Analysis: Japan LNG reliance grows with latest nuclear setback

Reuters: Analysis: Japan LNG reliance grows with latest nuclear setback

(Reuters) - Japan's move to shut another nuclear power plant will boost imports of LNG from Qatar and Australia to fire gas-based plants to make up for the loss, exacerbating rising dependence on imported gas in the wake of the massive earthquake in March.

The nation's third-largest utility Chubu Electric Power Co said on Monday it was shutting its 3,617 megawatt Hamaoka plant, which accounts for about 7 percent of Japan's nuclear power capacity. The shutdown will land it with a gas and oil import bill of around $2.8 billion, according to Reuters calculations.

Prime Minister Naoto Kan called for the shutdown until increased safeguards would allow the plant to better withstand the type of tsunami which in March triggered the worst atomic crisis in 25 years at the Fukushima Daichi plant.

Combined, Japan's nuclear shutdowns could increase LNG demand from the world's largest importer by as much as 15 percent from the 70 million tonnes it imported in 2010.

"We expect another 10 million tonnes of LNG demand from Japan over the next five years as a result of Hamaoka and Fukushima being shut," said Neil Beveridge, a senior oil and gas analyst at brokerage Sanford C Bernstein & Co in Hong Kong.

"Qatar is already supplying 4 million tonnes and Japanese companies will be looking to secure more long-term contracts with them. In the longer term, supplies could also come from Australia."

Chubu said on Monday that it would need to purchase 3.2 million tonnes of LNG and around 24,500 barrels per day (bpd) of oil to fire the plants needed to compensate for the loss of the nuclear power.

At today's prices, the gas imports would cost around $1.9 billion, and the oil around $900 million.

The UK gas market edged up on Monday on concern the imports would divert spot cargoes away from Britain. Investment bank Societe Generale lifted its forecast for UK summer gas prices after news of the shutdown.

The increased demand for LNG would eat into the supply glut that has weighed on global gas fundamentals for years but was unlikely to absorb it all, analysts said. Qatar boosted its capacity late last year and still has gas available, analysts said.

Koki Ota, senior economist at Sumitomo Shoji Research Institute in Tokyo, said Qatar is estimated to have about 27 million tonnes of LNG in 2011 that is not bound under longer-term contracts and therefore can be supplied to the spot market.

"Qatar has sufficient LNG supply to absorb additional demand from Japan, so a sharp jump in the global LNG price is unlikely even if Chubu is to entirely rely on LNG as an alternative source of energy if its plants are shut," he said.

The reasons for the Chubu shutdown could also mean that other plants already shutdown as a precaution after the March earthquake and tsunami may stay offline for longer, SG said in a report on Monday.

"We have become even more pessimistic regarding the possible reopening of nuclear plants that were shutdown and now believe they could stay offline until end 2013," SG said.

Increased demand for alternative sources of clean energy such as gas could encourage developers to move ahead on projects to produce LNG.

Australia has around A$200 billion in projects either under development or on the drawing board and increased long-term demand from Japan could facilitate development of more of those projects than would otherwise have gone ahead.

QATAR

Chubu Electric Power's Chairman Toshio Mita flew to Qatar over the weekend to seek help for additional LNG supplies, meeting with Qatargas Chief Executive Khalid al-Thani and Qatar's Energy Minister Mohammed Saleh al-Sada.

Qatar's response was positive, Mita told reporters in Japan on Monday on his return, but he gave no further details.

"I explained the current situation and that (it)... could continue for two to three years. They said they will give their utmost cooperation, so my mission has been achieved to some extent," Mita said. Chubu is the largest Japanese customer of Qatargas.

Qatargas will supply more than 60 extra cargoes of liquefied natural gas (LNG), or 4 million tonnes, to Japan over next 12 months, the company had said in April. [ID:nLDE73F046] That was before the Chubu shutdown, and was to compensate for the crippled Fukushima Daichi plant.

Qatar was the fourth-largest supplier of LNG to Japan, accounting for 7.631 million tonnes or about 11 percent of Japanese imports in 2010.

Top LNG exporter Qatar recently raised capacity to ship 77 million tonnes of the fuel annually.

There has not been any additional requirement for low-sulphur fuel oil (LSFO) from Japan despite the shutdown of yet another nuclear plant, traders said.

Demand for power-generation fuels such as low-sulphur waxy residues (LSWR) and low-sulphur crudes from Indonesia as well as Sudan's Nile blend, has been poor since the March 11 earthquake.

CHUBU

The shutdown of the plant is likely to compound the power shortages expected this summer, SG said.

According tothe Federation of Electric Power Companies data as of fiscal 2009/10, Chubu had 11 thermal power plants with a total capacity of 23,900 MW. Of the total, capacity for gas thermal power was 14,710 MW; 5,090 MW for oil-fired and 4,100 MW was coal-fired.

Five of the 11 thermal plants with capacity of 1,844 MW are either in maintenance or mothballed. Restarting those would cover about half the capacity lost at Hamaoka.

Chubu has a relatively low reliance on nuclear power compared to its peers. In 2010/11, nuclear power accounted for 15 percent of Chubu's total electricity generated, while gas thermal power held a 46 percent share and oil-fired power held a 3 percent share. Coal thermal power had a 26 percent share.