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Guest Post: Nuclear Restarts Spell Trouble for LNG

Tyler Durden's picture




 

Submitted by Nick Cunningham via OilPrice.com,

There are two major factors that have emerged in the last five years that have sparked a surge in LNG investments. First is the shale gas “revolution” in the United States, which allowed the U.S. to vault to the top spot in the world for natural gas production. This caused prices to crater to below $2 per million Btu (MMBTu) in 2012, down from their 2008 highs above $10/MMBtu. Natural gas became significantly cheaper in the U.S. than nearly everywhere else in the world.  

The second major event that opened the floodgates for investment in new LNG capacity is the Fukushima nuclear crisis in Japan. Already the largest importer of LNG in the world before the triple meltdown in March 2011, Japan had to ratchet up LNG imports to make up for the power shortfall when it shut nearly all of its 49 gigawatts of nuclear capacity. In 2012, Japan accounted for 37% of total global LNG demand.

The combined effect of shale gas production in the U.S. and skyrocketing LNG demand from Japan opened up a wide gulf between the Henry Hub benchmark price in the U.S. and much higher oil-linked prices around the world. LNG markets, which are not liquid, could not meet the surge in Japanese demand. Platts’ Japan/Korea Marker (JKM) price for spot LNG floated between $4-$10/MMBTu the year and half before Fukushima. In the few months after the meltdown, the JKM price quickly jumped to $18/MMBTu. Almost three years later, the JKM price for month-ahead delivery in January 2014  hit $18.95/MMBTu.

In contrast, Henry Hub prices – despite reaching a more than two year high – were only $4.50/MMBTu for the first week of 2014. After factoring in the costs of liquefaction and transportation – somewhere in the range of $4-$5/MMBTu – companies could still make a substantial profit taking U.S. gas and exporting it to Asia.

Thus ensued a scramble to permit and build LNG export facilities in the U.S., often by retooling and turning around what were once import terminals. As of December 6, 2013, the U.S. Department of Energy had 28 applications for LNG export facilities to countries without which the U.S. has a free-trade agreement (five of them have been approved).

Cheniere Energy (NYSE: LNG) has been the primary beneficiary of DOE’s policy to incrementally approve LNG exports. Cheniere has already signed contracts to deliver gas to Britain’s BG Group, France’s Total, India’s Gail, Spain’s Gas Natural Fenosa, and South Korea’s Kogas. Its stock price has soared since it received permission to begin construction on its Sabine Pass liquefaction facility on the U.S. Gulf Coast, which would allow the export of 18 million tonnes of LNG per annum (MTPA) in Phase 1. From August 6, 2012 – the day before it received its permit – until the market close of January 10, 2014, Cheniere’s stock price climbed from $14.66 to $46.37 per share, more than a three-fold increase.

Other companies are lobbying the government to quickly approve more export terminals, but it is more than likely that only the first-movers will make some serious money with the stragglers left behind. While its competitors are awaiting permit approvals, construction is already underway at Cheniere’s Sabine Pass liquefaction facility.

LNG Expansions Around the World

Australia plans to triple its LNG capacity over the coming four or five years, which will allow it to surpass Qatar as the largest LNG exporter in the world. There are seven liquefaction facilities under construction in Australia, with a capacity of 62 million tonnes per year. This means that by 2017, according to the International Gas Union (IGU), Australia’s LNG export capacity will reach 83 MTPA.

Australia’s projects are further along and closer to their target market of Japan, so many will beat out U.S. proposals. Despite all the buzz in the U.S. about LNG export terminals, and the more than 190 MTPA of applications on backlog with the DOE, very little of that will be actually constructed (it is pretty easy to merely submit an application). The IGU estimates the U.S. will only bring online an additional 8 MTPA or so over the next four to five years, up from about 2 MTPA last year. Australia is where the action is.

Chevron (NYSE: CVX) is heavily invested in Australian LNG and already has several terminals up and running with more capacity coming online in 2015. BG Group (LON: BG) is scheduled to start exports of LNG at its Queensland Curtis facility this year. These companies are well-positioned to serve the insatiable demand from Japan.

