Lockdowns in Japan and India to contain the coronavirus have softened the JKM (Japan Korea Marker) near curve relative to prices at the Dutch TTF gas trading hub. The JKM-TTF spreads for summer delivery were last seen in the range of 0.22–0.53 $/mmbtu, with the upper bound set by the freight differential for US cargoes delivering to Europe and Northeast Asia.
Japan sticks to coal
In Japan, analysts see fuel switching as less likely, given the low prices required. Forecasts for Brent oil prices for the remainder of 2020 are forecast are not low enough to support a Japanese power sector coal-to-gas fuel switch.
Japanese historic customs data suggest oil-indexed imports on a 14% slope against crude prices with a fixed premium of 0.8 $/mmBtu. According to Energy Aspects, crude prices would need to average below $23/bbl for oil-indexed LNG to be competitive against a coal-to-gas fuel-switch price of 4 $/mmbtu – accounting for delivered coal prices and differences in generation efficiencies for coal and gas.
Korea’s coal tax pushes balance to LNG
South Korea, in contrast, only needs oil-indexed prices to be below $42/bbl for it to make state-owned supplier KOGAS’s import prices low enough for a fuel switch. The higher fuel switch level is because thermal coal is taxed at a higher rate since April 2019 than natural gas when used for power generation.
Utilities’ would start dispatching more gas-fired power plants as soon as KOGAS translates these lower import costs into lower tariffs to these firms. Analysts note that KOGAS has little scope to absorb spot supply on top of existing commitments, with 29.6 Mtpa of supply under long-term contracts.
KOGAS’s reported requests for delayed cargo deliveries over the coming months suggest that its higher y/y LNG inventories have left it with little ability to receive all its contracted supply. But Energy Aspects pointed out that “any fuel switch would not likely be in play until at least July.”