Japan’s LNG imports are not much affected by the supply shock in the Middle East, but Japanese industrial natural gas use could drop anyway if petrochemicals plants continue to see naphtha supplies constrained, executives at the biggest Japanese gas providers said on Wednesday.
“As we have a number of customers who use naphtha or other petroleum products in their manufacturing operations, any move to scale back their activities or operations could have an impact on our gas sales,” Shinichi Sasayama, president of Tokyo Gas, said at a press conference, as carried by Reuters.
Osaka Gas’ president Masataka Fujiwara also warned in separate statements on Wednesday that the company’s gas sales would fall if petrochemical plants move to curb output because of shortage of petroleum products.
Asia’s petrochemicals sector is highly dependent on naphtha, liquefied petroleum gas (LPG), and methanol from the Persian Gulf, so the war in the Middle East is creating a major supply shock in Asia, which is the most vulnerable to supply disruptions from the Gulf region, trade credit insurance group Coface said last week.
Asian petrochemicals producers in South Korea and Japan structurally operate with low stocks of naphtha and LPG, sufficient to cover only a few weeks of production. The result from the current supply crisis is that naphtha inventories are depleting rapidly, forcing producers to cut back on output, Coface noted.
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“With 60 to 70% of Asian naphtha passing through Hormuz, a prolonged disruption could redefine flows, costs and, perhaps, the very geography of the global petrochemical industry,” said Joe Douaihy, sector economist, Coface.
While Japanese petrochemical manufacturers could soon acutely feel the naphtha supply crunch, Japan remains well supplied with LNG, thanks to its low exposure to LNG flows from the Strait of Hormuz.
Despite being the world’s second-largest LNG importer after China, Japan relies on the Strait of Hormuz for just 5% of its LNG imports, according to estimates by Vortexa.
To mitigate the Qatari LNG shortfall, importers in Japan can switch to alternative fuels like coal or optimize within their gas and LNG portfolios, the energy flows intelligence firm said earlier this month.
“We secure the majority of LNG through long-term contracts, and there are currently no long-term contracts for LNG procurement via the Strait of Hormuz,” Osaka Gas’ Fujiwara said today.
By Tsvetana Paraskova for Oilprice.com
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