Could Nuclear Energy’s Revival Spell Trouble for LNG?

From Financial Post

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.

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