Japan's oil, LNG demand set to rise in summer

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 23 -- Crude oil futures prices rose 1.6% on speculation Japanese rebuilding efforts will bolster fuel consumption, with gasoline production recovering to nearly to the point where it stood before the Mar. 11 earthquake and tsunami.

“Japanese oil demand took a hit initially but is going to rebound in spades,” said Bill O’Grady, chief market strategist at St. Louis-based Confluence Investment Management. “The situation won’t be resolved soon and will probably get worse before it gets better.”

The earthquake earlier this month hit northeastern Japan hard and stopped production at six refineries, but by Mar. 21, three, including JX Nippon Oil & Energy Corp.'s Negishi refinery in Yokohama, had resumed operations.

All four refineries of the ExxonMobil Japan Group are fully operational including ExxonMobil affiliate Tonen General's Kawasaki, Sakai, and Wakayama facilities and Kyokuto Petroleum Inc.'s Chiba facility, a joint venture of ExxonMobil and Mitsui & Co. (OGJ Online, Mar. 22, 2011).

Meanwhile, undamaged refineries, such as JX Nippon’s Mizushima facility in Okayama Prefecture and Cosmo Oil Co.'s Yokkaichi refinery in Mie Prefecture, are expanding capacity, bringing Japan's total potential output back to about 3.5 million b/d.

According to the Petroleum Association of Japan, domestic demand for petroleum products totals 3.3 million b/d, and the industry soon should be able to meet most of that demand.

But that could change later this summer when the supply of electricity in the Tokyo area could fall as much as 15 million kw short of demand, about 25% of projected peak demand.

Tokyo Electric Power Co. (Tepco) is trying to fill the gap through by restarting an idle fossil-fuel power plant and repairing others damaged by the recent earthquake.

The government thinks such steps would help restore the region's power supply to 45 million kw—still be 25% less than the 60 million kw needed on the hottest days, when air-conditioning demand spikes.

Tepco meanwhile is asking seven domestic banks to provide about ¥2 trillion in extra funds, mainly to repair power plants damaged by the 9.0-magnitude earthquake and tsunami. The request is being considered and may be granted by the end of the month.

Tepco's Fukushima Daiichi nuclear plant sustained extensive damage, while the firm’s thermal power stations along the Pacific coast have also been damaged.

As a result, Tepco is leaning toward bringing back online thermal and hydroelectric power plants that it had previously shut down to help make up for generating capacity lost in the quake.

Dangerous radiation leaks from four stricken reactors after the tsunami hit Japan's Fukushima Daiichi nuclear plant may prove "the death knell" for a pending "nuclear renaissance," increasing demand for natural gas, residual oil, and coal to fuel electric power generation, said several industry analysts (OGJ Online, Mar. 21, 2011).

Meanwhile, domestic and international firms continue their efforts to provide Japan with emergency supplies of energy and funding.

Saudi Arabian Oil Co. will provide $20 million dollars in emergency assistance for Japan's earthquake recovery effort, said Chief Executive Officer Khalid Al-Falih, noting that the aid would mainly take the form of fuel.

Chubu Electric Power Co. said it would divert tens of thousands of tons of LNG to Tepco, which plans to use it to increase output at fossil-fuel power plants not damaged by the earthquake.

Chubu Electric, which will ship the LNG to Tepco mainly in the summer, when power shortages are expected in the Tokyo metropolitan area, may also consider diverting the gas to Tohoku Electric Power Co.

Royal Dutch Shell PLC made eight extra shipments of LNG gas to Japan, according to De La Rey Venter, Shell's global head of LNG upstream international, who said six shipments came from Brunei and two from Russia’s Sakhalin Island.

Ventner said more cargoes are expected to follow in the coming days, with more than enough supply for extra shipments to Japan.

"Nobody knows how much additional supplies of LNG are needed this year, but we are in very close contact with affected utilities to help ensure continuing and additional supplies,” Venter said.

Contact Eric Watkins at hippalus@yahoo.com.

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