Market Disruptor – Japan’s Nuclear Restarts

So conventional wisdom tells us that there is a boat load of cash to make riding the LNG wave. But aside from the historic price volatility for natural gas that should give investors reason for pause, looking over the horizon, there is one big factor that could disrupt LNG investments: if Japan moves to restart some or all of its nuclear reactors, many LNG terminals may cease to be profitable.

Japan was once the third largest producer of nuclear power after the U.S. and France. After the Fukushima meltdown, Japan replaced its 49 GW of nuclear capacity with imported LNG (which jumped 24%) as well as imported coal and oil. Yet Japan may be in the cusp of a return to nuclear. According to DNV GL’s LNG blog, the restart of all of Japan’s 50 nuclear reactors would mean it could displace about 51 million tonnes of imported LNG.

This amounts to about one-fifth of the entire global LNG trade, and would cause a significant drop in the JKM spot price. This means the spread between the landing price of LNG in Asia and the wellhead prices of say, Australia, or the United States, would narrow. Without that arbitrage, it wouldn’t make sense to send liquefied gas around the world from many places. Marginal projects would be forced out virtually overnight.

The Japanese government put in place new safety regulations last summer that utilities must meet in order to receive approval to restart their reactors. Japan’s Nuclear Regulatory Authority (NRA) is currently reviewing applications from seven utilities to restart a total of 16 nuclear reactors, or about one-fourth of Japan’s nuclear fleet. More applications are in the offing.

While anti-nuclear resentment runs strong in Japan these days, the government is facing quite a bit of pressure to return to its nukes. Post-Fukushima, Japan posted a trade deficit for the first time in decades due to the huge cost of importing coal, gas, and oil. By one estimate, turning half its nuclear fleet back online could save $20 billion per year, good enough to wipe out a big chunk of its trade deficit – which widened to $12.6 billion in November 2013. Prime Minister Shinzo Abe supports nuclear power, making a return to nuclear more likely.

If the Japanese public and government can begin to trust the new regulatory regime, and accept a return to nuclear power, its LNG demand will plummet. As the largest LNG importer in the world by far, this would leave many LNG projects stuck at sea.

In particular, LNG terminals in the U.S. – which are not the lowest cost producers – would be in trouble. Not all companies that have applied for permits will actually move forward with investment, and thus, would be less vulnerable to nuclear restarts. But the ones that do move forward are taking on the risk as well as the potential reward. But with LNG projects proliferating around the world, many companies will be competing for a smaller pie should Japan return to nuclear power.

Cheniere Energy is the first that comes to mind. Dominion Resources (NYSE: D) is another. Dominion hopes to move forward with a $3.8 billion retrofit of its Cove Point facility on the Chesapeake Bay, which is also the subject of a growing environmental backlash. Some Australian projects that are further behind may lose out as well, such as the Arrow LNG project, a 50-50 venture between Royal Dutch Shell (NYSE: RDS.A) and PetroChina (NYSE: PTR). Woodside Petroleum (WPL) has already scrapped its original plans for the Browse LNG project because of high costs. Its Sunrise project, mired in political disputes, may yet get off the ground, but would be vulnerable to Japanese reactors. Russia has major LNG expansion plans, which would face stiff competition if Japan’s reactors turn back on. Novatek (LON: NVTK) has plans to invest $15-$20 billion in its liquefaction facility on the Yamal peninsula, and Gazprom hopes to put $13.5 billion into a facility at Vladivostok – although the latter would at least be in a very advantageous location.

The future of LNG may indeed be bright, especially when considering that global energy demand has nowhere to go but up. But, investors should be aware of the very large threat that Japanese nuclear reactors present to upstart LNG projects.

 

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Mon, 01/27/2014 - 19:30 | 4372961 Carl Popper
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Pebble bed reactors would be awesome. They never get more than 300 to 400 degrees and need no active cooling.

What crazy fool designed the uranium rod system that catches fire if not actively cooled?

