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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Is This The End Of The LNG Story?

Is This The End Of The LNG Story?

One nation has been a focus for the energy world of late: Japan. With this country being looked to for answers when it comes to global uranium demand.

But Japan is also a key driver for another critical commodity: natural gas. And some statistics released late last week show this market is now looking incredibly weak.

As reported by Bloomberg, a consortium of Japanese power companies reported data on their fuel usage -- showing that liquefied natural gas (LNG) use is seeing a major decline in the country. Related: Low Oil Prices Throw North Sea Oil Into A State Of Crisis

The report was issued by Japan's Federation of Electric Power Cos -- an industry group representing the country's 10 major utilities. Groups that use the majority of Japanese coal, natural gas, and other petroleum products.

But the numbers showed that natural gas is losing favor as a fuel of choice. During August, use of LNG by the Federation's members hit the lowest level in five years. Related: Aussie PM Ousted As Commodities Pressure Proves Too Much

Equally interesting was the fuel that's replacing LNG across Japan. Not fuel oil -- which hit a six-year low in demand during August. But rather, coal.

Japan's 10 major utilities set a monthly record for the amount of coal burned in August. With total consumption hitting 5.82 million tonnes -- the highest level since the government began tracking such data in 1972.

This suggests that Japanese fuel buyers are taking advantage of currently-cheap coal prices. As I mentioned in last week's Prime Meridians, coal in places like Indonesia has recently been hitting all-time low price levels. Related: Oil Price Increase Will Not Come Fast Enough To Save Alberta

But the interesting thing is -- LNG is also relatively cheap right now. With Japanese prices (as measured by the Platts Japan/Korea Marker) having fallen to near $7 per MMBtu the last few months, down from over $20 a few years ago.

The stats from Japan's utilities however, suggest that coal is getting cheaper faster than LNG. Prompting generators to switch to the black stuff. A fact could put a serious dent in global LNG demand, for as long as the coal market remains depressed.

Observers in the LNG industry, take note.

Here's to making the switch,

Dave Forest

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