ENEOS sees April-September fuel oil demand double year-on-year amid high LNG prices: Chairman

Japan’s largest refiner, ENEOS, is seeing its April-September fuel oil demand for power generation double year-on-year amid high LNG prices, ENEOS Holdings Chairman Tsutomu said. Sugimori, April 20.

Amid LNG prices at “extremely high” levels, ENEOS sees a significant increase in its demand for fuel oil in the first half of FY 2022-23 (April-March) as an alternative fuel for the production of electricity, Sugimori said at a press conference. the president of the Petroleum Association of Japan.

“We are evaluating our ability to meet this demand in the first half,” Sugimori said, adding that ENEOS would not be able to fully meet fuel oil demand, citing a 60% increase in fuel oil. one year to the next. its fuel oil supply for electricity in the second half of the 2021-22 financial year (October 2021-March 2022).

“We will consider the best way to respond to this [demand,” he added.

Some Japanese power utilities that can use fuel oil for power generation see fuel oil as among the alternatives in the face of high LNG prices since winter 2020-21, despite limited capabilities for fuel switching, according to market sources.

Sugimori’s comments came after the Ministry of Economy, Trade and Industry said April 12 that Japan is expecting an unprecedented level of risk in power fuels procurement in FY 2022-23 (April-March) amid increased uncertainty over the war in Ukraine and high fuel prices as the country commits to reducing its Russian coal imports in phases.

“[Japan’s] fuel supply risk has reached an all-time high as international fuel prices continue to hover at high levels,” METI said in documents released at its electricity policy subcommittee and gas.

Fuel oil sales in Japan averaged 114,227 bpd from April to September 2021, up 23% from a year earlier, according to METI data, as electric utilities Locals increased their fuel oil purchases to offset their depleted stocks as well as to store for the winter amid high LNG prices.

The Platts JKM for May delivery hit $38.045/MMBtu on March 24 and has since priced lower in the $24-$26/MMBtu range, according to data from S&P Global Commodity Insights. The additional supply and lower prices in the Atlantic, as stocking levels increased in Europe, pushed prices lower.

JKM for June delivery was valued at $24.775/MMBtu on April 19, still significantly higher than April 19 valuations in 2021, 2018, 2017 and 2016 at $8.56/MMBtu, $7.525/MMBtu, 5, $50/MMBtu and $4/MMBtu, respectively, S&P Global data showed.

Prevailing prices were mainly supported by strong downstream demand for winter 2021-22, which resulted in additional LNG demand from Japanese and South Korean importers for January-March delivery, as well as as the uncertainty of supply from the Malaysian Bintulu project.

Russian variant

ENEOS, which suspended the signing of any new Russian crude oil contracts following Russia’s invasion of Ukraine, is confident it can source oil from Middle Eastern oil producers such as Saudi Arabia, Abu Dhabi and Kuwait, Sugimori said.

“We suddenly decided to suspend the purchase of [Russian crude] following the brutal invasion of Ukraine,” he said. “Therefore, we are suddenly faced with the need for alternative supplies.”

“Our Russian crude oil supply was about 3% to 4% before the invasion of Ukraine,” Sugimori said. “Despite the [oil market] being tight, we hope to be able to secure an alternative supply for this part. »

Sugimori added that Japan’s largest refiner does not plan to resume buying Russian crude without any resolution to the situation in Ukraine and Western economic sanctions against Russia.

Russia supplied 4% of Japan’s total crude imports of 2.48 million bpd in 2021, with the Middle East supplying 92%, according to finance ministry data.
Japanese Prime Minister Fumio Kishida said on April 8 that the country would ban coal imports in phases as part of additional sanctions against Russia following the latest pledge by the leaders of the G7 countries, marking the country’s first commitment to limit any imports of raw materials from Russia.

The G7 countries aim to accelerate efforts to reduce dependence on Russian energy, including by removing and banning imports of Russian coal and reducing Russian oil dependence, the leaders said in a joint statement. April 7.

Commenting on domestic demand for petroleum products, Sugimori said Japan’s domestic demand for gasoline is expected to fall 2% year on year in April after falling 3% in March, and be about 10% lower than expected levels. before the 2019 pandemic over the two months.
Source: Platts

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Felix J. Dixon