|Source: U.S. Energy Information Administration (EIA)|
Japan with little energy resources of its own is one of the largest importers of petroleum products in the world. The fueling need of Japan is increasing and the quest for green and renewable energy is making Japan attractive to alternative sources of fueling its economy like LNG and nuclear power. After the devastating earthquake and tsunami the Japanese energy market is set to transform. Due to the devastation of the Fukushima Nuclear Power plant during tsunami, public opinion about nuclear power has changed in Japan. Only two nuclear power plants out of 54 are functioning and no reactor in Japan that shut for regular maintenance and for stress tests has restarted as local governments demand a new, post-Fukushima nuclear safety standard. The power supply shortage now threatens the economy of Japan after the crisis.
As a result of this nuclear power supply disruption, the demand for LNG and crude for power generation has significantly increased. Public opinion remains skeptical of nuclear power prompting Japan to resort to more use of LNG. The use of LNG is likely to increase to 30 to 35% and within a decade demand can increase to 85 million TPY. This is prompting Japan for seeking to look for overseas suppliers.
North American market looks to be the next emerging suppliers market for Japan. With the boom in natural gas extraction in the US and gas from oil sands of Canada the future of LNG in bright for the suppliers in the short term. The supplies are already squeezed due to the increased demand from Japan and delay in the completion of Australia LNG projects. The low gas prices in US of under $3 per million BTUs are encouraging firms to invest in LNG facilities in US prompted by huge arbitrage opportunity existing in the international market. Japanese companies are paying in the range of $21 and $18 to seek future LNG supplies.
The Japanese government is looking at cheap supplies in the form of LNG to meet its growing energy demand. Post- Fukushima world for Japan highlighted the risk associated with the use of nuclear energy and natural catastrophic risk management. LNG is the only solution in the short term for the Japanese government to bridge the gap between supply and demand. Global funds are betting on the increased use of LNG and LNG spot rates are climbing after the disaster. There is an increased opportunity for investors to make money in long term spot rates of LNG because of the positive future outlook of LNG and tight supplies.