Natural gas, other fuel for Japan: Who'll supply them?

Natural gas and other conventional fuel imports will rise after Japan's nuclear disaster. Asian exporters of natural gas, coal, and oil should see the biggest boost.

Natural gas storage tanks burn at the Cosmo oil refinery in Ichihara city, Chiba Prefecture, near Tokyo March 11, 2011, after a massive 9.0 magnitude earthquake hit northeast Japan. With imports of conventional fuel set to rise in Japan, Asian conventional fuel exporters should see the biggest rise in business.

Japan's nuclear crisis could reverberate through global energy markets for years to come, pushing up prices as suppliers look to take advantage of a surge in demand for non-nuclear fuels from the world's third-largest economy.

The 9.0-magnitude earthquake and tsunami that likely killed more than 18,000 people earlier this month shut down 11 of Japan's 54 nuclear power plants — a source that provided 30 percent of the country's power. That means producers of natural gas, coal and oil — particularly in Asia — will be called on to help fuel conventional sources of power generation in Japan.

The government is still struggling to contain radiation leaks at the crippled Fukushima Dai-ichi nuclear power plant in the devastated northeast. Damage from the tsunami and attempts to cool reactor cores by dumping sea water by helicopter almost certainly mean the plant is out of action permanently. The future of some of the other plants is also in doubt.

"It appears that the shutdown nuclear plants will be out of action for at least three years, if not forever," said Ravi Krishnaswamy, energy analyst with consultancy Frost & Sullivan, referring to half a dozen plants. "We're likely to see prices for both coal and natural gas increasing in the short and longer term."

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Analysts expect regional energy exporters such as Indonesia, Malaysia, Australia and Vietnam to benefit most from Japan's sudden thirst for fuel as the country tries to overcome its power crunch. Ending rolling blackouts and shortages will be crucial to Japan's economic recovery and restoring normal production at manufacturers like Toyota Motor Corp. and Panasonic Corp.

Australian oil and gas producer Woodside Petroleum, Indonesian thermal-coal miner Adaro, South Korean refiner SK Innovation, and Thai petrochemical firm PTT Chemical are among the Asian energy companies best positioned to satisfy Japan's energy gap, said Renee Lam, an analyst with Moody's Investors Service.

"These firms and others in the region can capitalize on near- and longer-term displaced demand as Japan must now rely more on non-nuclear fuel," Lam said.

Energy prices — and how much consumers pay for daily necessities like fuel for cars, heating and cooking — would be pushed even higher if other countries decide to turn away from nuclear power. Heightened concerns about the safety of nuclear plants have triggered policy reviews across the world. China has halted approval for new nuclear projects while Germany shut down several older plants.

"Longer-term demand for fossil fuels could remain high as other nations revisit plans for their nuclear electricity production," the World Bank said in a report.

The price of benchmark U.S. crude fell during the first few days after the March 11 disaster on concern Japan's economy could slip into recession, which would reduce demand for oil.

But analysts say the amount of fuel Japan must import to make up for shutdown nuclear generation will greatly outstrip the immediate drop in consumer demand. Goldman Sachs estimates Japan must import 247,000 barrels a day of oil to compensate for the country's lost nuclear capacity while demand will drop only 16,000 barrels a day due to an expected economic slowdown in the first half.

Oil has rebounded above $102 this week as attention returned to political violence in Libya and Bahrain.

Tokyo Electric Power Co., Japan's biggest electricity utility and operator of the Fukushima Dai-ichi plant, said Tuesday its power generating capacity stands at 35.5 million kilowatts, down from 52.4 million kilowatts before the disaster.

Previous Japanese power crises suggest demand for crude and other fuels will spike.

Analysts estimate demand for crude and fuel oil jumped 25 percent to 50 percent and use of gas and coal rose 8 percent to 12 percent in 2002 after the Tokyo utility was forced to idle 17 nuclear plants following accusations it falsified safety records and again in 2006 when an earthquake damaged a major reactor.

Japan will likely covet low-sulfur crude, especially from Indonesia, which can be more easily processed into gasoline, kerosene and diesel, said John Vautrain, an analyst with energy consultant Purvin & Gertz in Singapore.

"The price of these Asian sweet crudes shoot up relative to other crudes because the Japanese all of a sudden start burning considerable quantities," Vautrain said. "Every time the Japanese get into a power issue, they buy a bunch more oil."

Investors also expect Japanese demand for liquefied natural gas to rise as the country favors inexpensive gas-fired power generation. Japan is the world's biggest importer of LNG and about 70 percent of its LNG imports come from Australia, Indonesia, Malaysia and Brunei.

Natural gas prices in Europe and Asia have jumped since the disaster. Last week, Royal Dutch Shell PLC said it would divert LNG and fuel oil to Japan while Qatar, the world's largest gas exporter, promised to meet any increased requirements.

"Diversion of gas supplies from regular customers in Europe to Japan is bound to drive up gas prices in Europe," Krishnaswamy said.

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