Japan LNG imports surge, supporting global prices

LONDON -(MarketWatch)- Japan's imports of liquefied natural gas surged 23% in April compared with the same month in 2010, after the March earthquake and tsunami shut down several of the country's nuclear reactors, according to data published late Monday by ship tracking service Waterborne.

Analysts said this elevated demand will continue this year and next, absorbing all of the surplus LNG supply that consumers had hoped would keep down prices in the other big LNG market--Europe.

"While a year ago some market commentators talked of the global glut of LNG, we believe the focus for investors should be on the impending global LNG shortage," Bernstein Research said in a note to clients.

The surge in Japanese LNG demand was "driven primarily by the shutdown of a significant amount of Japan's nuclear generating capacity," the report from Waterborne said. To replace the lost nuclear energy, Japan had little choice but to turn to oil- or natural gas-burning power plants fuelled by seaborne imports.

Japan imported 6.65 million metric tons of LNG in April, an increase of 1.247 million tons on April 2010, Waterborne said. Most of the extra supply came from Russia and Qatar, Waterborne said in a report.

"Based on recent announcements from the Japanese government to shut down a number of nuclear plants that could be at risk for a major earthquake or tsunami, Waterborne projects that LNG imports to Japan are likely to continue to rise in 2011," the report said.

This means Japan is likely to absorb all of the world's surplus LNG supply this year, analysts at Barclays Capital said in a report. In 2012, LNG demand growth may exceed that of supply, leading to even tighter markets, it said.

North America is unlikely to be affected by this, because thanks to the boom in shale gas production it doesn't need to import LNG, Barclays said. However, Europe will probably see LNG imports drop later this year, it said.

This will be a dramatic reversal because Europe had been the chief beneficiary of abundant LNG supplies for the last couple of years, notably from the world's largest LNG producer, Qatar.

Now Qatar is promising extra LNG supplies to Japan, drawing supply away from Europe, said Robert Johnston, director of Energy and Natural Resources at Eurasia Group. "This diversion could tighten up U.K. markets this summer as the incremental Qatari cargoes heading to Japan probably would have otherwise ended up in the U.K. market," he said.

The U.K.'s largest gas supplier, Centrica PLC (CNA.LN), has already warned that prices are rising, "in the wake of the natural disaster and subsequent nuclear issues in Japan and unrest in North Africa and the Middle East."

"In the U.K., the forward wholesale prices of gas and power for delivery in winter 2011-2012 are currently around 25% higher than prices last winter," the company said earlier this month.

Higher U.K. prices will also have a knock-on effect in Europe. "The U.K.'s LNG import terminals have acted as a gateway for gas to reach Continental markets," Barclays said.

Barclays expects the U.K. benchmark gas price, the National Balance Point, to rise 38% in 2011 compared with 2010, and increase by another 17% in 2012. The NBP is closely correlated to the main European gas benchmarks in the Netherlands and Belgium.