ANALYSIS-Japan quake may spur long-term LNG buying from Australia
16 March 2011 03:44
Reuters News (c) 2011 Reuters Limited
By Rebekah Kebede
PERTH, March 16 (Reuters) - Japanese utilities scrambling for fuel to replace nuclear power severely damaged by a massive earthquake could turn to a stream of Australian liquefied natural gas (LNG) projects, including seam gas, for long-term supplies as they seek alternatives.
About a fifth of Japanese nuclear power plant capacity, 9,702 megawatts, was shut after the earthquake, with Barclays Capital estimating that every lost gigawatt equates to 1.0 to 1.2 billion cubic feet per day of extra gas demand.
The severity of the damage to Tokyo Power Company's Fukushima Daiichi nuclear complex could swing public opinion against nuclear power, which supplies 30 percent of Japan's electricity. That may lead Japanese utilities to build more thermal plants and look for long-term
LNG deals to power them .
"We suspect the Japanese will come back into the long-term LNG buyers' ring after two years of relative quiet," said Di Brookman, an analyst with CLSA in Sydney.
Renewed interest in Australian LNG projects, which are generally only sanctioned once they have secured long-term customers, could make th em more viable, analysts said .
Several projects on Australia's west coast that could benefit from increased interest from Japan include Inpex's
Ichthys project, Woodside's Browse and Sunrise projects and Chevron's Wheatstone, as well as its expected expansion at Gorgon.
Japan imported more than 70 million tonnes of LNG in 2010, with Australia one of its biggest suppliers, along with Malaysia, Indonesia, and Qatar.
Spot LNG prices this week rose to $10-11 per million British thermal units (mmBtu), up from under $10 per mmBtu before the quake.
Demand from Japan for short-term LNG cargoes is expected to jump to help cover immediate power demand, but impact has been modest as Japan has turned to long-term suppliers before the spot market.
AUSTRALIA GAS PROJECT PIPELINE
With A$200 billion in proposed LNG export projects in the pipeline, Australia has plenty of supply available for the medium - to long-term and will likely top the list of suppliers for the medium-term, analysts say .
"Barring things like the U.S. moving to develop energy exports en masse or Qatar moving to tie up Japanese importers on a longer-term basis, Australia would be the logical counter-party for Japanese utilities,"
Arnon Musiker, Director of Fitch's Energy & Utilities team , said.
Russia, which has large gas reserves , could also be another potential long-term supplier.
Analysts say in the medium -term
extra supplies are also likely to be siphoned off from Europe, where
British gas for delivery next winter surged to a record high on the prospect of less LNG being available to cover potential demand spikes during cold weather.
Japanese utilities already source a significant portion of their LNG supplies from Australia, which is not only close to Japan, but presents far lower political risk than some other producers.
Project timelines for LNG projects anchored by long-term deals are usually more stable, an analyst said.
"If the delay is getting customers, (Japanese buyers) certainly may help the timeline," John Hirjee, an analyst with Deutsche Bank in Melbourne, said.
Western Australian LNG projects, which will tap conventional gas sources rather than unconventional gas from coal beds or shale, are likely to be the primary recipients of Japanese buying interest.
BOON FOR COAL SEAM GAS
Japanese LNG buyers have typically shied away from less traditional projects like the coal seam gas to LNG export projects in the Northeastern Australian state of Queensland, but a significant shift away from nuclear could increase their interest in unconventional gas.
The unconventional gas projects in Queensland tap gas trapped in coal seams in a process that so far has been untested on a large scale.
"The Japanese haven't really embraced coal seam gas LNG other than Tokyo Gas... some of that conservatism may diminish because they need to get additional volumes," Deutsche's Hirjee said.
Any sudden spike in demand for long-term LNG contracts might also encourage Chinese buyers, who have already signed on to some long-term contracts with coal seam gas to LNG projects as part of China's broad strategy to triple gas consumption by 2020 as a way of cutting carbon emissions.