JAPAN CRISIS: Asia's Q2 LNG demand to rise on nuclear outages
Singapore (Platts)--14Mar2011/620 am EDT/1020 GMT
Asia's demand for LNG is set to rise in the second quarter as Japanese
utilities are expected to purchase more cargoes on the back of nuclear plants
being shutdown after the major earthquake in Japan Friday, Tony Regan,
principal consultant at Singapore-based energy consultancy Tri-Zen said
"The impact on the market depends on how it's handled but if Tokyo
Electric Power Company rushes out to buy five cargoes, then spot prices may
hit $15/MMBtu," Regan said.
"It's not going to be a quiet second quarter because [Taiwan's] CPC is in
the market plus the Japanese and Koreans will be buying to prepare for
summer," he added.
Japan's top government spokesman, Chief Cabinet Secretary Yukio Edano,
said Monday said that the explosion at Tokyo Electric Power Company's No. 3
reactor building at the Fukushima Daiichi, or Fukushima-1 nuclear power plant
was a hydrogen explosion similar to that seen at the No. 1 reactor building
The earthquake Friday led to the shutdown of at least 11 nuclear units,
according to Japanese utilities, with Tepco reporting seven units shut and
Tohoku Electric reporting a further three shut down. Japan Atomic shut down
one unit at its Tokai plant. That capacity totals almost 10 GW of power.
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Tepco also reported outages at eight oil-fired power plants, two
gas-fired plants and one coal-fired plant.
"Replacing a full year of Fukushima Daiichi generation with gas could
require additional LNG imports of 5-7 million mt, a material addition to
overall Japanese imports which were a record 70 million mt in 2010," Graeme
Bethune, CEO of Australian energy consultancy, EnergyQuest, said.
A producer told Platts that he had been approached by Tepco for spot
cargoes but the company did not specify how many it was looking for, adding
that Tohoku Electric was also in the market for spot shipments.
SPOT LNG PRICES MAY CLOSE IN ON TERM PRICES
"The Japanese utilities have been minimizing their contract volumes
through the use of downward quantity tolerance clauses but now they could
choose to maximize contract volumes instead," Regan said, "On top of the term
volumes, the Japanese will top up their contracts with spot purchases but they
will be discreet about it."
In a report issued Monday, Deutsche Bank said: "As a consequence of the
quake, we are likely to see even higher Japanese spot LNG needs this year."
Assuming both of its Fukushima nuclear plants remain offline for the year
and potentially permanently, Tepco would lose half of its total nuclear
capacity, the report said. Coupled with the shutdown of Tohoku Electric and
Japan Atomic's plants, a quarter of Japan's total nuclear capacity is offline,
Japan was likely to boost its imports of oil, LNG and coal to make up for
the loss of nuclear power, Deutsche Bank said.
Regan said South America could buy spot LNG cargoes to prepare for winter
while the UK could restock its gas storage in summer, resulting in greater
"Supply and LNG vessels remain tight because the [LNG] glut of 2009 has
disappeared," Regan said. "I expect LNG demand to increase by 16-18% this year
even without factoring in Japan's recent earthquake."
"Spot LNG prices could easily close in on term prices at $12-13/MMBtu,"
Overall, Japan paid an average $587.95/mt ($11.31/MMBtu) for its LNG
The Japan Customs Cleared crude oil price in January was $91.775/barrel,
up 6.8% month on month and 22.8% higher from January 2010. Term LNG contracts
tend to be linked to the JCC crude price, but with a lag of a few months, so
the rise in oil prices typically takes some time to have an effect on LNG
NUCLEAR CONCERNS MAY BENEFIT AUSTRALIAN LNG PROJECTS
"Events in Japan have highlighted the risks of operating nuclear
generation in seismically active areas. Any potential switch away from nuclear
power is likely to favor gas-fired generation, the most practical low
carbon-emission alternative," Arnold Musiker from Fitch Ratings said in a
report issued late Sunday.
"Australia is well-positioned to meet additional medium-term gas demand,"
Musiker added. "Asian utilities will continue to sign long-term offtake
contracts with Australian LNG projects with some also taking substantial
minority equity stakes."
In the last two years, North Asian utilities and gas companies have
signed significant LNG supply contracts, underpinning the current wave of
Australian LNG development, despite these projects facing inflationary cost
Besides Australia, South Korea and Russia have already taken steps to
divert LNG cargoes to Japan, while Qatar could also help to meet Japan's
"Qatar will certainly want to play a role but it will be discreet
especially in the spot market," Regan said.
Deutsche Bank added that Qatar would seek to minimize the impact of cargo
diversions to Japan on the UK market as it would want to uphold its reputation
as a reliable supplier after signing a 2.4 million mt/year supply contract
with Centrica in February.
--Hong Chou Hui, firstname.lastname@example.org