Will natural gas benefit from Japan’s nuclear crisis?

By Ravi Krishnaswamy and Subramanya Bettadapura, Frost and Sullivan

Singapore, March 21, 2011 The ongoing crisis at the Fukushima nuclear power complex in Japan has definitely not helped the nuclear industry, which was in a resurgent mode.

It is a huge public relations disaster for the entire nuclear industry at the very least, even as the workers are racing against time to bring the situation under control.

Countries around the world had written policies to introduce nuclear as a fuel mix option. Now, some countries including Germany and Switzerland are either shutting down old nuclear plants or putting on hold further developments. Still, many other countries including U.S., Italy, Poland and Indonesia have vowed to go ahead with their plans.

In this fast-changing scenario, natural gas seems to be emerging as the beneficiary. Natural gas demand strengthened on the prospects of increased LNG cargoes to Japan. This demand increase is more likely to be long term rather than short term.

The half a dozen or so nuclear power plants shut down in Japan will be supplemented by natural gas and coal fired power plants. Judging by the scale of devastation, it appears that the shut down nuclear plants will be out of action for at least 3 years, if not forever. We are likely to see prices for both coal and natural gas increasing in the short term and then continue to be higher than current price levels for the longer term.

Japan is the world’s biggest importer of LNG and sources almost 70 percent of its annual LNG imports from Australia, Indonesia, Malaysia and Brunei. Even before the Japan disaster, natural gas prices were forecast to rise to $5 to $6 MMBTU by 2012 due to increasing demand. With the recent events driving up demand even higher, we could see natural gas surpassing those figures in 2012.

Diversion of gas supplies from regular customers in Europe to Japan is bound to drive up gas prices in Europe. Qatar for example, is set to supply the extra demand for LNG from Japan giving anxious moments to customers in Europe who now will not have a cushion in case demand increases.

Qatar supplied around 12 percent of Japan’s total LNG imports in 2009. Supply of LNG from Qatar to Japan is set to double in 2012 compared to 2009 levels to offset the loss of nuclear power.

Apart from conventional sources of gas, unconventional sources such as coal seam gas and shale gas can be exploited to meet growing gas demand. The coal seam gas projects in Indonesia and Australia would probably get the much-needed shot in the arm after the Japan incidents. The coal seam gas industry has also got some bad press regarding their environmental impact.

However, the adverse impact of the CSG industry on the community pales in comparison to the immediate impact that a nuclear power disaster can have. Most of the CSG to LNG projects in Australia are now much more likely to see the light of the day.

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Will natural gas benefit from Japan’s nuclear crisis?

By Ravi Krishnaswamy and Subramanya Bettadapura, Frost and Sullivan

Singapore, March 21, 2011 The ongoing crisis at the Fukushima nuclear power complex in Japan has definitely not helped the nuclear industry, which was in a resurgent mode.

It is a huge public relations disaster for the entire nuclear industry at the very least, even as the workers are racing against time to bring the situation under control.

Countries around the world had written policies to introduce nuclear as a fuel mix option. Now, some countries including Germany and Switzerland are either shutting down old nuclear plants or putting on hold further developments. Still, many other countries including U.S., Italy, Poland and Indonesia have vowed to go ahead with their plans.

In this fast-changing scenario, natural gas seems to be emerging as the beneficiary. Natural gas demand strengthened on the prospects of increased LNG cargoes to Japan. This demand increase is more likely to be long term rather than short term.

The half a dozen or so nuclear power plants shut down in Japan will be supplemented by natural gas and coal fired power plants. Judging by the scale of devastation, it appears that the shut down nuclear plants will be out of action for at least 3 years, if not forever. We are likely to see prices for both coal and natural gas increasing in the short term and then continue to be higher than current price levels for the longer term.

Japan is the world’s biggest importer of LNG and sources almost 70 percent of its annual LNG imports from Australia, Indonesia, Malaysia and Brunei. Even before the Japan disaster, natural gas prices were forecast to rise to $5 to $6 MMBTU by 2012 due to increasing demand. With the recent events driving up demand even higher, we could see natural gas surpassing those figures in 2012.

Diversion of gas supplies from regular customers in Europe to Japan is bound to drive up gas prices in Europe. Qatar for example, is set to supply the extra demand for LNG from Japan giving anxious moments to customers in Europe who now will not have a cushion in case demand increases.

Qatar supplied around 12 percent of Japan’s total LNG imports in 2009. Supply of LNG from Qatar to Japan is set to double in 2012 compared to 2009 levels to offset the loss of nuclear power.

Apart from conventional sources of gas, unconventional sources such as coal seam gas and shale gas can be exploited to meet growing gas demand. The coal seam gas projects in Indonesia and Australia would probably get the much-needed shot in the arm after the Japan incidents. The coal seam gas industry has also got some bad press regarding their environmental impact.

However, the adverse impact of the CSG industry on the community pales in comparison to the immediate impact that a nuclear power disaster can have. Most of the CSG to LNG projects in Australia are now much more likely to see the light of the day.