2013-12-06 11:59:00 - New Energy market report from Business Monitor International: "Japan Oil & Gas Report Q1 2014"
Japan's consumption of imported oil and natural gas has increased as a result of nuclear power generation losses in the wake of the 2011 earthquake and tsunami. However, consumption appears to have hit an upper limit as gas power is running near maximum capacity, while demand for expensive oil wanes. While we expect some nuclear power will return to service, it will be a slow and gradual process leaving Japan with significant long term fuel import costs. As a result Japan is looking to move away from an oil-indexed LNG structure, and is showing the most interest in North America's Henry Hub-linked LNG projects.
The main trends and developments we highlight for Japan's oil and gas sector are:
* LNG imports
appear to have hit an upper limit. 2012 was a record year with Japan importing 118.75bcm; however, gas power generation is running near capacity and LNG imports for 2013 are expected to be around 1% lower. The expectation of nuclear restarts in 2014 should further ease high LNG import costs. Gas consumption is forecast to total 120.92bn cubic metres (bcm) for 2013 and will fall to 110.0bcm by 2022 in anticipation of greater efficiencies and nuclear output.
* The refining sector is expected to take a hit with over 400,000 barrels per day (b/d) of distillation capacity coming offline before March 2014 when the refining efficiency law enters into force. This will cut Japan's refining capacity to just over 4mn b/d, down 1mn b/d from early 2000.
* Oil consumption is in a negative trend though is expected to remain somewhat flat over the forecast. Oil consumption is forecast to fall to 4.62mn b/d in 2013, edging down further to 4.50mn b/d in 2018, before growing to 4.58mn b/d in 2022.
* In April 2013, Japan launched its first exploration efforts in 10 years. Exploratory wells targeting methane hydrates in a field offshore the island of Sado successfully produced gas in a test phase. Further exploration and testing will take place over the coming years, but if commercial production is economically achievable, methane hydrates could have a significant impact on production towards the end of our forecast period.
* Japan Petroleum was recently able to extract shale oil from a deposit in Akita prefecture, a first for Japan. However, deposits at the Ayukawa and neighbouring gas fields are estimated at just 5mn barrels (bbl), or approximately one day's worth of oil consumption for Japan, underscoring the country's negligible natural oil resources and its dependence on imports.
* In a move that could potentially combat high LNG prices, Japanese companies have been among the most keen to support LNG export projects from the US. Osaka Gas, Chubu Electric and Toshiba have signed contracts with Freeport LNG, KEPCO and Tokyo Gas with Cove Point, and TEPCO with Cameron LNG. Most LNG exports from the US are expected to be indexed to the Henry Hub removing the distorting effect of oil prices.
* Japanese investment in African resources is set to increase following Prime Minister Shinzo Abe's pledge to invest US$32bn over the next five years. East Africa in particular could be a critical new outlet for global LNG sources.
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Japan's crude oil import requirement is expected to be 4.48mn b/d in 2013, but is expected to slowly reduce as domestic demand falters, and coal and nuclear restarts begin to displace some of the power demand. The gas import requirement reached a record 118.75bcm in 2012 with both a drop in domestic production and increase in demand from power use adding to the growth. We are expecting lower gas demand in the coming years as Japan appears to have reached a consumption plateau and LNG costs remain prohibitively high for further use. Where possible, coal power is substituting gas and oil over the short term, while nuclear restarts could reduce demand over the longer term. In the current forecast scenario we do not see Japan surpassing its LNG import record in 2012.
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