More LNG imports for Japan

Japan's suspension of the use of nuclear power will lead to a further increase in imports of liquefied natural gas (LNG), cementing the country's position as the world's biggest importer of the fuel.

The viability of Japan's nuclear capacity remains uncertain after the last of 50 reactors was shut down this week. The fleet will now be subjected to rigorous stress tests.

If they all stay shut, Japanese demand for LNG will increase by 24 per cent on levels before the meltdown of reactors at the Fukushima Dai-ichi plant after the earthquake and tsunami in March last year, according to the International Energy Agency (IEA).

Hokkaido Electric Powershut the third unit at its Tomari plant in northern Japan on Saturday, leaving Japan without nuclear power for the first time since the 1970s.

Under the worst-case scenario, Japan would import a total of 87 million tonnes of LNG this year, against 70 million tonnes in 2010, predicts the IEA.

Japan is not planning to exit nuclear permanently, and the country has not embarked on a large-scale investment drive to replace nuclear capacity with gas-fired power plants.

"This year, without nuclear, the key constraint is not going to be oil and gas supply, it's the capacity of the power sector to produce from oil and gas," said Laszlo Varro, the head of gas, coal and power markets at the IEA.

This will come at a price to the economy, said Mr Varro, as industry will have to reduce production because of electricity shortages.

It also means that LNG demand will not increase significantly in coming years.

Japan's voracious appetite for LNG has already caused prices to rise. LNG, which is natural gas chilled to a liquefied state to enable transport in specialised tankers, sells at about US$16 per million British thermal units in the Asia-Pacific market, higher than last year.

"Imports have increased significantly on years before, it's an unpredictable situation," said Thomas Grieder, an energy analyst at IHS Global Insight.

While the UAE may benefit from higher prices for its LNG exports, it will also pay more for the increasing volumes of gas imports.

Devoid of its own sources of gas, Dubai imports LNG when demand peaks in the summer. Abu Dhabi exports LNG to Japan from Das Island, but is also a major importer of gas from Qatar via the Dolphin pipeline, and will also soon receive shipments of LNG from international markets.

Last month, Mubadala Development and the International Petroleum Investment Company announced they were building an LNG import terminal in Fujairah to become operational by 2014. Mubadala is a strategic investment company owned by the Abu Dhabi Government.

Like its Gulf neighbours, Abu Dhabi is facing a growing shortage of natural gas.

fneuhof@thenational.ae

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