Japanese utilities help ease China’s fuel crisis – with a nice profit
Japanese utilities are stepping in to help ease China’s fuel crisis, selling excess liquefied natural gas at sky-high prices as Beijing orders its major energy companies to secure supplies at all costs.
Ships typically chartered by Japanese companies including Jera Co., Tokyo Gas Co. and Kyushu Electric Power Co. delivered up to six one-off cargoes to Chinese ports in September, BloombergNEF analyst Lujia Cao said. Chinese state-owned companies are among the buyers negotiating the purchases, including Sinopec, which put out a tender for the supplies from November to March earlier last week.
China faces a shortage of everything from natural gas to coal as supplies have struggled to keep pace with the rebound in economic activity. This provides lucrative profits for Japanese companies against a backdrop of scorching prices. The North Asian LNG benchmark index hit a record high of $ 34.47 per million UK thermal units amid heightened global competition between China and Europe for refrigerated fuel .
Faced with a shrinking population and an increase in nuclear energy production, Japan, the world’s largest importer of LNG, has seen its demand for natural gas decline. After being caught off guard by the freezing temperatures of last winter, utilities now find themselves in an ideal situation.
Japanese importers faced slower-than-usual demand from August as the weather was milder than expected, reducing air conditioning use in urban cities, including Tokyo. This has left them sitting on high seasonal stocks as they maximize supplies to avoid a repeat of last winter. The result is a perfect scenario to take advantage of the price rally.
Utilities have bought excess cargo on long-term contracts linked to oil indices that are nearly $ 25 per million UK thermal units below the price of spot shipments. Reselling oil-related shipments on the spot market – as with the deals with China – is a lucrative opportunity, as the gap between the two is near an all-time high.
“I expect to see cargoes sold by these companies through October and November with a profit of $ 75-85 million per cargo,” said Felix Booth, head of LNG at energy intelligence firm Vortexa Ltd. . âChinese buyers are much more exposed to the spot market.
Although Japanese utilities are unlikely to abandon their cargoes during the peak months of January and February, when temperatures are generally coldest, at least one cargo has been sold for delivery in March in China, said traders.
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