Mon, 01/27/2014 - 19:35 | 4372964 cossack55
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Thomas Malthus

Mon, 01/27/2014 - 21:38 | 4373423 gwar5
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Charles Darwin

Mon, 01/27/2014 - 22:32 | 4373624 DOT
DOT's picture

Al Gore

Tue, 01/28/2014 - 04:26 | 4374261 Sudden Debt
Sudden Debt's picture

Chaplin Charlie

Tue, 01/28/2014 - 05:57 | 4374312 Bearwagon
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Bergholt Stuttley Johnson, known as "The Bloody Stupid Johnson"

Tue, 01/28/2014 - 10:47 | 4374933 N2OJoe
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A lawmaker named Murphy.

Mon, 01/27/2014 - 19:38 | 4372989 logicalman
logicalman's picture

There's a nice handy fusion reactor in the vicinity that could easily supply the world's needs.

It just requires the will to do it, but it would take away the energy monopoly that the elites thrive on.

We don't need nukes.

Tue, 01/28/2014 - 09:43 | 4374669 Flakmeister
Flakmeister's picture

For shits and giggles explain to us how you get electricty from D-T fusion and how it is fundamentally different from a garden variety nuke based on a Uranium fuel cycle...

Mon, 01/27/2014 - 21:12 | 4373303 Not Too Important
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"What crazy fool designed the uranium rod system that catches fire if not actively cooled?"

Satan.

Tue, 01/28/2014 - 04:53 | 4374280 Bearwagon
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German experience with the THTR-300 says otherwise: http://en.wikipedia.org/wiki/THTR-300

Tue, 01/28/2014 - 09:45 | 4374673 Flakmeister
Flakmeister's picture

Ahh, don't question their ideas about "Hope and Change"....

Mon, 01/27/2014 - 19:34 | 4372962 cossack55
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I am not sure if the Japanese intend to adopt a Kamakaze national attitude.  Is their island that mobile? 

Mon, 01/27/2014 - 19:34 | 4372968 logicalman
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The wind blowing off Japan is far from divine.

Mon, 01/27/2014 - 19:36 | 4372973 cossack55
cossack55's picture

They are finally getting to hit the west coast with something other than balloons.

Mon, 01/27/2014 - 21:24 | 4373357 Not Too Important
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"Finally"? It all got here within weeks after the initial explosions, air- and water-borne. The initial airborne plume hit hard, and has since gone down to 'slightly' less lethal levels, but still continuous. The waterborne plume has been increasing ever since, and both will remain steady for over a billion years, regardless of what anyone does in Japan.

Remember, radiation is accumulative. It doesn't go away, the new stuff just lays over the old stuff like layers in a cake. We are two and a half years into a complete Northern Hemisphere bio-collapse. No one knows when we will go, but there isn't a lung in the Northern Hemisphere that doesn't have a significant amount of aerosolized Enriched Uranium and Plutonium in it, cooking away for a billion years.

It kills the kids first. We will never be told accurate Infant Mortality Rates, and pediatric oncologists are very 'reticent' to talk about what they're seeing. Something about their licenses . . . There was a lot of chatter on MD forums, then it all went quiet.

Next time you go to the doctor's office - any kind of doctor - or blood center, ask them if they're seeing increasing numbers of patients with low white blood cell counts. The first thing radiation does is destroy the immune system - RAIDS.

Mon, 01/27/2014 - 23:15 | 4373755 Isotope
Isotope's picture

I can answer that. No, we're not seeing people with lower WBCs. Or platelets. Or RBCs. No increase in leukemia, or myelodysplastic syndromes. You would need radiation doses many orders of magnitude higher than have been seen to get those effects. Maybe there will be some subtle changes in the long term, but nothing so far.

Now in Japan, that might be another story.

Mon, 01/27/2014 - 19:42 | 4372997 Carl Popper
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I think in a catastrophic emergency we would open our borders to the top 53 percent of japan.

Hell, let's give Israel a thousand square miles of Arizona desert and move them all over and solve the Middle East problem. We might need some way to identify them when they leave New Zion however. Maybe a lapel star or something.

Mon, 01/27/2014 - 20:05 | 4373066 The Wisp
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I think a chunk of Australia, would be a better place to move Israel.. i mean how easy is it to secure an Island with ocean all around, no more pesky fences or tunnels, and Australia could use some pretty women for breeding anyway,

Mon, 01/27/2014 - 19:33 | 4372965 logicalman
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The crazy fool that needed plutonium for a bomb.

