<article><p class="lead">Japan's severe electricity shortages have been boosting the country's heavy fuel oil demand since the end of last year, prompting power utilities to buy additional generation fuels with low and depleting LNG inventories.</p><p>Enquiries about heavy fuel oil from Japanese utilities have increased by more than fivefold from a year earlier. The utilities have been desperate to <a href="https://direct.argusmedia.com/newsandanalysis/article/2176843">substitute generating fuels for LNG</a> to meet the country's firm power demand created by the current cold weather. Domestic high-sulphur fuel oil (HSFO) is currently trading ¥4,000-6,000/kl ($6-9/bl) higher compared with prior to the country's power shortages, said a Japanese trader. </p><p>More than 101,000 b/d of crude and fuel oil is estimated to have been supplied to Japan's nine main power utilities last month, a market participant said. The nine companies had consumed around 20,000 b/d of the fuel during April-September last year, down by 44.4pc from a year earlier. The country's overall fuel oil demand during the same period was 43,000 b/d, down by 24.2pc compared with the previous year, according to the industry and trade ministry.</p><p>Oil fuel consumption for power generation in the April 2019-March 2020 fiscal year by the nine utilities was 34,000 b/d, down by 44.7pc from the previous year, while Japan's total fuel oil demand for power was 61,000 b/d that was down by 29pc.</p><p>Japanese utilities have been gradually mothballing oil-fired power plants, switching to gas-fired plants, nuclear and renewable power generation, resulting in lower fuel oil inventories for power generation. Some utilities have cancelled their tank lease contracts with oil terminals.</p><p>Japan's nine main utilities are Hokkaido Electric Power, Tohoku Electric Power, Hokuriku Electric Power, Kansai Electric Power, Chugoku Electric Power, Shikoku Electric Power, Kyushu Electric Power, Okinawa Electric Power and Jera, a 50:50 thermal power joint venture between Tokyo Electric Power and Chubu Electric Power.</p><p>Japan's power sector has already asked the Petroleum Association of Japan to supply generation fuels on a priority basis early last week. This led to <a href="https://direct.argusmedia.com/newsandanalysis/article/2174781">extremely tight HSFO</a> supplies for bunkers. Tokyo HSFO bunker prices rose to $397.50/t yesterday from $347.50/t on 5 January.</p><p>Japan's fuel oil production over the four weeks to 9 January rose by 16.5pc from a year earlier to 268,000 b/d, while gasoline and gasoil output dropped by 7.8pc to 836,000 b/d and by 12.8pc to 585,000 b/d. Japan imported 12,000 b/d of fuel oil during the same period, up by 29pc from the previous year.</p><p class="bylines">By Maiko Nakashima</p></article>
