Emergency shutdowns of Japanese nuclear plants due to an earthquake on Friday are likely to increase demand for liquefied natural gas by the world's biggest LNG consumer, driving up gas prices around the world.
The closure of four of Japan's nuclear plants, whose 11 reactors can generate up to 9 gigawatts of electricity when fully operational, according to the World Nuclear Association, may also push up its demand for fuel oil and coal.
Hours after the quake, there was little certainty over how much fuel Japan will need or even be able to import, with parts of its coastal energy infrastructure battered by the quake and ensuing tsunami.
"The temporary shutdown of four nuclear plants will result in increased demand for fuel oil and spot LNG to make up for the shortfall in electric power generation," analysts at Bernstein Research said.
"While LNG demand will increase in the near term, one uncertainty is the damage to LNG-receiving terminals on the east coast."
British wholesale gas prices quickly surged on news of the nuclear shutdowns early on Friday as the biggest earthquake in Japan since records began revived memories of previous Japanese LNG buying sprees, spurred by nuclear plant problems in the world's third largest atomic energy user.
"Such a reduction in nuclear generation is likely to increase the demand for spot LNG cargoes by Japan... provided there has been no damage to LNG regasification terminals, or gas-fired generation facilities in Japan," Barcap said in a research note on Friday.
"The potential for increased LNG demand out of Japan leads us to see upside risks to UK gas prices, as spare cargos would likely head to Japan first," the investment bank said.
The shutdown of 17 of Japan's 54 reactors in August 2002, for safety inspections, led to an 11-percent increase in Japan's LNG demand in the year that followed, according to Bernstein.
The three-year closure of the country's biggest atomic plant, the 8-GW Kashiwazaki-Kariwa power station, from 2007, drove up LNG spot market prices sharply around the world.
"The last time the nukes were off, the spot cargo LNG prices rocketed," a UK power and gas trader said as UK gas prices for the coming summer raced to a record high of 60.75 pence on expectations of less super-cooled gas being delivered to north west Europe.
Coal sellers who typically fuel about a quarter of Japan's power supply should also see more sales -- increasing the country's emissions of climate warming carbon.
Independent LNG analyst Andy Flower said it takes about one million tonnes of LNG to replace every gigawatt of nuclear power generation over a one-year period. Nine million tonnes of LNG is just over 10 percent of the capacity of the world's biggest LNG supplier Qatar.
The Middle Eastern LNG exporter has opened two huge 7.8 million tonne a year production trains in the last few months, which could prove crucial to meeting Japan's added need.
"The key thing to highlight is that globally the LNG markets are well supplied with Qatargas trains 6 and 7 coming online in the past couple of months," Biliana Pehlivanova, natural gas analyst with Barclays Capital in New York, said.
Fuel oil suppliers could boost sales into a market that has sidelined oil-fired power plants to a marginal peak supply role when the country's increasing number of cheaper gas plants and nuclear reactors cannot meet demand.
SHIPPING COSTS
The extra demand for imports in a country that already imports about 85 percent of its energy could also boost shippers across Asia and beyond.
"With the disaster in Japan it is hard to see freight getting softer as the beleaguered country may well need gasoil from its neighbours to provide power while the nuclear plants are down," shipping brokers E.A. Gibson said in a note on Friday.
In contrast to gas, which surged in the world's benchmark gas market in Britain, oil prices fell sharply. Japan imports nearly half of all its energy as crude, mostly from the Middle East
"Short term the disruption in activity will be clearly negative for Japanese oil demand, but you may find that post the initial impact of the tsunami, there will be a need to deliver oil products to demand if you suffer loss in refinery output," Harry Tchilinguirian, BNP Paribas' head of commodity markets strategy, said.
With 4 million homes without electricity as darkness fell, the extent of the damage to the four nuclear power stations was unclear, as was the state of the Shinminato LNG import terminal near Sendai City, which saw some of the worst damage and largest fires break out along the waterfront.