Energy tight Japan looking to Canada for resources, particularly liquid natural gas (LNG)

Analyst Commentary, Miller Chu: With the last two of the 54 nuclear power plants scheduled to be removed from power generating service next month, Japan is left with a likely power shortage this coming summer season when the demand peaks. Prior to the Fukushima Daiichi nuclear power plant incident, Japan was the third largest nuclear energy producer with 30% of its electricity from nuclear power. The Japanese government has originally planned to increase its nuclear energy production from ~30% to 41% by 2017 and 50% by 2030. Now, Japan is on mission to find the next source of energy to feed its domestic demand. Given that the North American natural gas price taps into the range of $2/MMBTU, the Japanese government has been actively looking for opportunities to import LNG from North America. Even though it might not effectively resolve natural gas oversupply issue in North America in the near term, we believe this is positive for North American natural gas price in the mid to long run. According to the latest 2010 figure from EIA, Japan consumed 3,718 billion cubic feet of natural gas with over 93% of the consumption from liquid natural gas (LNG) import. Based on our analysis, the shutdown of all the nuclear plants could potentially double Japan’s reliance on LNG import. The current market environment could be an interesting entry point for investors who are looking at mid to long term natural gas investments.

Source: U.S. Energy Information Administration, World Nuclear Association, Canada National Energy Board

News Summary: A year after the tsunami and earthquake disaster and Fukushima Daichi nuclear power plant accident in Japan, the country is shifting its reliance on nuclear energy to other energy sources. Japan is in talk with the United States to ship LNG (liquefied natural gas) from Louisiana, Maryland and Texas to Japan. At the same time, Japan’s ambassador to Canada, Kaoru Ishikawa, has expressed interest to import LNR from Canada, which can potentially increase Canadian LNR export significantly in the future.

Source: The Globe and Mail (Mar 11), Bloomberg (Mar 1)

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