March 13, 2020 / 11:37 AM / 24 days ago

Japan's Kyushu Electric hopes for financial lift from oil price fall

TOKYO, March 13 (Reuters) - Japan’s Kyushu Electric Power Co Inc’s financial position could benefit from a narrowing of the gap between liquefied natural gas (LNG) contracts linked to falling oil prices and spot LNG costs, its president said.

Kyushu Electric booked losses and cut its annual earnings forecast in October as a result of reselling LNG cargoes at prices below the level it had bought them at.

“Our biggest issue was a big gap between the LNG prices under our long-term contracts and spot LNG prices,” Kazuhiro Ikebe, president of Kyushu Electric, told a news conference.

Japanese utilities have committed to buying large volumes of LNG on long-term contracts linked to oil prices, while spot market prices had been much lower due to oversupply.

“The issue has eased as oil prices tumbled recently,” Ikebe said, without giving specific details of the impact.

Kyushu Electric said it will announce an annual profit forecast for the year starting in April when it announces earnings results for the current financial year in late April.

Cheaper LNG means lower fuel costs to replace nuclear power, which should help the company. But it is not clear at this stage how much LNG Kyushu Electric will use in relation to coal usage as alternative to nuclear in its next financial year.

Oil prices were set for their worst weekly fall since the 2008 financial crisis, with Brent set to fall around 24%, the biggest weekly decline since December 2008, as investors fretted over evaporating demand from the coronavirus pandemic and a production ramp-up by top producers.

Kyushu Electric is set to shut its Sendai No. 1 reactor from next week to December, with No. 2 to be taken off-line from May to January to make changes required under anti-terrorism rules following the 2011 Fukushima disaster.

Ikebe said the company plans to use coal or LNG to replace the missing nuclear power and its annual fuel costs could increase by 20-70 billion yen ($188-659 million).

“But we want to manage to generate a profit somehow in the next business year (starting in April),” he said on Friday after he was appointed as chairman for Japan’s federation of electric utilities.

In the case of using LNG, Kyushu Electric will mainly use supplies under the long-term contracts, but it could also buy cheaper supplies from the spot market to resell to help shore up its profit, Ikebe said.

Ikebe will become the federation’s chairman on Saturday. ($1 = 106.1900 yen) (Reporting by Yuka Obayashi; Editing by Alexander Smith)

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