Natural Gas Surges as Japan’s Earthquake Halts Nuclear Power

Natural gas rose around the world on speculation Japan will buy more of the fuel, intensifying competition for liquefied natural gas, after the country’s worst earthquake halted 11 nuclear reactors.

Gas for next winter in the U.K., Europe’s biggest consumer, gained as much as 7.4 percent, to 74 pence a therm, the highest since November 2008, according to broker prices. The contract was at 73 pence as of 4:30 p.m. in London, equal to $11.80 per million British thermal units. U.S. gas for April delivery rallied 2.9 percent to $4.002 a million Btu in New York.

“The prolonged risk of nuclear outages could divert spot LNG cargoes to Japan and incrementally tighten LNG supply,” Barclays Plc analysts including London-based Kerri Maddock said in a note today.

The March 11 quake and tsunami, which left 1.3 million people without power, will prompt Asia’s second-largest economy to scramble for alternative fuel sources, driving up prices as it competes with other importer nations for spot supplies. Japan is the biggest user of LNG, accounting for about 35 percent of global trade in 2009, BP Plc statistics show. Britain is Europe’s fastest growing major gas importer as it turns to sea-going gas tankers to make up for declining North Sea fields.

Gas for next-month delivery in the U.K. is 24 percent below the high reached in October 2008 before the global recession sapped industrial demand for fuel. U.S. gas futures for delivery at the Henry Hub in Louisiana have fallen 70 percent from their July 2008 peak as new production from shale gas reserves boosts domestic supply.

Avert a Meltdown

Support for U.S. gas prices should be “short-lived as the U.S. market is not a competitive bidder for spot cargoes,” Barclays said.

Engineers battled to avert a meltdown after a second blast shook an atomic plant north of Tokyo. No large release of radiation was detected after the blast, which didn’t breach Fukushima Dai-Ichi power station’s No. 3 reactor and followed a build-up of hydrogen gas, Chief Cabinet Secretary Yukio Edano said in Tokyo. The risk of a large leak is very small, he said.

Japanese stocks fell the most in more than two years as industrial companies such as carmakers Toyota Motor Corp. and Honda Motor Co. suspended production at several factories.

“Japan may need more LNG, but when you see the pictures, the question is what is going to be the impact on demand?” Jean-Marie Dauger, executive vice president of global gas and LNG for GDF Suez SA, said today in an interview from London.

Libya, Power Prices

Political turmoil in North Africa and the Middle East helped European gas prices to rally earlier this month after gas deliveries to Italy through the Greenstream pipeline from Libya halted and oil prices advanced.

The U.K. winter power contract, the six months from October, gained 3 pounds, or 5.3 percent, to 59.50 pounds a megawatt-hour. Baseload is delivered around the clock.

Nearly half of Britain’s electricity can come from natural gas-fed power stations, so higher gas prices can lead some utilities to switch to burning coal.

A “prolonged” closure of reactors in Japan could raise the country’s demand for LNG by 5 billion cubic meters this year and an extra 2 billion cubic meters annually from 2012, Societe Generale SA, France’s second-biggest bank, said in a note. That’s assuming the Fukushima plant never comes back online,

The bank said its gas-demand estimate may be too low if reactors don’t return as soon as anticipated and it raised its U.K. gas-price forecasts this year by 8.9 percent to 49 pence a therm. The forecast for 2012 increased 11 percent to 50 pence.

Japan’s LNG Demand

Japan’s LNG demand may rise by as much as 12 billion cubic meters a year if 10 of its nuclear reactors remain shut through 2012, UBS AG said. That will draw LNG tankers away from the Atlantic Basin to Asia.

Qatar, the world’s largest exporter of LNG, is ready to supply Japan with “any quantity” of the fuel, Qatari Energy Minister Mohammed Saleh Al-Sada said yesterday. The Gulf Arab state has formed a team to study the situation in Japan, he said in an interview in Doha.

Separately, Qatar’s Ras Laffan Liquefied Natural Gas Co. will shut its LNG train 3 for 35 days starting in early May, Omar al Misnad, a maintenance manager at the company, said in a news conference in Doha.

Indonesia, the world’s third-largest LNG exporter, is also prepared to increase shipments, the country’s energy regulator BPMigas said. Sakhalin Energy, a venture led by OAO Gazprom, said it may send additional cargoes to Japan, depending on the Asian country’s ability to receive shipments.

Russia’s Sakhalin

Sakhalin Energy, operator of the Sakhalin-2 project on a Russian island north of Japan, will focus on a steady supply of contracted volumes and may increase the shipments, Ivan Chernyakhovsky, a spokesman for the venture, said by phone today. All of Japan’s major LNG import terminals are operating normally, he said.

At gas-trading hubs elsewhere in Europe, prices also rose, tracking the U.K., the continent’s benchmark.

Gas for delivery at the Dutch Title Transfer Facility in the Netherlands this summer rose as much as 6.3 percent at 25.55 euros a megawatt hour. The TTF is the biggest mainland European gas trading hub.

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