Japan’s Post-Quake Energy Import Surge Will Boost Reliance

Japan’s strongest earthquake on record will boost global demand for natural gas, coal and oil products as production lost from damaged nuclear reactors and refineries is replaced.

Tokyo Electric Power Corp. and other Japanese utilities may increase output at gas, oil and coal-fired plants to replace production from the 11 reactors closed yesterday, Wood Mackenzie Consultants Ltd. said. Companies will need to import fuel from Asian refineries because the quake shut 20 percent of the country’s crude-processing capacity.

The biggest beneficiaries are probably global liquefied natural gas suppliers, analysts at Alliance Bernstein said, a group that includes BG Group Plc (BG/) and Royal Dutch Shell Plc. (RDSA) Reliance Industries Ltd. (RIL), which operates the world’s largest export refinery in India, and other refiners will see demand rise, according to Purvin & Gertz Inc. Power generators in China, Taiwan and South Korea may have to pay more for fuel.

“Over the coming months, it looks like we will need more thermal fuel in Japan, potentially more oil,” Francisco Blanch, head of global commodity research at Bank of America-Merrill Lynch, said in a television interview. “Several nuclear plants are down.”

BG Group jumped 2.9 percent in London, the biggest gainer in the benchmark FTSE 100 index (UKX), on the outlook for gas prices. Reliance advanced 0.7 percent in India on a day the wider stock market dropped. Xstrata Plc (XTA), the biggest miner of coal for power stations, rose as much as 2.4 percent in London.

Tesoro Gains

Tesoro Corp. (TSO), the San Antonio-based refiner with three plants on the U.S. West Coast, rose the most of any company in the Standard and Poor’s 500 Index. Other U.S. refiners posted gains of 5 percent or more today, including Valero Energy Corp. (VLO), Holly Corp. (HOC), Frontier Oil Corp. (FTO), Western Refining Inc. (WNR), CVR Energy Inc. (CVI) and Alon USA Energy Inc. (ALJ)

U.K. gas gained amid concern that LNG may be diverted away from Britain to be used in Japan’s power generation. The winter contract, for the six months from October, climbed as much as 3.5 percent. Japan has virtually no domestic gas production and no import pipelines, so relies on LNG for its needs.

“If we have a prolonged nuclear shutdown, you would expect it to have a significant impact on prices,” said Noel Tomnay, head of global gas research for Wood Mackenzie in Edinburgh. “Gas and oil are likely to be more favored. The gas price has a long way to go up before you’d rather burn oil than gas.”

U.S. Gas Producers

More longer term, U.S. natural-gas producers may benefit as applications to build new nuclear plants would be more closely scrutinized for earthquake resistance, said Philip Dodge, an analyst at Tuohy Brothers in New York.

“The plants that were built as part of the necessary expansion would have gas as the first choice and coal as the second choice, but not nuclear,” Dodge said in a telephone interview. “It might accelerate what had already been happening, but it would be an inflection point.”

Emergency power supply at Tokyo Electric Power Co.’s Dai- Ichi nuclear power plant in Fukushima, Japan, failed after the earthquake, officials of the trade ministry’s Nuclear and Industrial Safety agency told reporters yesterday. Power is needed to keep cooling the reactor to prevent rising pressure and damage, they said.

About 5,800 residents near the plant were ordered to evacuate yesterday.

Reactors Shut

Japan was struck by an 8.9-magnitude temblor yesterday that shook buildings across Tokyo and unleashed a seven-meter-high tsunami that killed hundreds as it engulfed towns on the northern coast. As many as 300 people were killed, a Japanese police official said.

More than a dozen aftershocks greater than magnitude 6 have rocked the region, Dave Applegate, a senior adviser at the U.S. Geological Survey, told reporters on a conference call.

Eleven reactors operated by Tokyo Electric, Asia’s biggest utility, Tohoku Electric Power Co., and Japan Atomic Power Co. were shut, the trade ministry said in an e-mailed statement. Nuclear and other power plants closed by the quake account for at least 9 percent of Japan’s power production capacity, according to calculations based on data compiled by Bloomberg.

The closure of Tokyo Electric’s Kashiwazaki-Kariwa nuclear plant, the world’s biggest, after an earthquake in July 2007 boosted the use gas-fired generation units and Japan paid more than $20 a million British thermal units for spare LNG cargoes. That’s double Asia prices for cargoes last month, Spectron LNG data show. Some of its reactors remain shut down today because of the damage sustained more than three years ago.

LNG Purchases

Japan is the world’s largest buyer of LNG, gas chilled to a liquid for transport by ship, importing a total of 85.9 billion cubic meters of the fuel in 2009, or 35 percent of the world’s production. The biggest suppliers were Indonesia, Malaysia and Australia, according to BP’s 2010 Statistical Review of World Energy.

“Direct burning of crude oil and fuel oil will be used by Japanese power plants,” Johannes Benigni, managing director of Vienna-based research consultant JBC Energy GmBH, said in an interview. “The nuclear power plants will go off the grid, because they have to make safety checks and assess the damage.”

Coal-fired plants may also be pressed into action, increasing imports from Indonesia and Australia, the two largest exporters of the fuel. That will boost miners including Xstrata, BHP Billiton Ltd. (BHP) And Rio Tinto Ltd. In Australia and Jakarta- based PT Bumi Resources.

“There may be some uptick in thermal coal demand as a consequence” of nuclear shutdowns, said Daniel Brebner, head of commodities at Deutsche Bank AG in London. “Power consumption will immediately decline and that will slowly recover, but as it recovers that will draw mostly on natural gas and coal.”

Refinery Closures

Japan is the world’s third-largest oil consumer after the U.S. and China, using more than 4 million barrels of crude oil a day in 2010, according to the International Energy Agency.

Firefighters are still battling a blaze at Cosmo Oil Corp.’s 220,000 barrel-a-day Chiba refinery, according to local officials. JX Nippon Energy & Corp. shut refineries at Sendai, Kashima and Negishi with a total capacity of 554,000 barrels a day, the company said.

“The product markets will tighten up as Japan is a significant exporter of distillates in the region,” said Victor Shum, a senior principal at Purvin & Gertz in Singapore, a consultant, referring to group of products includes gasoil, or diesel. “It helps the regional margins.”

Gasoil’s premium to the Asian benchmark Dubai crude, or the crack spread, rose for the first time in four days in Singapore. The difference was $19.77 a barrel compared with $19.72 yesterday, according to PVM Oil Associates, a broker.

Neil Burrows, a spokesman at Reading, England-based BG, declined to comment. Manoj Warrier, a spokesman for Reliance, didn’t answer calls to his office in Mumbai. Kirsten Smart, a London-based spokeswoman at Shell, declined to comment as did Xstrata spokeswoman Pam Bell.

To contact the reporters on this story: Ben Farey in London at bfarey@bloomberg.net; Brian Swint in London at bswint@bloomberg.net.

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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