1. Fukushima Nuclear Disaster Impact on Global LNG Prices
Ece DINCASLAN
Introduction
Fukushima Nuclear Disaster led a crisis that creates domino effect which is fuelling price rises for
liquefied natural gas (LNG) and causing dissent between importers and exporters. World nuclear
power generation could fall by up to 15 per cent by 2035 following the Fukushima disaster, according
to the International Energy Agency. Also, the rapid economic growth of China and India had already
been pushing up LNG prices on the international market, because of their energy hunger. 1 However,
moves in Europe away from nuclear power in light of the Fukushima disaster are lifting the prices
even higher.
1- LNG (Liquefied Natural Gas)
At a first glance, in order to explain the relation between why Fukushima disaster
affect LNG prices, LNG need to be defined. Thus, liquefied natural gas (LNG) is natural gas
that has been cooled to about -260°F for shipment and storage as a liquid.2 When comparing
to LNG with its gaseous form, the volume of the liquid is about 600 times smaller. It is a
product for customers in industry and tourism that natural gas pipelines cannot reach, which
provides cost advantages to the customers. Also, it is an environmentally friendly product
with low emission rates.
Besides, its environmentally friendliness, LNG is an alternative fuel type with its high
combustion efficiency, clean and ecological fuel feature. In addition, it is economical, safe
and practical to use. In terms of transportation, LNG is more expensive than natural gas,
because it provides a means of moving it long distances where pipeline transport is not
feasible, that requires special tank shipping.
1
Based on the following three IEA scenarios: current energy policies; incorporating broad energy policy commitments
already made to address climate change and energy security; and including policy commitments but where gas plays a
particularly prominent role in meeting future energy needs.
2
http://www.eia.gov/energyexplained/index.cfm?page=natural_gas_lng

2. 2- LNG Importers
Indonesia, Malaysia and Australia were the three biggest suppliers of LNG to Japan in
2009, according to Cedigaz data, followed by Qatar, the UAE, Russia and Oman. 3 Indeed,
LNG is mostly used in Asia Pacific region as there aren‟t any pipelines connected.
2- About Fukushima
The nuclear industry‟s potentially bright future blackened considerably on March 11, 2011,
when a natural disaster disabled the Fukushima Daiichi Nuclear Power Station in Japan and underlined
nuclear power‟s role as the world‟s most polarizing energy source.
The first shock of a magnitude 9.0 earthquake knocked out all offsite electric power sources to
the Fukushima plant, forcing it to run on emergency diesel generators. 41 minutes later, a tsunami
struck the rugged plant, overwhelming emergency generators and destroying the water take pipe used
to cool the reactor. The loss of coolant resulted in serious damage to four reactor cores, explosions,
and a huge release of radioactive material.
The Fukushima disaster received the highest possible rating of seven on the International
Nuclear and Radiological Event Scale. Japanese officials estimated it may be more than 20 years
before residents can safely return to the area. Unfortunately, the long-term ecological and social
impacts also remain unclear.
“The earthquake and Tsunami knocked out nuclear reactors that account for an estimated 8%
of Japan‟s peak electricity production, and replacing this capacity will not be easy or quick. Much of
the gap is likely to be filled by increased imports of liquid natural gas (LNG), but there is a limit to
how much gas Japan will be able to buy (or burn) in the short term” 4
3. Fukushima Nuclear Power Plant
Fukushima demonstrates that stable „shut-down mode‟ is impossible if a plant loses grid
power for more than a few hours. Without power, the circulation of cooling water at high pressure
through distribution pipes is impossible. It doesn‟t take an earthquake to knock out grid power. More
common loss can have the same negative and bad effects, including billions of dollars in damage to
the site itself, let alone radiation damage far beyond.
3
Japan Oil & Gas Report Q4. Business Monitor International Ltd. Pp. 25-32. (2011)
4
The Economist Intelligence Unit Limited 2011, Business Asia April 18th 2011. Pp. 2-6

