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With prices for liquefied natural gas falling 40% and coal 30% from recent highs. electricity users in Japan stand to eventually enjoy lower rates.
LNG has traded at around $5.50 per million Btu on the spot market lately. Spot LNG prices surged to the high $9 range in January. a few months after the suspension of nuclear reactors in South Korea and troubles at an Australian LNG production facility. But prices began heading lower again after the impact of these events eased.
Supply has been increasing as Australian and Russian production facilities have gone into service. But Japan. the world`s biggest LNG importer. has cut back on imports for two years in a row. with 2016 figures showing a 2% year-on-year drop. In this environment. spot prices are `highly likely to remain at low levels.` said a specialist at the Japan Oil. Gas and Metals National Corp.
Prices of thermal coal. another major fuel for power generation. have followed a similar pattern. China`s coal imports surged after the government moved to limit days of operation at mines. This lifted Asian-benchmark spot prices in Australia to $115 per ton. the highest in four and a half years. last November. But with Beijing taking steps to hold down prices at home. spot prices later declined to around $80.
Oil now trades nearly 20% lower than at the start of the year. with futures in New York at around $43 a barrel. Despite OPEC`s recent deal to extend output reductions. many experts still expect bringing down excessive inventories to take time. This points to lower fuel costs for electric companies. since crude prices are used to set bulk prices of C heavy oil used in power generation.
Electricity rates in Japan are adjusted monthly to automatically reflect changes in fuel prices. With utilities procuring fuel mainly through long-term contracts. lower spot prices do not necessarily mean cheaper power right away. But lower prices will be reflected in rates over time. since spot prices will be used as a basis for negotiation when renewing supply contracts.
