Home' Ships and Shipping : June 2011 Contents Just over one month after the earthquake struck in Japan,
the energy industry is still feeling the short-term effects of the
disaster. In the near term, the focus is on getting the energy
supply up and running at a normal level again. The longer-
term effects are more uncertain and are dependent on potential
changes to the energy mix change that Japan may undertake.
There are other far-reaching consequences for global energy
preferences, which may manifest themselves once the
Fukushima disaster is finally brought to a close.
In the immediate aftermath of the earthquake and tsunami, six
refineries with a combined capacity of 1.34 million barrels per day
(bpd) were closed. One month on, operations remain curtailed at
three of these plants, capping maximum throughput by a potential
0.56 million bpd, almost 12 percent of domestic capacity. The
closures comprise units at JX Nippon Oil & Energy's 145,000bpd
Sendai and 189,000bpd Kashima refineries, and Cosmos Oil's
228,000bpd Chiba plant.
JX Nippon has indicated plans to partially restart the Kashima
refinery by summer 2011, but the fire-damaged Sendai plant is not
expected to resume operations before 2012. The company has
reported reduced throughput following the disaster, with March
production down 23 percent on the previous year. The trend is
anticipated to continue in April, for which projections indicate a 19
percent year-on-year decrease. Cosmo Oil has given no indication
of a re-opening date for the fire-damaged Chiba refinery.
To compensate for the lost production resulting from these
closures, some refiners have increased throughput and raised
capacity at unaffected refineries. Assuming these refineries were
running at a pre-quake utilisation equivalent to the Japanese
average (90 percent), expanded capacity plus the effect of full
utilisation would imply an increase in throughput of 0.2 million
bpd (to 1.5 million bpd from 1.3 million bpd). In addition to
statements from these specific refineries/companies, reports
suggest that, as of March 30, average utilisation of operable
refineries in Japan had reached 96.5 percent. Application of this
rate to total post-quake operable capacity indicates that the
shortfall engendered by the closures discussed above has been
completely compensated for domestically.
On the import side, crude and product supply chain restoration
efforts are well underway according to the Petroleum Association
of Japan. While operations were suspended at 29 oil tank facilities
in affected areas immediately after the earthquake, shipping
activities had been resumed at 24 (83 percent) of those facilities as
of April 1. It has been reported that JX has entered a time swap
agreement for two million barrels of crude loading in April and
May with South Korea's SK Innovation. Under the terms of the
agreement, SK will buy JX's April Middle East liftings with the
reverse arrangement for May cargoes. The time swap allows the
Japanese refiner to delay its crude deliveries by one month such
that inventory does not build up in light of the operative closures.
There are also indications that Kuwait will donate five million
barrels of oil to Japan, equivalent to around 120 percent of Japan's
4.2 million barrels of daily import.
OPEC's outlook on the Japanese situation is that the disaster
will "affect oil demand only marginally". The IEA viewpoint in
March was that Japanese oil demand would decrease by
120,000bpd year on year. This assessment has now been revised
with the agency now forecasting an increase in oil demand in
Japan of 30,000bpd, primarily due to increased thermal power
generation capacity following the unfolding situation at the
Fukushima nuclear power plant.
Early fears about a catastrophic impact on Japan's refining and
petrochemical industries have been assuaged. The country's
engineers and importers have co-operated efficiently with their
international partners to minimise disruptions to Japan's oil trade
and industry. This is good news for the shipping industry as Japan
remains the world's third largest importer of oil and oil products.
Effects on LNG
It is only now that the position of LNG imports into Japan
following the earthquake and tsunami is becoming clearer. Japan's
LNG import terminals were left undamaged in the disaster,
encouraging the markets to consider an increase in gas imports to
substitute for oil. Indeed, initial estimates of additional imports varied
between 11 and 18 cargoes per month above normal requirements.
Japanese imports in 2010 were at their highest level at just over
70 million tonnes and thus the additional requirements could
potentially have had a huge impact on an already tight market.
Global LNG production levels are high with Qatar now
producing at maximum levels from its new mega trains. This,
combined with product from within the region, has enabled Japan
to acquire additional volume without too much difficulty.
Other Japanese utility companies have managed to divert
a number of cargoes to Tepco to meet its increase in LNG
demand with Kogas of Korea supplying eight cargoes in April. In
addition, both Shell and Gazprom have diverted cargoes into
Japan to meet requirements.
Qatar is to supply 20 incremental cargoes to its long term
customers in Japan between the end of March and June. TEPCO
has met cargo needs for both April and May and the volumes are
such that some of these may be moved into June. A tender which
had been promised by Pertamina of Indonesia has now been sold
to a number of Japanese utilities companies. In addition, Adgas are
now to supply additional volumes of one cargo per month
(previously tendered as spot cargoes) to TEPCO, who have been
their long term offtaker and who had previously reduced their
requirements in 2010.
In the longer term, it seems that additional volumes are likely
to stabilise around the 500/600,000 per month level, although this
will be dependent on the Japanese summer and winter of 2011.
This translates into between seven and nine additional cargoes per
month, which, at the current time, seems to be well within the
capability of the market.
Effects on the dry markets
The BDI has fallen consistently since the earthquake in Japan,
from 1,562 to 1,284 today. If we compare this to similar situations
in Japan such as the Kobe earthquake of January 1995 when the
BDI fell six percent in the weeks following the quake but then
bounced back by 20 percent in the next three months. It is
thought that this resurgence in the market was down to companies
effectively reconfiguring their supply chains. This time however,
companies will need to focus on the supply of power due not only
due to power supply lost during the earthquake but also because of
the uncertainty still surrounding the situation at the Fukushima
Daiichi plant. A recent timetable released by Tepco, the operator of
the plant, suggests that the nuclear crisis could take nine months
to resolve. Although ideally this should mean an increase in
thermal coal imports in the medium term, which could benefit a
depressed dry bulk market, this does depend on the ability of
Japanese power plants to further increase coal power generation. In
2007, Japan's largest nuclear reactor was shut for 21 months
following an earthquake. The following year coal imports rose
from 125 million tonnes to just over 130 million tonnes.
Commodity prices do not seem to have been affected directly
by the crisis in Japan. Earlier this month (April, 2011), a UK-listed
miner settled record prices for the annual thermal coal contracts in
spite of the damage to several Japanese coal-fired power plants.
Xstrata and Chugoku Electric of Japan closed a deal for the miner
to supply thermal coal at US$130 a tonne, up 32.6 percent from
$98 a tonne of 2010-11.
The flooding in Australia's coal-rich state of Queensland
significantly reduced coal supply, consequently pushing up coal
prices. Factors outside Japan are dominating bulk commodity
markets, swamping any effect from the earthquake and tsunami.
Furthermore, the exclusion zone around Fukushima is not
preventing bulk cargoes from reaching Japan. There have been no
further terminal closures, indeed, many of Japan's ports did not
experience any damage, providing ample capacity to continue imports
of coal and other dry bulk needs. According to reports, only one iron
ore and three coal handling ports were damaged. Mining companies
are also reporting that sales to Japan are continuing as normal.
In the longer term, the aftermath of the earthquake could not
only mean an increase in thermal coal but also other commodities
which could be used in the rebuilding of the infrastructure
damaged by the impact of earthquake and the subsequent tsunami
such as steel, cement and wood. Braemar Shipping said that their
brokers have not noticed any particular increase in such
commodity imports to Japan, indicating that any reconstruction
has yet to commence and may not do so for the next six months.
SHIPS AND SHIPPING June 2011 15
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