LNG demand from Japan is expected to surge in short term for generating electricity. One third of electricity consumed by Japan is generated by nuclear reactors before the earthquake occurred on March 11. There are 54 nuclear reactors in operation in Japan before the earthquake and 10 of them have been closed so far. The electricity supply gap will be fulfilled by generations fueled by petroleum, coal and LNG.
Japan's daily gas demand up
If the electricity gap caused by closed nuclear reactors is all fulfilled by gas-turbine power generations, Japan’s daily gas demand will jump up by 1.0-bil cubic feet to 1.2-bil cubic feet, according to data released by Barclays Capital.
Japan is the biggest LNG importer in the world. It imported 6-mil mt of LNG in September of 2010, equivalent to 8.1-bil cu m.
Spot LNG prices jumped up over surging demand from Japan. National Balancing Points (NBP) for April was US$9.239/BBmtu before the earthquake on March 11 but the NBP climbed to US$10.20/BBmtu four days after the earthquake.
Helps from traditional LNG suppliers
Japan has communicated with LNG suppliers who had signed long-term agreement with Japan, a source with one of the Japanese gas companies told C1. It's hard to get enough LNG from spot market, he said.
Japan had asked for help from Russia for LNG supply after the earthquake, and Russia promised to provide at most 150,000mt of LNG to Japan. A vessel with 20,000cu m of LNG and a 100,000cu m of LNG cargo are in the way to Japan, revealed an informed source.
Meanwhile, South Korea's KOGAS, Shell and Indonesia are all mulling to supply LNG cargoes to Japan, C1 learned. “We could provide some surplus LNG and fuel oil cargoes to Japan,” said a source with BPMIGAS, but C1 failed to get further details.
Chinese LNG terminals will cut purchase on spot LNG cargoes for summer delivery in an effort to ease Japan’s pressure, C1's survey indicated.
Limited impact on Chinese LNG market
However, the price hike of spot LNG cargoes will not last long, and will be limited, viewed industry sources.
Japan earthquake is estimated to impose little influence on China's LNG supply so far, as China purchases most LNG via long-term contracts. China might face higher prices amid tight supply if purchases spot LNG cargoes in international market in future.
In addition, China saw LNG demand retreating over warmer weather. Domestic LNG offers kept dropping after the Lunar New Year holiday. Prices of imported LNG basically held firm supported by strong international market.