3. Already, nuclear power plants are designed to provide continuously reliable electricity and
generate no direct greenhouse gas emissions. The only other sources that can provide constant, or
base-load, power are hydropower, natural gas, and coal. Renewables like solar and wind are a must in
a carbon-constrained future but for now are intermittent sources that require backup power. Therefore,
a low-carbon, base-load source is an essential one in any future clean energy portfolio.
4. Responses of the Countries to Fukushima
Energy analysts pointed out that Germany‟s nuclear phase-out will add up to 40 million metric
tons of carbon dioxide emissions annually because utilities will be forced to rely on fossil fuel sources
during the transition to renewables. If other countries remove nuclear power from the picture, the
multiplier effect makes showing climate change even more difficult. Nuclear power provides nearly 70
percent of electricity in France, 30 percent in Japan (before tsunami) and about 20 percent in Germany
and the United States, where it is the largest source of low-carbon electricity. A rapid nuclear phase-
out will have major energy security and grid reliability repercussions, including likely increased
dependence on foreign fossil fuels. Japan is mix to increase liquid natural gas imports to meet demand,
and Russia stands to benefit as the primary source of natural gas to Europe.
Following Fukushima, many countries put their nuclear power policies on hold or under
review and some, including Germany and Switzerland, opted out of the technology entirely.
Political responses to Fukushima are changing the future of nuclear power globally. German
Chancellor Angela Merkel, once a proponent of nuclear power declared that, withdraws of that
nation‟s 17 nuclear plants by 2022. So that, there has no other nation has gone so far. President
Obama requested safety reviews for existing nuclear facilities but made clear that nuclear power
remains in play. Most European Union countries are also focusing on safety reviews and researching
new technology. Chinese officials promise immense safety standards but still intend to add 40 ggw of
nuclear power by 2020.
But the renewal periods of those long-term contracts are coming up, and LNG exporters plan
to take advantage of the rising demand as well as moves away from nuclear power. Besides Germany,
other European countries will review their dependence on nuclear power. If that trend continues,
demand for LNG will further increase.
Which is indicated the above, also, there is an assumption or prediction that China's imports
will increase to 40 million tons a year in 2030," said an official of Sojitz Corporation. China has
already bumped heads with Russia over LNG prices. According to Russian informants, China offered
Russia a price of $250 for LNG to be supplied from western Siberia to the western China. However, at

4. a summit held on June 16, China and Russia did not reach an agreement on the price. China is
currently importing LNG from Central Asian countries at prices approximately from $165 to $190.
The aftermath of these, Chinese President Hu Jintao and Kazakh President Nursultan Nazarbayev
agreed to fasten cooperation for the construction of oil and LNG pipelines connecting Central Asia
with border areas of China.
However, Moscow still ignored to budge in negotiations with Beijing. Other growing
countries are expected to enter the fray. India has also been a latecomer to the LNG market. But in
2010, it imported 9 million tons of LNG under short-term contracts alone. Even oil-producing
countries in the Middle East are now using large quantities of LNG. Worries over nuclear power have
also increased in the United States, suggesting Washington to take a closer look at shale gas for its
energy policy. The U.S. government started to work out plans to export shale gas, whose supply
recently exceeded demand in the country.
5. Three Mile Island
Neither the Deepwater Horizon oil spill in April 2010 nor the Fukushima disaster a year later
have led to a serious reconsideration of regulatory risks and national energy priorities in the United
States. Still, flatly rejecting nuclear power leaves the world less able to cope with climate change.
Instead, we need an effective policy that balances nuclear power‟s environmental and health costs
against the costs of climate change.
According to the IEA, without further action to reduce carbon emissions in the next five years,
the world will be locked into irreversible climate change. We must start aggressively improving
efficiency and deploying clean energy now. The debate will continue on how “clean” and cost-
effective nuclear power is. New nuclear power plants could provide short-term reductions in carbon
emissions by displacing coal plants and provide the back-up necessary for an increase in renewable
energy. Despite, investment in new nuclear plants is not foreseeable without immediate and substantial
investment in less visible and urgently needed measures to improve end-user efficiency, regardless of
energy source.

5. 6. According to IEA, Annual Energy Outlook, 2011
The report said its Low Nuclear Case was not a forecast, but "is intended to illustrate
what a pessimistic view of the prospects for the nuclear power industry might entail." "The
share of nuclear power in total generation drops from 13 per cent today to just seven per cent
in 2035, with implications for energy security, fuel-mix diversity, spending on energy imports
and energy-related CO2 emissions." The report said that Fukushima had "shaken the country's
energy sector" and that "the prospects for nuclear power are now much more uncertain than
before the Fukushima nuclear accident" and that it had "greatly increased the uncertainty
about the future role of nuclear power in meeting the world's energy needs."
According to Annual Energy Outlook, 2011, the report said its Low Nuclear Case was not
a forecast, but “is intended to illustrate what a pessimistic view of the prospects for the nuclear power
industry might entail.” „„The incremental demand for oil in Japan's power sector in 2011 is estimated
between 150 and 200 thousand barrels per day while demand for LNG (liquefied natural gas) is
expected to rise by 11 billion cubic metres (bcm)," the report said. This is about 0.2 per cent of global
oil supplies and 0.4 per cent of natural gas supplies, according to the report.
These utilities include Tokyo Electric Power Co., operator of the Fukushima plant, and Chubu
Electric Power Co., which has halted all operations at its Hamaoka nuclear power plant in Shizuoka
Prefecture. Kyushu Electric Power Co. and Kansai Electric Power Co., which have been unable to
resume operations of nuclear reactors that were suspended for regular inspections, are also seeking
LNG. The utilities reflect monthly changes in the prices of oil, LNG and coal in consumers' electricity
bills, meaning that the fees for consumers will likely rise because of the demand for LNG. Russia, the
world largest LNG exporter, is looking to profit heavily from the situation. In an international
economic forum held in St. Petersburg on June 17, several participants predicted the LNG price per
1,000 cubic meters in Europe in 2013 would stay in the range between $300 and $400.
7. Impact on LNG Prices
The current price is $352 on average; it is about 1 million British thermal units (BTUs).
However, Alexey Miller, president of the Russian government supported Gazprom, the world's largest
LNG producer; pre- assumed the price will rise to $500 by the end of this year. Gazprom forecasts that
European imports of LNG will increase to 440 billion cubic meters in 2030. Some experts predict
Russia's supply of LNG to Europe will jump from about 140 billion cubic meters at present to 210
billion cubic meters in 2030. Forecasts from Russia could have a profound effect on China, which has
become a huge importer of LNG. According to major trading house Mitsubishi Corp., Japan's LNG

