Japan's LNG demand is expected to crawl out of its nadir this year on the back of recovering industrial demand.
The big question, though, is how much of the industrial sector recovery will translate into growth in LNG consumption. The general expectation is demand would not go back to levels seen before the September 2008 collapse of Lehman Brothers.
The Federation of Electric Power Companies of Japan reported January 22 that power demand from major industries in December 2009 increased 1.8% from a year ago to 21,950 GWh, marking the first year-on-year increase in 15 months.
The data confirmed signs of recovery in industrial activity the FEPC reported on January 15, following a survey of 10 major power companies' power generation and fuel consumption in December.
However, the FEPC has not concluded that Japan's overall industrial demand has bottomed out, since year-on-year increases have only been seen in export-oriented sectors such as steel, machinery and chemicals.
The lingering fears of a "double dip" notwithstanding, several Japanese power and gas utilities are projecting a steady demand recovery over October 2010-March 2011, the second half of the upcoming fiscal year.
However, power utilities in Japan, world's largest LNG importer, are playing it safe and are expected to seek a cut in term LNG imports in fiscal 2010-11 by the same amount as they did for 2009-10.
The importers would likely exercise the "downward quantity tolerance" clause in their term contracts. The DQT provision allows buyers to cut their offtake in a given period by 5-10%, although they may have to make up the purchases later on in the contract.
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