Last week, Timera Energy put out the excellent chart below. Showing how Japanese demand is the driving force in global gas markets right now.
This is a great view of the evolution of gas pricing. Prior to to 2008, prices in Japan, the U.S., the U.K. (NBP), and Russia were more or less in line. Then everything collapsed. Since then, Japanese gas prices (the red lines) have been by far the highest bar in the market.
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The really interesting thing is the effect of nuclear shut-downs following the Fukushima nuclear incident. In early 2010, it looked like Japanese and U.K. prices were going to converge around $10/mmbtu. But then Fukushima hit, driving Japanese prices well above $15.
The question is: what will happen if Japan's nuclear reactors come back online?
On that front, it's interesting to note that U.K. prices seem to have settled out in the $8 to $10 range. Given that Europe is one of the other major, competing destinations for LNG, it would appear that--absent Fukushima demand--Asian prices would probably slip back toward this level.
South American LNG demand is a wildcard. Strong buying from Brazil and Chile this year has driven spot prices to near-Japanese levels. But much of this was a result of seasonal factors (not enough rain to drive hydro-power, for example). It's thus not certain the same level of demand, or pricing, will persist.
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With more environmental problems recently having emerged at Fukushima, we probably won't be seeing a big Japanese nuclear re-start right away. But the nation can ill-afford to keep all of its plants idle. Re-start applications have been submitted. And we will see units fire back up over the next several months.
If you're invested in LNG-sensitive industries, that progress will be the most important story of the coming year.
Here's to seeing changes,
By. Dave Forest