If Japan starts up its nukes again, it will just finally prove to me that the whole planet has been taken over by lunatics.

 

Mon, 01/27/2014 - 19:54 | 4373032 buzzsaw99
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it hardly matters now that the entire island is contaminated

Mon, 01/27/2014 - 21:38 | 4373407 Not Too Important
Not Too Important's picture

True, but a secondary concern is the rest of the global population a generation or two down the line:

http://www.bing.com/images/search?q=chernobyl+babies&qpvt=chernobyl+babi...

We will see financial depredation the likes of which the world has never seen, and a significant increase in sickness and death from the radiation, chemicals and GMO foods we are ingesting, inhaling and drinking. It is the next generation that will suffer far worse.

 

“For the Angel of Death spread his wings on the blast,
And breathed in the face of the foe as he passed;
And the eyes of the sleepers waxed deadly and chill,
And their hearts but once heaved, and for ever grew still!”
 

 - Lord Byron

Mon, 01/27/2014 - 19:42 | 4372993 therover
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"But, people should be aware of the very large threat that Japanese nuclear reactors present to life on Earth'

Fixed.

Mon, 01/27/2014 - 19:44 | 4373004 Dewey Cheatum Howe
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Nuclear energy is nothing more than a front to create fissible material for nuclear weapons. That is the reason alone nuclear power will never be phased out. With that said once they can't hide the effects of Fukushima from the mainstream nuclear power is going to be a pariah in the US when the blovating sows starts panicking about screaming about saving the children while they got giant irradiated sores all over them.

Mon, 01/27/2014 - 19:48 | 4373013 DaveyJones
DaveyJones's picture

You say you want a revolution
Well, you know
We all want to change the world.

....

You say you got a real solution
Well, you know
We’d all love to see the plan.

Mon, 01/27/2014 - 20:04 | 4373061 samsara
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"The future of LNG may indeed be bright, especially when considering that global energy demand has nowhere to go but up."

Perspective is everything I guess.

Mon, 01/27/2014 - 20:16 | 4373087 disabledvet
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The purpose for natural gas is not as an energy resource in its own right but to be processed so that it is converted into this:

http://en.wikipedia.org/wiki/Hydrogen_economy

General Electric might finally be getting the sell off they've been looking.

We'll see.

Obviously you can use wind turbines to produce hydrogen directly from water.
The irony of course is that this gives you more energy in the winter...
when energy demand is at its strongest.

Probably why it isn't happening actually.
"Better to blow trillions in a war in the Middle East" i guess.
Still...where is that jobs recovery again?

Tue, 01/28/2014 - 09:50 | 4374703 Flakmeister
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A hydrogen economy is a chimeric boondoogle on par with the American Corn-to-fuel thermodynamic blackhole...

Tue, 01/28/2014 - 09:54 | 4374726 Bearwagon
Bearwagon's picture

You again, with all that EROEI crazy shit and stuff ...   ;-)

Mon, 01/27/2014 - 21:40 | 4373381 Not Too Important
Not Too Important's picture

It won't be easy. The election for Tokyo's new governor is around the corner, and a former Prime Minister, Morihiro Hosokawa, is running on an anti-nuclear ticket. He is backed by former Prime Minister Junichiro Koizumi. The election is rigged, of course, but it isn't going to be easy:

'Kyodo News: Fukushima raises concerns over “viability of Japan’s future” — Former Prime Minister: Reactor restarts “a criminal act toward future generations”; “Fate of country” at stake; “Myth that nuclear power clean and safe has collapsed”'

http://enenews.com/former-prime-minister-myth-that-nuclear-power-is-clea...

'‘Game Changer’: Former Prime Ministers team up to win Tokyo election and end nuclear power — It’s endangering the existence of Japan… “Our nation’s survival is at stake” — “Could have biggest influence ever on national politics”'

http://enenews.com/game-changer-former-prime-ministers-team-up-to-win-to...

Two ex-PM's and a significant amount of the population (there isn't a child in Greater Tokyo that doesn't have a low white blood cell count), against the Japanese and Global Nuclear Cartel (and the Yakuza).

It's going to be a hell of a fight.