6. imports stand at around 70 million tons a year. China, which only started importing LNG in 2006, now
imports 10 million tons a year. LNG accounts for only 4 percent of China's energy needs, but Beijing
plans to lift the ratio above 10 percent by 2020.
"The price will skyrocket in next winter," said Akira Ishii, a special adviser to the government-
affiliated Japan Oil, Gas and Metals National Corp. (JOGMEC). "Japan will compete hard against
European countries and South Korea to procure fuel for heating equipment. The price will begin to
rise in autumn and could reach nearly $20." Since the nuclear disaster started, Japanese electric power
companies have been trying to procure LNG for thermal power generation, leading to price rises in
short-term trading.
Prices under long-term contracts are based on formulas linked to a reference rate – usually the
lagged price of crude oil. Accordingly, the price per unit of LNG increases (decreases) when spot price
of crude oil rises (falls), usually with a set lag of a few months. However, because these contracts are
privately negotiated the exact formulas are not publicly available. Across Asia, LNG contract prices
are typically linked to the Japan Customs-cleared Crude price (JCC). Historically, it has been common
for contracts to have formulas that are non-linear, incorporating an „S-curve‟ that moderates the impact
of both high and low oil prices upon the LNG price.5
In contrast, spot LNG prices tend to track natural gas market fundamentals more closely. Spot
prices are most easily observed at major gas trading hubs, where competing sources of gas (both
pipeline and LNG) are priced. Of particular note are the Henry Hub in the southern United States, and
the National Balancing Point in the United Kingdom (which is not actually a physical location). These
hubs act as the pricing and delivery points for natural gas futures contracts.
Because of the diversity in pricing arrangements, the segmented nature of the global market,
and differences in gas quality, the best LNG prices can vary significantly around the world. While
only limited data are available, the highest reported LNG import price in 2010 was around three times
the lowest reported price (on an annual average basis).6 In contrast, there is much less variation in
crude oil prices across the world.
In fact, gas and electricity bills have been increasing since April due to higher prices for LNG
and crude oil. LNG prices in long-term contracts, generally preferred by Japanese importing
companies, are also expected to jump in the near future. These prices are calculated based on the
average price of crude oil around the time of payment, and have nothing to do with the supply-and-
5
Jensen (2011) notes that S-curves have become less prevalent in recent years.
6
Jensen (2011) discusses arbitrage in the LNG market.

7. demand situation of LNG itself. The international market has an ample supply of LNG, but Japanese
electric power companies have bought LNG at the highest prices to ensure stable supplies. Moreover,
in the US, due to gas to gas competition, the gas price is determined by the domestic gas market price,
and imported gas is also linked to the domestic gas price (Fukushima, 2009).
While still dominated by long-term contracts, there has been a gradual shift to more flexible
arrangements as the LNG market has grown and become more diverse. Trade on a spot basis and
under short-term contracts (of less than four years) has risen from around 5 per cent to 20 per cent of
trade over the past decade.7 In some cases, this reflects projects electing not to sell their entire output
under contract in advance due to production uncertainty, and selling any above-contract output on the
spot market. Spot and short-term trade has been relatively prevalent in the Atlantic market, accounting
for one-third of trade in 2010. Among Atlantic importers, LNG is small relative to pipeline trade and
local gas production, and has to compete with these alternative gas supplies. Spot trade also accounts
for a large portion of inter-basin LNG trade, with cargoes in recent years tending to flow from Atlantic
producers to Asia-Pacific buyers.
7
According to GIIGNL (2010) and IGU (2010).

8. References
BP Statistical Review of World Energy, June 2011
Business Monitor International Ltd, Japan Oil & Gas Report Q4, 2011
EIA (Energy Information Administration) (2011a), Annual Energy Outlook 2011, US
Department of Energy, Washington DC.
Fukushima, Ryo (2009), „LNG Market Integration from the Asian Perspective‟, IGU
Magazine, 218-31.
GIIGNL (International Group of Liquefied Natural Gas Importers) (2010), The LNG Industry
2010, Paris
IGU(International Gas Union) (2010), World LNG Report, Oslo.
Jensen JT (2011), „Asian Natural Gas Markets: Supply, Infrastructure, and Pricing Issues,‟
Paper presented at the 2011 Pacific Energy Summit, „Unlocking the Potential of Natural Gas
in the Asia Pacific‟, Jakarta, 21–23 February
“Liquified Natural Gas: Understanding The Basic Functions”. U.S. Department of Energy.
Pp. 1-24. (2005)
The Economist Intelligence Unit Limited 2011, Business Asia April 18th 2011.
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