JAPAN’S nuclear energy woes have sent a ripple through the world’s natural gas markets as the energy hungry country sucks in more fuel to help plug the hole in its power generation capability.
JAPAN’S nuclear energy woes have sent a ripple through the world’s natural gas markets as the energy hungry country sucks in more fuel to help plug the hole in its power generation capability.
Japan, which currently imports nearly 48 per cent of the world’s total seaborne natural gas, is looking for big and immediate offsets to help fill the gaps in its power supply after 11 reactors were hit in the wake of the March 11 earthquake.
International oil and gas expert Michael Economides said in Perth this week Japan’s short-term demand for liquefied natural gas (LNG) would test producers in the region, including Australia.
But it also represented a huge opportunity as the disaster-stricken country pondered its power generation problems, including a possible reduced reliance on nuclear power and a renewed focus on natural gas.
And, according to Houston-based Dr Economides, all this could be dwarfed by China’s gas demands in the next nine years, with the country ambitiously poised to lift the proportion of its total energy supply provided by natural gas to 10 per cent from 4 per cent, creating a potential need for a phenomenal 9 trillion cubic feet of gas.
“But, in the short term, Japan has to consider the very expensive option of bringing smaller turbines on to, or near, the stricken nuclear sites and power them with LNG to get supply going again,” said Dr Economides, who is a professor at Houston University and editor-in-chief of the Energy Tribune.
But this is a stopgap solution and Japan’s policymakers will be focused more on the country’s medium-term energy needs and reviewing the current power generation mix.
Japan imports about 3.3 trillion cubic feet of gas each year and Dr Economides estimates this could surge to about 4.8tcf of imports to meet its fresh demands for natural gas.
This sharp increase in demand, exacerbated by the Libyan crisis, will also bump up prices and skew the demand for current and new LNG tankers to the Asian region, according to one commentator.
Japan could also look to Russia’s natural gas pipeline supply in the short term, with Prime Minister Vladimir Putin stating this week Japanese companies could participate in production of natural gas in eastern Russia.
Russia’s monopoly company, Gazprom, will divert some European-bound LNG deliveries to Japan. Russia has also pledged to supply coal and electricity to the country.
“The natural gas component could jump to as high as 39 per cent from current levels of 27 per cent in the medium to long term as Japan realigns its energy mix,” Dr Economides said.
“The bigger picture is that it is not going to be pretty for nuclear; they were planning to go to 37 per cent with nuclear power but this now seems unlikely. And they have to still make up the shortfall as result of the problems at the wrecked Fukushima plant.”
The shortfall has to be made up quickly and then, more sustainably. This brings Australia into the picture, led by big producers such as Woodside, operator of the North West Shelf.
Japan is Australia’s biggest LNG customer, followed by China. Last year, LNG production in Australia grew 5.1 per cent on the back of increased global demand and the growth in domestic gas-fired power generation.
Energy economics group EnergyQuest said this month Australia’s LNG push was tipped to increase this year on the back of new LNG projects due in Queensland and WA.
In WA, Woodside’s 4.3 million tonnes per annum Pluto project on the Burrup Peninsula is on track for an August start-up. The 10mtpa Browse project, due to be operated by Woodside in joint venture, is earmarked for development at James Price Point, north of Broome, with a final investment decision due in mid-2012.
Construction work on the giant 15mtpa Gorgon gas project on Barrow Island is well under way with expansion to 25mtpa on the cards. Wheatstone LNG is also planning a 15mtpa plant near Onslow, with final investment decision due later this year.
Dr Economides said China, which consumed about 3tcf of gas a year from its own and imported sources, was aiming to reduce its huge reliance on coal. Nuclear power still only made up a small component of the country’s needs and it was unclear at this stage what approach it would take on nuclear sources in light of the crisis in Japan.
Dr Economides, on a speaking tour in Perth in conjunction with Australian-based environmental and engineering firm OTEK, said he seriously doubted whether Australia was ready for the huge challenge presented by China and Japan.
While not naming anyone, he said he had spoken to politicians on both sides, state and federal, and was not convinced they fully grasped the enormity of the challenge presented by China.
“Australia is in a unique position to capitalise on this opportunity. The Australian government needs to be very proactive on this and position the country to welcome companies to make it happen,” Dr Economides said.
“There have to be huge incentives in place to get a slice of this 9tcf. This is bigger than anything Australians have done in the past and it should be government policy that the country becomes an energy hub.”
Analysts in the US have been surprised by China’s natural gas goals. They estimate its impact over 10 years might be a more modest 6tcf, still substantial by current production levels.
Dr Economides was also dismissive of Prime Minister Julia Gillard’s plans to introduce a carbon tax, arguing it would not make a jot of difference to hydrocarbon producers in other parts of the world, particularly China.
He said there were no real alternatives to hydrocarbon fuels in the foreseeable future and confidently predicted Australians would ultimately dump a carbon tax or similar scheme.
The biggest suppliers of LNG to Japan in 2010 were: Malaysia (14 million tonnes per annum); Australia (13.3mtpa); Indonesia (12.8mtpa); Qatar (7.6mtpa); Russia (6mtpa); and the United Arab Emirates (5.1mtpa).
One of Australia’s big future competitors, Qatar, was tipped to increase its exports to Japan substantially in 2011. More imports in the short term could also come from countries such as Trinidad, Algeria, Egypt and Nigeria.
