Japan utilities boost efforts to cut coal import costs, improve energy security

Hokuriku Electric Power Co

02/02/2023 05:20

By Yuka Obayashi
       TOKYO, Feb 2 (Reuters) - Japanese power utilities are
stepping up efforts to cut thermal coal import costs by
switching to lower quality grades and widening import sources,
company officials said, as Tokyo looks to fight inflation and
boost energy security.
    The measures include burning more of cheaper
low-to-mid-grade coal and seeking new suppliers in Africa and
South America, they said, as the world's No. 3 coal importer has
sharply reduced imports from Russia, sanctioned for its invasion
of Ukraine.
    The disruption in Russian energy exports squeezed energy
supplies globally and drove prices of coal and liquefied natural
gas to record levels last year, hitting nations hard.
    Seven major regional utilities have already applied to raise
electricity prices from April or June as the industry takes a
hit from elevated costs of imported fuels, exacerbated by the
weak yen.
        Prices of high-grade Newcastle thermal coal futures
 NCFMc1  surged to all-time highs of more than $400 per tonne
last year, tripling Japan's import value of the fuel in 2022. 
    Although the prices have eased by 39% so far this year,
utilities are concerned the market may rally again as top
importer China recovers from COVID-19 lockdowns and will resume
Australian coal imports from February.
    "Among various measures to improve efficiency, cutting fuel
cost is the most important thing as it's so big," Hokkaido
Electric Power  9509.T  President Yutaka Fujii said last month. 
    Possible cost-cutting measures include using more low-grade
coal, widening supplier sources and jointly purchasing coal with
other companies, he added.
    ALTERNATIVES TO AUSTRALIA
    Japanese utilities rely mostly on high-grade coal like that
from Australia to maintain a heat level consistent with the
installed boilers, but have been slowly increasing the use of
cheaper coal since the liberalisation of the local power market
in 2016 boosted competition. 
    Japan bought 73% of thermal coal from Australia and 7% from
Russia in 2022, against 73% and 12% in 2021, the country's trade
data shows. As the price spread between Australian and European
coal is wide, Japanese companies plan to increase imports from
South Africa, a Tokyo-based coal trader said.
    "We are looking into diversifying supply sources in areas
(outside of Australia) such as Africa and South America,"
Kazuhiro Ikebe, president of Kyushu Electric, said last month. 
    JERA, Japan's biggest power generator, has modified some
equipment at its coal power plants so that it can burn a wider
variety of coal, which has already helped bring down the fuel
cost by about 26 billion yen ($202 million) in the nine months
ended Dec. 31, Tetsuo Yoshida, the head of finance, said.  
    Hokuriku Electric Power  9505.T , which like other Japanese
utilities posted a record net loss in the nine month period
ended Dec. 31 because of soaring import costs, will continue to
seek high-grade coal "as much as possible," a company official
said.
    "But (we) will also use medium-grade coal in which the cost
reduction benefit outweighs higher consumption volume and ash
handling costs," the official added.
    REPLACING RUSSIA
    Coal imports from Russia have been in sharp decline since
mid-2022 and preliminary broker data suggests they have fallen
close to zero for February, according to Henning Gloystein,
director of energy, climate and resources at Eurasia Group.
    To replace Russian coal, Japan has increased coal imports
from several sources, including Indonesia, Australia, South
Africa and even occasional cargoes from the Americas, including
Canada, Colombia, and the United States, he said.
    Japan's biggest coal-fired power generator, Electric Power
Development Co Ltd  9513.T , is considering buying coal from
South Africa to diversify procurement sources, a spokesperson
said.
($1 = 128.4800 yen)
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Japan coal imports    https://tmsnrt.rs/3HQiAqD
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Yuka Obayashi
Additional reporting by Katya Golubkova in Riga
Editing by Florence Tan and Jamie Freed)
 ((Yuka.Obayashi@thomsonreuters.com; +813-4520-1265;))