COLUMN-Cheaper Asian LNG depends on coal, Japan nuclear – by Clyde Russell (Reuters U.K. – March 25, 2014)

(Reuters) – Asian spot liquefied natural gas prices have started their seasonal downturn after the winter peak, but how far they will fall depends on whether coal remains cheap and if Japan restarts some nuclear capacity.

LNG for May delivery was around $16.50 per million British thermal units (mmBtu), down from levels above $20 per mmBtu last month, reached as utilities re-stocked after peak winter demand. Last year, spot LNG LNG-AS fell 28 percent from the peak of $19.67 per mmBtu on Feb. 18 to a low of $14.13 on May 3.

Prices peaked at $20.50 per mmBtu on Feb. 7 this year, and a drop of a similar magnitude would see them fall to about $14.76 around May. However, much will depend on whether Japan does restart some nuclear generation, and whether it and China are willing to use cheaper coal despite the higher pollution.

None of Japan’s reactors, which used to supply about 20 percent of the nation’s electricity, are currently online, although two are now on a shortlist for a final round of safety checks.

Public scepticism remains high three years after the earthquake and tsunami that caused the destruction of the Fukushima plant, which led to the idling of nuclear generation.

No timing has been released for the potential restart of reactors, but the chances are that two units at Kyushu Electric’s Sendai plant, with a generating capacity of 1.78 gigawatts, could start operations before the summer peak according to a March 20 report by consultancy Energy Aspects.

Several other plants also filed for regulatory approval around the same time as Kyushu did for Sendai, although restarts are likely to be slow and spread out.

Nonetheless, the chances are increasing that some of Japan’s nuclear capacity will come back this year, leading to a likely drop in LNG imports.

LNG is considerably more expensive than coal at present and is therefore likely to be displaced by the return of nuclear, along with Japan’s limited oil-fired generation.

February power data for Japan show that coal generation was up 14.3 percent year-on-year, with LNG up only 2.9 percent.

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