Japan crisis may hike LNG prices

The aggravating Japanese nuclear crisis is likely to make procurement of liquefied natural gas for Indian players, as Japan is expected to rely more on gas and coal to meet its energy needs in the short term, says a Crisil report.

Rating agency Crisil said on Friday that Asian spot LNG prices are expected to go up in the short term due to power generation disruptions in Japan.

"Spot LNG accounts for around 8 per cent of the total gas demand in India and its consumers include city gas distribution, captive power plants and small industrial units.

"The gas acquisition costs of these entities are likely to increase, thus affecting the demand," Crisil said in the report titled Japanese Earthquake and Tsunami:Impact Analysis.

A devastating earthquake followed by massive tsunami last Friday took a severe toll on people, properties and some nuclear plants in Japan.

As per the report, the plants that have been shut down subsequently represent an estimated 25 per cent of Japan's nuclear power capacity.

"The shortfall in demand will have to be met by coal and LNG-based capacities, thus resulting in higher imports of coal, LNG and petroleum products (by Japan)," it said.

Crisil noted that it expects about 60 per cent of the shutdown power capacities to be substituted with coal-based capacities, while LNG-based capacities will make up for

the rest.

"International LNG prices have been on the rise following the natural calamity in Japan. Prices have jumped from around $9 per mmBtu to around $11-12 per mmBtu due to increased demand from the country," the report said.

Asian prices of spot LNG is expected to reach $13-14 mmBtu within 3-4 months.

However, with regard to coal, Crisil said the expected 12 million tonne per annum rise in import demand by Japan is less than two per cent of the overall global trade in coal.

International coal prices are expected to rise by only $4-5 per tonne during 2011.

"Imported coal accounts for merely 6-7 per cent of the coal consumption of Indian power generation companies. Consequently, we expect players with dependence on spot purchases of coal to witness only a marginal rise in raw material costs," Crisil said.

At the same time, a decline in demand for cooking coal in Japan, which is a major importer, is likely to lead to a fall in global prices of the commodity.

"Domestic steel-makers, who are heavily dependent on imported coal will witness a marginal decline in raw material cost during April-June quarter of 2011," it said.