The earthquake and subsequent tsunami have crippled Japan’s energy infrastructure and that may lead to the country importing more LNG and petroleum products to meet its immediate energy needs. This will be a positive for petroleum refiners but a negative for importdependent natural gas consumers, although it is too early to know the extent.
At least three nuclear power plants and two petroleum refineries were directly impacted and shut down due to the tsunami, resulting in three northern prefectures, or states, in Japan being left without power and heating. However, media reports said a total of 10-12 nuclear power plants with a combined capacity of 8.8 gigawatts and five refineries with a capacity of 1.2 million barrels per day were shut down as a precautionary measure.
The situation resembles the shutdown of one-third of the nuclear power generation capacity in Japan after an earthquake in 2007. It had necessitated a substantial jump in imports of liquefied natural gas (LNG) in Japan, which is the world’s largest importer of LNG.
This ensured a jump in spot LNG cargo prices, which sustained for more than a year. A similar scenario is likely to occur in the coming months. In fact, Platts, the world’s leading global energy information provider, reported a 5% jump in spot LNG prices to $9.9 per unit immediately on news of tsunami.
The refinery outages at home and a cut in the availability of nuclear power mean Japan will have to increase imports of refined petroleum products as well. In particular, the country is expected to import a lot more oil to run its power plants. A report from Platts said Japanese tsunami is ‘bullish’ to the global fuel oil market in the coming months although there was no immediate reaction seen.
On the other hand, imports of crude oil in Japan are likely to fall, which could create a glut-like situation in the global markets considering it is the world’s third-largest crude oil consumer at around 4.4 million barrels per day and imports its entire requirement. As an immediate reaction to the tsunami, crude oil prices dropped nearly 1.5% on Friday on concerns of likely fall in Japan’s industrial activity.
However, things such as the extent of damage, how long the domestic capacities stay offline and the country’s rebuilding efforts will determine how much the energy markets get affected.
The petroleum refinery industry, which is seeing a buoyancy in margins, thanks to improved demand for diesel globally, is likely to benefit further from the current situation in Japan. OPEC’s latest monthly update on oil industry explains the industry’s good fortunes, “the sustained momentum in the middle distillates market has received further support from improved diesel demand due to the rise in industrial activity across the globe and continued strong demand for diesel from China on the back of increased trucking activity in response of the current drought affecting the north of the country.”
From the point of view of domestic markets, the independent petroleum refiners, such as Mangalore Refinery, Reliance Industries or Essar Oil are the key beneficiaries of the trend. Whereas, consumers of LNG, particularly spot LNG, such as Gujarat Gas could see their margins under pressure in the coming months.
At least three nuclear power plants and two petroleum refineries were directly impacted and shut down due to the tsunami, resulting in three northern prefectures, or states, in Japan being left without power and heating. However, media reports said a total of 10-12 nuclear power plants with a combined capacity of 8.8 gigawatts and five refineries with a capacity of 1.2 million barrels per day were shut down as a precautionary measure.
The situation resembles the shutdown of one-third of the nuclear power generation capacity in Japan after an earthquake in 2007. It had necessitated a substantial jump in imports of liquefied natural gas (LNG) in Japan, which is the world’s largest importer of LNG.
This ensured a jump in spot LNG cargo prices, which sustained for more than a year. A similar scenario is likely to occur in the coming months. In fact, Platts, the world’s leading global energy information provider, reported a 5% jump in spot LNG prices to $9.9 per unit immediately on news of tsunami.
The refinery outages at home and a cut in the availability of nuclear power mean Japan will have to increase imports of refined petroleum products as well. In particular, the country is expected to import a lot more oil to run its power plants. A report from Platts said Japanese tsunami is ‘bullish’ to the global fuel oil market in the coming months although there was no immediate reaction seen.
On the other hand, imports of crude oil in Japan are likely to fall, which could create a glut-like situation in the global markets considering it is the world’s third-largest crude oil consumer at around 4.4 million barrels per day and imports its entire requirement. As an immediate reaction to the tsunami, crude oil prices dropped nearly 1.5% on Friday on concerns of likely fall in Japan’s industrial activity.
However, things such as the extent of damage, how long the domestic capacities stay offline and the country’s rebuilding efforts will determine how much the energy markets get affected.
The petroleum refinery industry, which is seeing a buoyancy in margins, thanks to improved demand for diesel globally, is likely to benefit further from the current situation in Japan. OPEC’s latest monthly update on oil industry explains the industry’s good fortunes, “the sustained momentum in the middle distillates market has received further support from improved diesel demand due to the rise in industrial activity across the globe and continued strong demand for diesel from China on the back of increased trucking activity in response of the current drought affecting the north of the country.”
From the point of view of domestic markets, the independent petroleum refiners, such as Mangalore Refinery, Reliance Industries or Essar Oil are the key beneficiaries of the trend. Whereas, consumers of LNG, particularly spot LNG, such as Gujarat Gas could see their margins under pressure in the coming months.
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