Japan's LNG stocks to rise in Oct on spot purchases, weaker demand

Japan's LNG stocks are expected to rise in October to November due to stock replenishments and falling weather temperatures, market sources said in the week of Sept. 25-29.

Stock levels in Japan, the largest LNG importer in 2022, could have a significant impact on Asia's LNG fundamentals, especially in winter.

Major power companies in Japan such as Kansai Electric Power Company and Jera bought spot cargoes for October and November arrivals, market sources said.

Kansai and JeraGM, Jera's trading arm, have yet to respond to S&P Global Commodity Insights' emails seeking confirmation of the firms' purchases.

Kansai bought at least three spot cargoes for October delivery due to firm power demand amid higher temperatures as well as strong prices in the wholesale power market, sources said.

At the same time, temperatures are expected to decline in October, reducing power demand.

"LNG stocks will go up soon. The current stock level is not that high but LNG demand will drop soon," a source at a Japanese utility said. "Our stock levels will start to increase in November.".

"LNG stocks are going to rise before winter starts. Utilities typically receive more cargoes before winter from their term contracts," a second utility source said.

"Stock levels typically peak in October and November as demand starts to increase in the second half of November," an LNG trader based in Singapore said.

Japan's LNG inventory held by the country's major power utilities stood at 1.56 million mt Sept. 24, down 1.9% from 1.59 million mt a week ago, the latest data released by the Ministry of Economy, Trade and Industry showed, marking the lowest level since end-January 2021.

Market sources said LNG stocks plunged due to prolonged hot weather. The temperature in Tokyo averaged 26.7 degrees Celsius over Sept. 1-28, compared with an average of 23.3 C in 1991-2020, according to Japan's Meteorological Agency.

JEPX power prices gain on tight power supply

Higher temperatures across Japan raised wholesale power prices in the country.

The strong power prices encouraged power companies to burn LNG and sell power in the Japan Electric Power Exchange market, industry sources said.

The day-ahead Tokyo power prices traded on the JEPX averaged Yen 14.68/kWh (9.9 cents/kWh) to date in September, up from Yen 12.95/kWh in August, according to the JEPX.

On the other hand, power capacity declined in the month, tightening the country's power supply, industry sources said. Some power plants were scheduled to undergo regular maintenance as September is typically a shoulder season.