Japan power utilities may seek more LNG cargoes on early heatwave: sources

Japan's power utilities could look for additional LNG cargoes to meet demand for prompt delivery after a heatwave hit the country earlier than is typical, market sources said July 8.

"Japanese end-users will probably come out to buy LNG cargoes, maybe around 5 cargoes," said one LNG trader.

"Japanese buyers are already in the market checking prices for August and September," said a second LNG trader.

Japan is currently supposed to be in the typical rainy season, although it experienced a heatwave on July 8. Japan typically sees temperatures surging after the rainy season ends. The surge in temperature tightened power capacity in Tokyo and Kansai areas, according to the Organization for Cross-Regional Coordination of Transmission Operators, or Occto.

Occto made a rare request July 8, asking its member companies to boost their power supply as well as asking consumers in the Tokyo area to conserve their power usage until around 10 pm local time, as the integrated reserve power supply ratio is expected to hover below 5% throughout the day due to increased demand.

The higher temperatures also raised power prices traded on the JEPX. The day-ahead price traded on the JEPX averaged Yen 18.45/kWh July 8, the highest since Sep. 21, 2023, when it averaged Yen 19.77/kWh, JEPX data showed.

The high power prices are expected to encourage Japanese utilities to buy spot LNG cargoes and sell the electricity in JEPX, LNG traders said.

"Some companies, which have spare capacity, may buy spot LNG cargoes and sell electricity in the JEPX," said a third LNG trader.

Japanese gas companies usually don't see gas demand rise in the summer. The companies, however, may buy spot LNG cargoes to produce electricity to take spark spread, the trader added.

Potential buying interest for prompt cargoes flattened the contango structure for intra-August, due to a stronger value for the most prompt delivery. The spread between the first half of August and the second half of August was assessed by Platts, part of S&P Global Commodity Insights, at 0.7 cent/MMBtu of contango July 8, while the contango was 4.9 cents/MMBtu July 5.

The H1 August was assessed at $12.12/MMBtu, and H2 August at $12.127/MMBtu July 8.