-Feb. 20 while there is an 80% chance those same regions will witness below-average temperatures over Jan. 21-27.