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Asia LNG climbs on Japan nuclear shut-down

Spot LNG prices increased over the past week in Asia amid suspended nuclear operations

Asia's spot LNG prices increased over the past week, with prices likely to rise further as Chubu Electric Power, Japan’s third largest power producer, rushed to secure supplies after suspending operations at its sole nuclear power plant.

Traders said spot LNG prices were between $12.30 and just below $13 per million British thermal unit (Btu) in Asia over the past week, up from around $12/m Btu last week. “Demand is so desperate that (Japanese) power producers have been looking for cargoes for very prompt availability or boosting long-term purchase volumes,” one trader said.

According to local media, Chubu may buy as much as 38% more LNG in the year to March 2012 after it shut the Hamaoka nuclear power plant at the request of prime minister Naoto Kan. Kan voiced concern over the plant’s ability to withstand an earthquake, adding that seismologists believed the area would be hit by a powerful tremblor in the next few years.

Chubu said that it will use the shut-down to increase the 3.6 gigawatt plant’s earthquake defences. Two other nuclear plants in Japan are expected to be shut in following inspections.

Chubu’s president Toshio Mita flew to Qatar last weekend to negotiate extra LNG purchases to meet the expected shortfall. Qatar, the world’s top LNG exporter, recently boosted its capacity to 77 million tonnes a year, which most analysts say is enough to meet increased demand from Japan, as well as its contracted sales.

Chubu also said it has struck a deal with BG Group to buy up to 122 cargoes over 21 years from 2014.

Tanker diversions from the Atlantic basin to the Pacific basin grew increasingly likely, while UK natural gas for June rose slightly to around £58.60 ($95.92) per therm for June, or about $9.58/m Btu, due to lower imports. Typically, the west-east LNG arbitrage could become economical when the price spread between Asia and Europe becomes wider than $2/m Btu, but this has not yet happened. If it does, Asian spot LNG prices and UK gas prices are likely to rise towards summer.

Societe Generale, which had held bearish views on the gas market, also lifted its forecast for UK summer gas prices after news of the shutdown. In a research note, the bank said UK summer 2011 gas prices are expected to deliver at an average of 48 pence per therm, up from 40 pence last year.

Meanwhile, Japan’s largest refiner JX Nippon Oil Energy has made its first LNG purchase - a 15-year, 300,000 tonnes per year LNG deal with Chevron. Under the agreement, which took three years to finalise, LNG will be sourced from the Gorgon development, off Australia. Financial details were not made public, but JX said the fuel will be sold to north east Japan, the area most badly affected by march’s earthquake and tsunami.

In the US, on the other hand, LNG demand is likely to remain slack this year. The federal Energy Information Administration said in its short-term energy outlook, released on Tuesday, that LNG imports will fall EIA projects U.S. imports of LNG will average 900 million cubic feet a day (cf/d) this year, a 21% fall on last year’s 1.2 billion cf/d. 

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