Japan Tsunami Could Push Asian LNG Prices Higher

The earthquake and tsunamis that devastated Japan early this morning could send Asian liquefied natural gas (LNG) prices higher due to nuclear plant outages.

Japan's nuclear power plants are feeling the immediate impact of the earthquake and tsunamis as some facilities have been shut down to assess damage from the earthquake. In the meantime, Japan will utilize coal and natural gas to fill in the gap in power generation, said Zach Allen, publisher of PanEurasian Enterprises' NATS report, which tracks global LNG markets.

Allen estimates as many as five additional LNG cargoes a month, or 500,000 tonnes of LNG, could be needed by Japan in the next month or two until Japan's nuclear plants are up and running again, depending upon how much coal and gas are used to make up the difference.

The short-term impact would be isolated to Asian markets east of Suez, with the Japanese likely turning to Russia, Australia, Indonesia and Qatar for additional cargoes. However, it may be a bit difficult to scrounge up five cargos and more difficult to round up the ships to haul those cargoes. As a result, the market could tighten, and Asian spot market prices, which have fallen below $10/MMbtu, could be forced up a dollar or two, Allen said.

Allen anticipates the tsunami will have a limited impact on the European LNG market, since tankers commonly used to haul LNG to Europe are not compatible with all of Japan's liquefaction facilities. The U.S. LNG market will not be affected at all, since the country is not accepting LNG cargoes at the moment due to ample market supply.

Japanese utilities have the option of drawing down LNG inventories below the safety limit if the nation's nuclear power plants are down for a longer period of time. In that scenario, the global LNG market would be impacted when Japan begins seeking to restock LNG inventories, Allen said.


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