 

"Fukushima - Billions of people are going to discover how cruel the laws of physics and chemistry can get."
   - Enenews.com

Mon, 01/27/2014 - 21:36 | 4373412 gwar5
gwar5's picture

...And I still think the world is completely Fucktard not to go Full Monty into Thorium reactors.  I scratch my head.

 

Tue, 01/28/2014 - 05:06 | 4374287 Bearwagon
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Did you know that Thorium reactors are able to breed U-233, which is fissile and has a critical mass of only 16 kg? That is not the way to build a bomb, if you got U-235 or Pu 239 - but it defenitely can be used to build a bomb core. Thas has been tested. (Operation Teapot, MET 1957).

Mon, 01/27/2014 - 21:40 | 4373432 orez65
orez65's picture

If nuclear radiation is so baddddddddd ... then why are Hiroshima and Nagasaki thriving cities?

Maybe a bit of nuclear radiation could be used to stimulate Detroit.

Mon, 01/27/2014 - 21:44 | 4373451 Not Too Important
Not Too Important's picture

“A recent study was prepared for Greenpeace Germany by international nuclear safety expert Dr. Helmut Hirsch. Dr. Hirsch’s assessment, based on data published by the French government’s radiation protection agency (IRSN) and the Austrian government’s Central Institute for Meteorology and Geodynamics (ZAMG) found that the total amount of unstable radionuclides Iodine-131 and Caesium-137 released between March 11 and March 23 has been so high that the Fukushima crisis already equates to three INES 7 incidents.  

Release of radiation from the stricken reactors has reached 10,000 teraBequerels (10,000 trillion Bequerels) per hour, measured for radioactive Iodine-131.”

http://www.globalresearch.ca/index.php?context=va&aid=24292

“The uranium bomb which the United States dropped on Hiroshima at the end of World War II released 89 tera becquerels. It killed 140,000 people - many instantly, others within weeks of the blast as they succumbed to severe radiation burns.”

 http://voices.yahoo.com/fukushimas-nuclear-disaster-radiation-released-was-9025493.html

So, a rough estimate is that Fukushima is spewing the equivalent of 112 Hiroshima-type nuclear bombs worth of radiation every hour, of every day.

That’s 981,120 atomic bombs a year going off worth of radiation into our biosphere. Hiroshima and Nagasaki were 2.

I hope that helps.


Tue, 01/28/2014 - 05:33 | 4374299 prmths2
prmths2's picture

One Bq is defined as the activity of a quantity of radioactive material in which one nucleus decays per second. The Becquerel has the dimension of inverse time and is thus a rate. The second article you cite refers specifically to Cs137 at one point and then warps into a general statement about the radiation associated with an atomic bomb. Per wikipedia, the Hiroshima explosion is estiimated to have produced 8 trillion teraBecquerels (8 yottabecquerel).

Tue, 01/28/2014 - 08:20 | 4374426 frenzic
frenzic's picture

fuck wikipedia

Mon, 01/27/2014 - 22:07 | 4373547 Spungo
Spungo's picture

"Maybe a bit of nuclear radiation could be used to stimulate Detroit."

It might turn them into these freak creatures that get up at 6am and "work" every day.

Tue, 01/28/2014 - 08:17 | 4374418 Joenobody12
Joenobody12's picture

Talking about freak creatures and Obama, did Chicago get stimulated ? 

Tue, 01/28/2014 - 08:19 | 4374420 Joenobody12
Joenobody12's picture

CVX and LNG are too expensive to buy now. 

Try KWK and do it fast.

Tue, 01/28/2014 - 10:04 | 4374771 sdmjake
sdmjake's picture

Sorry but it is impossible for me to read that and not think of Emmitt Browns reaction...

http://www.youtube.com/watch?v=mjCRUvX2D0E

Tue, 01/28/2014 - 12:53 | 4375535 Stumpjumper11
Stumpjumper11's picture

Tyler's, You forgot to mention the  LNG Liquification project for : Cheniere Energy (NYSE: LNG) at their Freeport Texas Quintana Beach site . I work 3 mile's from this site and over 12 people from my Plant have already been hired on for the expansion. It is a 100 % definite go ,2 of the supervisors there came from my plant. 

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