Japan’s energy needs post-earthquake aren’t a worry yet

A spike in Japanese demand for LNG can easily be met, but futures markets should calm themselves.

As Japan struggles to cope with the aftermath of the 11 March earthquake, issues of energy security are becoming more prevalent not only in Japan, but across the world.

Five nuclear power plants were affected by the Sendai earthquake, and of those, one has suffered a partial meltdown – the Fukushima Daiichi plant. Three major oil refineries were also closed. Amid scrambled attempts to avert a full-scale, Chernobyl-style disaster, fears are now rising about how the shortfall in Japan's energy production – which Société Générale estimates to be roughly 11.3 gigawatts, enough to power as many as 11 million households – will be managed for the foreseeable future.

Consumption of electricity generated from nuclear power stands at 30 per cent of Japan's total usage. The government had previously planned to increase this to 40 per cent by 2017, and then 50 per cent by 2030.

Whether or not these plans will now be halted or contested as a result of the disaster at Fukushima I remains to be seen. What is certain, though, is that Japan will have to meet the demand for energy somehow, despite a large impairment in production facilities.

Japan's energy mix still heavily relies on oil, which accounted for 45 per cent of national energy consumption in 2009, but it is also the world's largest importer of liquefied natural gas (LNG) – in 2010 the Japanese shipped over 70 million tonnes of it. The biggest suppliers of oil and LNG to Japan are Saudi Arabia and Qatar, respectively, with the United Arab Emirates the second-largest supplier of both commodities.

With revolutions still raging across the Middle East, the markets have already been pushing up prices, particularly for oil, in fear of an energy crisis, and the increased demand on the region that Japan's predicament may spur could make the problem even more acute. Due to the shortfall in Libyan supply and worries about Saudi Arabia's stability, prices continue to rise. Today Brent crude spot prices increased to $113.99 per barrel, and LNG futures for April 2015 delivery rose $0.22 per MMBtu on the week to $6.08 according to NYMEX.

If Japan does make up its shortfall with LNG, the UK would bear the brunt of this shift in supplies, as LNG accounts for almost 33 per cent of winter demand, and contracts for next year have risen between 10 and 15 per cent on speculation of increased demand. This follows already high gas prices and a particularly cold winter that added roughly £44 to British domestic gas bills.

This chart, taken from Kiran Stacey's Financial Times blog shows how much LNG Japan needed to make up for an energy shortfall after the 2007quake:

PFC Energy made a prediction based on these figures that, with 9.7 gigawatts of capacity lost (estimates vary, as with the Société Générale figure above), this could lead to at least a 500-600 megaton per month leap in Japanese LNG purchases. PFC believes the price for Asian spot will remain around $8-$9 MMBtu.

There are a few factors to consider in support of this conservative estimate. A global gas glut, including Qatar's huge increase in LNG production capacity, will certainly be able to alleviate Japan's demands. In fact, Qatar has already promised to divert more supplies there if necessary, which it would not have been able to do so easily back in 2007. Further, Japan is still able to use supplies from futures contracts at the moment to meet its energy needs, so its demand is lower than expected.

These factors explain the lack of a significant spike in demand so far, but fears driving the rise in futures prices (as opposed to the relatively stable spot prices) bode less well for the long term.

Liam McLaughlin is a freelance journalist who has also written for Prospect and the Huffington Post. He tweets irregularly @LiamMc108.

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Commons Confidential: Fearing the Wigan warrior

An electoral clash, select committee elections as speed dating, and Ed Miliband’s political convalescence.

Members of Labour’s disconsolate majority, sitting in tight knots in the tearoom as the MP with the best maths skills calculates who will survive and who will die, based on the latest bad poll, observe that Jeremy Corbyn has never been so loyal to the party leadership. The past 13 months, one told me, have been the Islington rebel’s longest spell without voting against Labour. The MP was contradicted by a colleague who argued that, in voting against Trident renewal, Corbyn had defied party policy. There is Labour chatter that an early general election would be a mercy killing if it put the party out of its misery and removed Corbyn next year. In 2020, it is judged, defeat will be inevitable.

The next London mayoral contest is scheduled for the same date as a 2020 election: 7 May. Sadiq Khan’s people whisper that when they mentioned the clash to ministers, they were assured it won’t happen. They are uncertain whether this indicates that the mayoral contest will be moved, or that there will be an early general election. Intriguing.

An unguarded retort from the peer Jim O’Neill seems to confirm that a dispute over the so-called Northern Powerhouse triggered his walkout from the Treasury last month. O’Neill, a fanboy of George Osborne and a former Goldman Sachs chief economist, gave no reason when he quit Theresa May’s government and resigned the Tory whip in the Lords. He joined the dots publicly when the Resolution Foundation’s director, Torsten Bell, queried the northern project. “Are you related to the PM?” shot back the Mancunian O’Neill. It’s the way he tells ’em.

Talk has quietened in Westminster Labour ranks of a formal challenge to Corbyn since this year’s attempt backfired, but the Tories fear Lisa Nandy, should the leader fall under a solar-powered ecotruck selling recycled organic knitwear.

The Wigan warrior is enjoying favourable reviews for her forensic examination of the troubled inquiry into historic child sex abuse. After Nandy put May on the spot, the Tory three-piece suit Alec Shelbrooke was overheard muttering: “I hope she never runs for leader.” Anna Soubry and Nicky Morgan, the Thelma and Louise of Tory opposition to Mayhem, were observed nodding in agreement.

Select committee elections are like speed dating. “Who are you?” inquired Labour’s Kevan Jones (Granite Central)of a stranger seeking his vote. She explained that she was Victoria Borwick, the Tory MP for Kensington, but that didn’t help. “This is the first time you’ve spoken to me,” Jones continued, “so the answer’s no.” The aloof Borwick lost, by the way.

Ed Miliband is joining Labour’s relaunched Tribune Group of MPs to continue his political convalescence. Next stop: the shadow cabinet?

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 27 October 2016 issue of the New Statesman, American Rage