Japan’s JERA expects LNG stocks to be balanced at least by autumn

Tokyo — Japan's JERA expects its LNG stocks to be balanced at least by the autumn thanks to a number of measures, including contractual flexibility and the resale of cargoes, in the face of a sharp drop in power demand as a result of the coronavirus pandemic, top company executives said July 9.

The moves by JERA -- which trades 35 million mt a year of LNG, making it one of the largest traders in the world -- comes amid uncertainty over its power demand outlook because of the ongoing pandemic.

"In response to decreasing fuel consumption, we are not only optimizing our thermal power plant operations but also reducing fuel stocks from coal and LNG trading," JERA President Satoshi Onoda told a webcast press conference.

"As for gas-fired thermal power, we are exercising contractual flexibility, changing the timing of scheduled maintenance at the power plants, transferring LNG cargoes within our eight import terminals," Onoda said. "We are also selling some of the excess LNG supply to other companies."

JERA declined to give its fiscal 2020-21 power demand outlook because of uncertainty over the impact of the pandemic.

The company, a 50:50 joint venture between Tepco Fuel & Power and Chubu Electric, however, said its electricity sales over April-May dropped 12% against its plan prior to the spread of the coronavirus pandemic.

"We cannot give our [power] demand outlook because it is changing radically over April-May and June-July so that we believe we need to respond flexibly by closely monitoring the demand situation," Hisahide Okuda, chief operating officer of JERA's corporate strategy department, told the press conference.

"Looking at the current situation, we see we should not worry too much about our LNG stocks at least until the beginning of autumn as far as we are concerned," Okuda said. "We believe we will be able to adjust them so they do not overflow."

The number of coronavirus cases in Japan has been rising in recent days following the lifting of the state of emergency on May 25. The Tokyo Metropolitan Government has confirmed 224 people tested positive for coronavirus on July 9, a daily record, exceeding 206 on April 17, according to Japanese public broadcaster NHK.

'Fading out' inefficient coal

Commenting on July 3 remarks by Minister of Economy, Trade and Industry Hiroshi Kajiyama, who said that Japan would "fade out" inefficient coal-fired power plants as part of the country's strategic energy plan by 2030, Onoda said July 9 that JERA was supportive of the policy direction.

"We see the policy move, which is also part of the fifth strategic energy plan, with its exact timeline of 2030 as positive because it raises predictability for businesses," Onoda told the press conference. "We will also move ahead with looking at fading out inefficient coal-fired thermal power."

In his speech at the International Energy Agency's Clean Energy Transitions Summit July 9, Kajiyama said he had directed METI officials to start drawing up a more effective new framework to ensure the phasing out of inefficient coal-fired power.

The 5th strategic energy plan approved by the cabinet in July 2018 promotes conversion to high efficiency and next-generation coal thermal power generation in Japan in return for phasing out inefficient coal use.

Currently JERA's coal-fired capacity accounts for little more than 10% of the total power generation capacity, and it would be able to cover roughly 20% of its power supply together with its new coal power plants under construction, Onoda said, adding that the company would decide on its "fade-out" timeframe on inefficient coal-fired power plants.

JERA's two old supercritical coal-fired units -- Hakinan unit 1 and 2 with a total capacity of 1,600 MW -- would be affected, a source close to the matter said.

Meanwhile, replacing the older units with a total of four units of new ultra supercritical coal-fired units with a total capacity of 3.020 GW over the next three years was in the pipeline, he added.

Hitachinaka, with a capacity of 650 MW, was launched in 2020; Taketoyo, with a capacity of 1.070 GW, was planned to be online in 2021; and Yokosuka units 1 and 2 with a total capacity of 1.3 GW would be expected to go online in 2023, according to JERA.

"Hitachinaka is operating at the test stage now," another source close to the matter said.

"Hence JERA's plan is in line with METI's guidelines as JERA is fading out older inefficient coal units while adding efficient units," he said.

Despite the increasing capacity, the effects of JERA's thermal coal replacements on Japan's coal consumption were very much dependent on the price competitiveness of coal against other generating fuels such as LNG and nuclear, sources said.

Meanwhile, JERA's LNG plants, including Anegasaki units 1-3 with a total capacity of 1.95 GW and Goi units 1-3 with a total capacity of 2.34 GW, are expected to be commissioned in 2023 and 2024 respectively.

Via Takeo Kumagai, S&P Global Platts

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