Japan's fuel oil imports rose to near four-year highs in August, as utilities emerged to buy the fuel as a power generation alternative to higher priced LNG.
The country's fuel oil imports hit 306,600t (64,000 b/d) in August, the highest since at least October 2018, according to Vortexa data. Imports in August comprised about 67.5pc low-sulphur fuel oil (LSFO) and 32.5pc high-sulphur fuel oil (HSFO), mostly originating from Singapore with the rest from Malaysia, South Korea and the UAE.
Japanese utility Kansai Electric was probably one of the larger buyers of fuel oil for power generation, traders said. The specifications of fuel oil sought could range from 0.15pc to 0.8pc sulphur with maximum 180cst viscosity, said a trader, although this could not be confirmed with Kansai.
While numerous oil-fired plants in Japan have been mothballed, some could also resume operations, market participants said, because of the higher LNG prices. The ANEA price — Argus' assessment for spot LNG deliveries to northeast Asia — for delivery in October has averaged $52/t so far, nearly three times the approximate $18.97/t average in October 2021.
Japan's combined LSFO and HSFO inventories were 1.79mn kilolitres (11.25mn bl) in the week to 10 September, the highest since the 1.8mn kl in the week to 18 June, according to Petroleum Association of Japan data. But inventories are still about 10pc lower from a year earlier.
It remains to be seen if Japanese utilities' fuel oil buying will stay firm throughout October-December. While the Japan Meteorological Agency forecasts a 40-50pc probability of above normal temperatures in the country during September-November, fuel oil demand for power generation might continue especially if gas supplies are tighter, said an analyst.
Japanese utilities are also likely to boost oil-fired generation before turning to the spot LNG market for additional supplies, given that spot LNG prices are holding firmly above oil parity — with oil cheaper than LNG in energy equivalent terms — since mid-2021.
