Nuclear Closures Put LNG at Record Premium: Chart of the Day

The price-premium of liquefied natural gas to coal, already at a record high in Asia, is poised to widen as Japan steps up LNG imports after shutting down all its nuclear reactors and decelerating economic growth in China curbs electricity output.

The CHART OF THE DAY tracks the LNG price paid by Japan, an Asian benchmark, since March 2011 after an earthquake and tsunami wrecked the Fukushima Dai-Ichi atomic station. The disaster forced utilities to boost power generation using gas. Meanwhile, coal at Australia’s Newcastle port, which tracked LNG for at least a decade, fell as China’s power-output growth ebbed. The lower panel shows increases in LNG shipments to Japan, the largest importer of the fuel.

Japan has shut its 50 nuclear reactors for safety tests and doubled gas’s share in power generation to about 50 percent, boosting prices of the fuel that pollutes less than coal. China’s slowest economic growth in about three years and high coal stockpiles prompted Sanford C. Bernstein & Co. to cut its forecast for local coal prices by 4 percent this year.

“There’s a clear preference for LNG over coal in some of the biggest Asian economies,” said Osamu Fujisawa, an independent energy economist in Tokyo, who formerly worked with a unit of Saudi Arabian Oil Co. “Natural gas use is the first priority, and this demand is going to keep LNG prices much higher than coal in Asia.”

LNG delivered into Japan cost about 71,363 yen ($913) a metric ton, or about $17.56 per million British thermal units, in April, according to calculations based on Ministry of Finance data. That’s the highest since November 2008. Japan’s imports of the super-chilled fuel rose 12 percent in the first four months this year compared with a year earlier, according to data compiled by Bloomberg.

Power-station coal at Newcastle port fell to $91.85 a ton in the week ended May 25, the lowest since August 2010. About 70 percent of China’s electricity is produced from coal. China is the world’s biggest user of the fuel, and its power generation grew 0.7 percent in April from a year earlier, compared with 7.2 percent in March, according to the National Bureau of Statistics.

To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Dinakar Sethuraman in New Delhi at dinakar@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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