Asia’s natural gas, kerosene demand rises as cold spell spreads

SINGAPORE (Reuters): The chilliest winter in decades has pushed up demand for fuel to keep homes and offices warm in much of Asia, taking natural gas prices close to their 2012 high and disrupting the production and transport of oil and coal in top energy consumer China.

China is facing its lowest temperatures in nearly 28 years. Japan has seen record snowfall in many places and in northern India the coldest weather in at least 44 years has killed more than 100 homeless people.

“Weather has definitely had an impact on energy demand. Even though coal prices softened towards the end of the year, the impact on physical demand has been seen in the stocks,” said a commodity analyst at Barclays Sijin Cheng.

“For natural gas, we’ve seen companies increasing spot purchases, which has been tied to consumer use and heating.”

The rise in winter demand for Liquefied Natural Gas (LNG) has helped fuel a rally of nearly 40% since mid-October, taking the price close to the 2012 high of US$ 18 per mmBtu (million British thermal units).

Australian thermal coal prices have rallied 15% since mid-November to trade at around US$ 95 per ton as Japan steps up imports and supplies in China tighten.

The price is still down around US$ 20 on a year ago after abundant supply and slowing demand growth from China hit the market.

Premiums to Asia spot prices for kerosene, a popular fuel in Japan for heating homes, shipped from neighbouring South Korea rose to a multi-year high of about US$ 12 a barrel, one North Asian trader said on Tuesday.

That is a 20% increase from two weeks ago and more than double the US$ five a barrel premium the same time last year, the trader said.

Premiums for fuel oil, also used by utilities in Japan, have risen 20% to about US$ 120 to US$ 130 a ton above Singapore spot quotes, CFR Japan basis, the highest in about six months.

PetroChina, China’s largest oil and gas producer, said it would buy an additional 400 million cubic metres of LNG, or 296,000 tons, from the spot market for the first quarter as the country asks companies to increase gas output and imports to meet soaring winter demand.

Japan, the world’s largest LNG importer, is expected to buy nearly 900,000 tons more of the fuel between December and March 2013 than a year ago, according to forecasts from the Institute of Energy Economics, because of higher demand.

The increase will take imports for the four months to 31.98 million tons. Japan has imported record LNG volumes since the Fukushima disaster in 2011 led to a shutdown of the country’s nuclear plants.

South Korea, the world’s second-largest LNG importer, may also buy more from the spot market if the cold spell worsens. The country’s LNG inventory is currently below two million tons. While the level is enough to meet winter demand, it is about 48% of the total storage capacity.

“More gas might be bought on the spot market to ensure supplies,” an industry source with direct knowledge of the issue said.

Kerosene sales in Japan climbed nearly 80,000 barrels per day (bpd), or by about 23%, to 422,649 bpd in November compared with the same month last year, according to trade ministry data.

The volume was the highest for that month since November 2008. Strong sales continued into December, rising about 7-8% on the year to 700,000 bpd, according to independent oil economist Osamu Fujisawa.

The surge in demand in the last two months will push 2012 kerosene sales higher by 1.5% to 340,000 bpd from a year earlier, Fujisawa said.

Japan’s demand for low sulphur fuel oil is expected to be around 300,000 bpd in January and February, about 10% higher than December’s 260,000-270,000 bpd, traders added.

Consumption for direct-burning crude used by Japanese utilities has increased in the first two months of the year compared with the quarter ending December, traders said, but it was not immediately clear how high the volumes were. “The northern hemisphere winter season is a peak demand period because of heating oil demand, so that’s an important period for North Asian refiners in terms of overall profitability for the year,” said IHS Purvin and Gertz oil consultant Victor Shum.

“There’s no question that the unusual cold winter striking North Asia should raise heating related demand.” Cold weather in central and northern China, home to the major coal producing provinces, has also hit rail traffic, hurting deliveries to ports.

That will tighten domestic supplies just as power plants are restocking ahead of the Lunar New Year holiday in mid-February.

Disruption to rail supplies due to heavy snowfall has caused stocks at Qinhuangdao port, the country’s largest coal terminal, to fall 5.7% from a week ago to 6.1 million tons on Sunday, port data showed.

Thick ice of up to 15 cm has hit output in Bohai Bay, China’s largest offshore oil and gas production base.

Japan’s November thermal coal imports rose 26% from a year earlier to 9.77 million tons, and gained 7.3% in the first 11 months of the year to 99.2 million tons.