Recent falls in global oil prices were unlikely to prompt the switch from LNG to oil by Japanese power utilities seen earlier this year as LNG spot prices were this time likely to remain competitive, Eclipse Energy said this week.
According to Eclipse, a natural gas analytics and forecasting unit of Platts, the trigger point for utilities to turn off their least efficient gas-fired units and restart high efficiency oil-fired units is around $8.30/MMBtu for October, $8.41/MMBtu for November and $8.51/MMBtu for December.
The Platts JKM for cargoes for delivery in October was assessed at $7.85/MMBtu Tuesday, more than 40 cents lower than the potential switching threshold.
JKM swaps for November were assessed at $7.70/MMBtu and for December at $7.75/MMBtu.
The contango structure heading into winter was slight as additional supply from new Asian LNG projects poised to come online soon was putting some downward pressure on prices, which were expected to remain competitive throughout the coming winter, sources said.
However, a North Asian utility source said fuel switching could occur at some older, less efficient gas-fired plants. “It’s all about economics; studying which units are cheaper,” he added.
Several Japanese power utilities switched to oil from LNG over December- January when global oil prices fell sharply, but the trend was short-lived.
Crude and fuel oil have been falling out of favor for power generation in Japan as the country’s oil-fired plants are generally outdated and inefficient.
Higher oil prices prior to the recent decline and growing environmental awareness have also discouraged their use.
Japan’s 10 major power utilities consumed 100,251 b/d of crude oil over April-July, down 18% from the same period a year earlier, Federation of Electric Power Companies of Japan data showed.
The use of fuel oil fell 5% over the same period to 144,847 b/d.