LONDON: The world’s biggest gas exporters will benefit from Japan’s increased need for liquefied natural gas (LNG), but the global gas glut that has weighed them down over recent years is unlikely to shrink significantly.
Japan’s worst recorded earthquake and tsunami on Friday shut four nuclear power plants and threatens to keep at least one closed forever, driving up LNG demand for years to come.
Russia, the world’s biggest gas exporter, and Qatar, the world’s biggest LNG exporter, are ready and able to supply Japan with more LNG.
Since the quake hit, shares in British LNG giant BG Group, which just days before finalized a 20-year supply deal with Tokyo Gas starting in 2015, have jumped over 7 percent while the FTSE-100 has fallen.
French bank Societe Generale estimates extra Japanese demand at 5 billion cubic meters (bcm) this year and remaining at 2 bcm above pre-quake levels of around 88 bcm for years to come.
But that increase will make little difference to a global gas market that the International Energy Agency has said could be oversupplied by 200 bcm.
If SocGen’s prediction that about half of Japan’s loss in nuclear capacity from Friday’s quake will be replaced by gas is correct, it would need delivery of about one extra tanker carrying 145,000 cubic meters of LNG a week to meet it.
"These are very small volumes compared to the supply that is available at the moment. So it will have a slight impact, but it will not put pressure on the market," said Carlos Torres, a senior gas analyst at Point Carbon, a Thomson Reuters company.
"Qatar would definitely have the capacity to supply these volumes without any problem. Due to the geographic proximity of Malaysia, Russia and Australia, these could be logical supply sources also."
Russia vs Qatar
Russia said on Monday it could offer only about 200,000 tons more LNG, equal to about 0.25 bcm of gas, from its nearby Sakhalin export plant to Japan.
"I do not think that in current circumstances Russia has capacity to increase in the near term supplies of LNG from its Sakhalin-2 project," said Valery Nesterov, an oil and gas analyst Troika Dialog in Moscow.
But Qatar has been gobbling up Russia’s market in Europe, and if Qatar sends tankers east, Russian gas export monopoly Gazprom could claw back some sales in Europe, its biggest market. Two huge Qatari LNG production lines, which have opened since late 2010, are capable of producing 7.8 million tons a year, or nearly 10 bcm a year of gas each — four times SocGen’s estimate for Japan’s incremental demand this year. Some of that extra output is likely to land in Europe.
In 2007 an earthquake shut down Japan’s biggest nuclear power plant with a capacity nearly as large as that shut by the latest disaster. The resulting rise in Japanese gas demand caused an LNG spot price surge above $20 per million British thermal units (mmBtu).
But a boom in US shale gas production over the past two years has changed the global market from one of tight supply and sky-high prices to plentiful supply and relatively cheap gas.
Current prices for spot LNG have moved up to around $10-11 per mmBtu from under $10 before the quake.
But Japan’s bigger nuclear problems in 2011 should not be a problem for global supply, unless it prompts Japan to shut down its other nuclear power plants and turn to alternative sources.
"Encouragingly, Qatar LNG capacity has risen since then, and South Korea and Russia have offered to provide LNG cargoes in the near term," Deutsche Bank’s chief energy economist Adam Sieminski said in a research note.
Resource-rich Australia has also become an important new force in global LNG supply, with new production lines possibly helping meet Japan’s increased demand from the second half of 2011. But until then, Japan may rely on Qatar and exporters in the Atlantic such as Trinidad and Nigeria for extra gas.
"Australia can supply some spot cargoes, but most of their supplies are contracted, in particular to Japan," said Graeme Bethune, chief executive of Adelaide-based energy consultancy EnergyQuest. –Additional reporting by Regan Doherty in Doha, Rebekah Kebede in Perth, Gwlady’s Fouche in Oslo, Jessica Bachman in Moscow, Edward McAllister in New York
