March 20 (Fitch) Ratings said today that electricity capacity shortfalls at Japan's nuclear plants will be met in the short term by coal and fuel oil fired generation. However, in the medium term, additional gas-fired capacity is the natural substitute for nuclear power. Australia's thermal coal and liquefied natural gas (LNG) export industries are well positioned to meet Japan's changing primary fuel requirements.
"Japanese gas-fired electricity generators were operating at high capacity prior to the earthquake and have limited ability to further increase production. This will limit the increase in demand for spot LNG cargos," says Arnon Musiker, Director in Fitch's Energy & Utilities team. "Fitch estimates that Japan lost up to 11GW of nuclear-fired baseload energy after the earthquake. Replacement of Onagawa, Fukishima, Daichi and Daini by new gas-fired generation could increase LNG demand by nine million tonnes per annum," added Mr Musiker.
Fitch's analysis indicates that only the Japanese coal and fuel-oil fired generators have sufficient capacity to substantially increase electricity production. This suggests that Japanese demand for Australian thermal coal may increase significantly over the next two to three years.
Gas-fired generation is the likely choice for new capacity given its relatively low carbon emission intensity and speed of construction. Moreover, the Japanese LNG import network appears to have spare capacity for additional imports and was reported as undamaged by the International Energy Agency after the earthquake and subsequent tsunami.
Fitch believes that Japanese utilities will seek to maintain a policy of diversifying gas supply, which could result in sufficient support for one to two new LNG trains in Australia. This is on the basis that 11GW of nuclear capacity is replaced by gas-fired generation, and 60% of the incremental gas demand is sourced from Australia. Likely beneficiaries include Browse and Pluto expansions, subject to securing gas reserves, which are promoted by Woodside Petroleum Ltd ('BBB+'/Negative), and Asia-Pacific LNG, promoted by Origin Energy Ltd ('BBB+/Stable') and ConocoPhillips ('A'/Stable).
Several countries have announced a review of planned nuclear generators, including China, which has an ambitious nuclear expansion programme to meet demand growth. Fitch estimates that one additional LNG train will be required for every five GW of nuclear generation capacity that is replaced by gas.
"If the outcome of the reviews leads to widespread cancellation of new nuclear capacity, there could be sufficient demand for Australian LNG to support those projects which are not yet fully contracted," added Mr Musiker. (Reuters)
"Japanese gas-fired electricity generators were operating at high capacity prior to the earthquake and have limited ability to further increase production. This will limit the increase in demand for spot LNG cargos," says Arnon Musiker, Director in Fitch's Energy & Utilities team. "Fitch estimates that Japan lost up to 11GW of nuclear-fired baseload energy after the earthquake. Replacement of Onagawa, Fukishima, Daichi and Daini by new gas-fired generation could increase LNG demand by nine million tonnes per annum," added Mr Musiker.
Fitch's analysis indicates that only the Japanese coal and fuel-oil fired generators have sufficient capacity to substantially increase electricity production. This suggests that Japanese demand for Australian thermal coal may increase significantly over the next two to three years.
Gas-fired generation is the likely choice for new capacity given its relatively low carbon emission intensity and speed of construction. Moreover, the Japanese LNG import network appears to have spare capacity for additional imports and was reported as undamaged by the International Energy Agency after the earthquake and subsequent tsunami.
Fitch believes that Japanese utilities will seek to maintain a policy of diversifying gas supply, which could result in sufficient support for one to two new LNG trains in Australia. This is on the basis that 11GW of nuclear capacity is replaced by gas-fired generation, and 60% of the incremental gas demand is sourced from Australia. Likely beneficiaries include Browse and Pluto expansions, subject to securing gas reserves, which are promoted by Woodside Petroleum Ltd ('BBB+'/Negative), and Asia-Pacific LNG, promoted by Origin Energy Ltd ('BBB+/Stable') and ConocoPhillips ('A'/Stable).
Several countries have announced a review of planned nuclear generators, including China, which has an ambitious nuclear expansion programme to meet demand growth. Fitch estimates that one additional LNG train will be required for every five GW of nuclear generation capacity that is replaced by gas.
"If the outcome of the reviews leads to widespread cancellation of new nuclear capacity, there could be sufficient demand for Australian LNG to support those projects which are not yet fully contracted," added Mr Musiker. (Reuters)
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