By Robert Preston
January 8, 2021 - Unseasonably cold weather and low nuclear availability has likely boosted Japanese coal-fired generation compared with a year earlier in recent weeks.
Coal consumption in the country may also have been supported by rising LNG prices in recent months, with the spot market at a record high and the recovery in oil prices supporting oil-linked term contracts.
Daily mean temperatures in Tokyo have equated to 385.6 heating degree days since the beginning of December, according to Argus analysis. This is up from 349.1 heating degree days a year earlier and is the highest since the 2017-18 winter when there were 420.5 heating degree days between 1 December and 6 January.
Temperatures below the seasonal average are expected to continue over the next week in Japan before returning to more regular levels for the time of year afterwards, according to the Japan Meteorological Agency.
The spike in electricity demand for heating has been compounded by much lower nuclear availability than a year earlier. Japan's average nuclear availability dropped to its lowest in November since at least January 2018 owing to maintenance and counter-terrorism upgrades at its reactors. Japan's average nuclear availability for November 2020-January 2021 is scheduled to be 2.6GW, compared with 7.1GW a year earlier.
Capacity is set to increase to 3.9GW in February but this is still almost half the 7.4GW capacity it had in the same month last year, which will make utilities more reliant on thermal generation.
Coal's share of the thermal generation mix shrunk in favour of LNG to 42pc in September from 48pc in April as Japanese gas prices were pushed lower by weak oil markets during the initial outbreak of Covid-19. But LNG prices have since been supported by recovering oil markets, which have been boosted by the rollout of vaccines across the world.
And Asian spot LNG prices have surged in recent days as at least three major Japanese power utilities have reported a severe shortage of LNG, pushing the country's electricity prices up to record highs.
This has increased spot LNG prices far above theoretical coal-to-gas switching prices in Japan, boosting coal's competitive advantage for thermal generation during the current cold period.
But Japan's prime minister Yoshihide Suga announced a "soft lockdown" after rising cases of Covid-19 in Tokyo, with restaurants and shops in the capital's metropolitan and neighbouring areas under restrictive curfews. This could weigh on the country's power generation, although the effect may be counterbalanced by the continuing cold weather.
While the country has a long-term phase-out strategy for coal, there is a possibility that demand might increase in the short term with the start-up of three new coal-fired units.
Spot and oil-linked LNG prices vs coal-switching price $/mn Btu