Japan Power Hits 31.15 Yen per kWh as $29.30 LNG Fuel Cost Alone Nearly Equals the Spot Electricity Price

Japan's nationwide next-day spot power price jumped more than 25% week on week on Monday, October 19, to 31.15 yen per kWh, about $0.19, the highest in nearly four years, according to Japan Electric Power Exchange data reported by Bloomberg. Spot LNG for December delivery to north-east Asia averaged $29.30 per MMBtu at the end of last week, up from $26.50 a week earlier, per Oilprice.com. That is the highest Asian spot LNG price since December 2022.

Fuel cost alone nearly equals the power price

A simple fuel-cost calculation shows why Japanese power is spiking. A gas-fired combined-cycle plant at 55% efficiency burns about 6.2 MMBtu per megawatt-hour. At $29.30 per MMBtu, the gas alone costs about $182 per megawatt-hour, or $0.182 per kWh.

That equals roughly 96% of the $0.19 spot power price before any capital, maintenance or grid cost. Coal tells a different story. Newcastle futures reached $150.4 per tonne last Friday, per Bloomberg, about 30% above pre-war levels.

Assuming 6,000 kcal/kg coal at 23.8 MMBtu per tonne, that is about $6.30 per MMBtu. A coal plant at 38% efficiency burns about 9 MMBtu per megawatt-hour, so its fuel costs about $57 per megawatt-hour. Gas fuel cost is therefore about 3.2 times coal at current spot prices.

These are Oil Authority calculations using stated efficiency assumptions. Most Japanese LNG arrives under term contracts, so utilities' average fuel cost runs below the spot figure. The spot math still sets the marginal price signal in the day-ahead market.

Regional prices and thin capacity

Bloomberg reports weekly gains of 19% in Tokyo and Chubu and 61% in Kansai. Available generating capacity on Monday was about 12% lower than a month earlier, as some plants entered scheduled maintenance ahead of winter. Oilprice.com adds that Japan cut gas-fired generation this summer in favor of coal, and other Asian buyers made the same switch.

Indonesia, the top thermal coal exporter, is also supplying less, which pushes coal higher as Asian demand rises. Surging oil prices have lifted Japan's oil and LNG import bill as well. Brent futures traded at $108.22 per barrel at 09:15 GMT Monday on ICE, per Investing.com.

Asia pulls cargoes away from Europe

Prestige Business Solutions put JKM at $29.92 per MMBtu, up 8.4% on the week, while Henry Hub front-month fell 3.7% to $3.12 per MMBtu. That leaves a gap of about $26.80 per MMBtu between Asian LNG and US gas. Europe's TTF front-month closed Friday at 87.55 euros per MWh, and the Dutch benchmark read 88.21 euros per MWh at 13:05 UTC Monday, per OilPriceAPI.

Our South Korea coverage on October 16 recorded JKM at $29.84 and TTF near $28.50, so Asia led by about $1.34. JKM is up 0.3% since, while Japan's power price has jumped 25%. Power markets are moving faster than the LNG benchmark.

Europe faces its own constraint. Our EU storage analysis showed storage at 74.1% full versus 83.0% a year earlier. Prestige notes injections have slowed by almost 30% and that unplanned Norwegian outages at Troll cut about 6 million cubic metres per day. Europe and Japan are now bidding for the same scarce winter cargoes.

Oilprice.com attributes the supply squeeze to the Middle East war and very few LNG cargoes leaving the Strait of Hormuz. Bloomberg links the fuel disruption to the US-Iran war. Winter heating demand in both regions has yet to arrive.