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UK gas, Asian LNG prices surge on earthquake-led demand in Japan

https://www.chemnet.com   Mar 14,2011 Platts
UK forward gas contracts and Asian LNG prices surged Friday as an earthquake in Japan triggered the shut down of nuclear and coal-fired power stations in the country, with LNG as a possible substitute fuel, which means cargoes may be diverted away from the UK and toward Asia, traders said.

"The impact of the earthquake in Japan on the UK market was bullish as less nuclear and coal supply there meant more demand for LNG and new highs in the Summer and Winter 2011 contracts. It may be a bit overdone but who knows," one trader said.

"Across the curve, seasonal contracts have opened firmer this morning, despite Brent crude posting losses this morning. Summer 2011 has firmed significantly, driven by fears that LNG could be diverted from Europe. This has had a ripple effect on the rest of the curve," a second trader added.

Japan's 8.9 magnitude earthquake caused utility Tepco to shut down a total of seven nuclear units at two of its plants, while Tohoko Electric Power Company shut three reactors at its Onagawa power plant.

About 14 spot LNG cargoes would be needed to cover the outages of these plants, indicating a massive resurgence in demand just as the market looked well supplied with LNG and was entering a lull period, according to Platts calculations.

The price of spot LNG in Asia jumped 50 cents to $9.900/MMBtu Friday in response to that potential demand. LNG traders said it is still too early to tell what effect the nuclear outages would have on demand in Asia, as much depends on how long they remain offline.

The UK Winter 2011 contract was trading at 68.75 pence a therm by midday London time Friday, a 1.85 p/th increase on the day and its highest trading level for 22 months, changing hands at 69.10 p/th on May 15 2009.

Analysts at Utilyx said the Japanese earthquake has caused oil to slide as the Japanese economy may suffer a significant setback, while a burning natural gas facility near to Tokyo may also increase demand for LNG to rebuild stock levels.

According to data on the EIA website, Japan is the world's largest LNG importer, accounting for 48% of world imports in 2002, with natural gas supplying 12% of Japan's energy needs, and more than 95% of that natural gas is imported as LNG. Around two-thirds of Japan's natural gas consumption is for power generation.

Japan's largest suppliers are Indonesia and Malaysia, with substantial volumes from Qatar, the United Arab Emirates, Australia, Oman, and Brunei.

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