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Qatargas LNG pumps up Japan volumes after nuclear shutdowns

Extra LNG set to offset nuclear shutdowns

State controlled Qatargas is sending more that 60 additional LNG cargoes to Japan over the next 12 months, the company said over the weekend, which equates to around 4 million tonnes a year (t/y) of extra imports.

This compares with forecasts of 6m-10m t/y of additional demand to plug around 10 gigawatts of nuclear power outages in the earthquake-ravaged country.  And although long-term LNG prices are expected to rise because of this extra demand, the reaction in the spot market was more subdued on the back of the Qatargas deal.   

“While I was in Japan, I could see for myself the urgency to help so we need to move quickly. These additional cargoes of LNG will be supplied to a number of our long-term customers over the next 12 months. The first of these cargoes was discharged whist I was still in Japan and I expect further sales,” Qatargas chief executive officer Khalid Bin Khalifa Al-Thani said after visiting the country last week.

Since a the earthquake and tsunami in early March, Japan is expected to import additional thermal fuels, including LNG, to prevent power shortage stemming from nuclear power plant shutdowns. But a well supplied LNG market meant Asian buyers were not concerned about LNG shortages.

"Additional purchases from the utilities will tighten the supply and demand balance, but the market was originally oversupplied, with about 40m-50m tonnes said to be in surplus globally," Mitsunori Torihara, Chairman of the Japan Gas Association, said at a news conference.

"A rise in LNG prices will be unavoidable from now on, but in terms of volume, there is no need to worry."

But in the short term, traders shrugged off price rises directly related to the Qatargas deal, with the concern that LNG will be diverted to Japan already factored into the price. Spot prices rose to around $12-12.50/m British thermal units (Btu) last week but worries about demand destruction and energy efficiency has limited further gain.

“I don't think it will be significant, although it will be hyped,” Tony Regan, principle consultant and Tri-Zen says.

“Bear in mind we are coming out of a gas glut.  We were expecting the surplus to be absorbed this year and this likely to speed up that process.  We’re heading for a tight market, but there's no need for traders into the UK to panic.” UK gas prices, a barometer for LNG prices because of the market’s reliance on imports, also ignored the possibility of cargoes originally destined for the UK being rerouted to Japan.

“I don't think the market is overly worried – a certain amount of this has already been priced in,” said one UK gas trader.  “Prices went down despite the news,” said another European gas trader.

Qatargas has flooded Europe with LNG this year, with the exporter reaching maximum 42m t/y output from all its production trains, making inroads to a gas market traditionally dominated by Russia.

Some of Qatar’s LNG capacity was intended to supply the US, but a boom in shale gas production has depressed Henry Hub gas prices, and destroyed demand for imported LNG. 

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