Moody’s lists A-Pac beneficiaries of displaced energy demand

Japan’s nuclear disaster will spur a rebalancing of the energy market in Asia-Pacific, increasing demand for liquefied natural gas (LNG), supporting crude oil prices and raising refining margins, says Moody’s Investors Service.

The rating agency has listed regional energy companies in line to benefit from displaced demand as Japan comes to rely more on non-nuclear fuel, including Australia’s upstream Woodside Petroleum, Korea’s refiner SK Innovation and Thailand’s petrochemical firm PTT Chemical.

The shutdown of Japan’s nuclear power facilities, which account for about 25% of the country’s overall power generation, has seen the prices of natural gas and LNG surge on expectations that Japan’s demand for LNG will rise, Moody’s notes.

It points out that Australia’s exploration and production (E&P) sector will gain most from Japan’s need for LNG, with a large pipeline of projects planned or under development.

The productive capacity of these projects totals 150 million tonnes, which amounts to more than 50% of total global capacity in 2010. Moody’s says the biggest benefits will accrue to companies with LNG projects that have not yet reached final investment decisions or have not locked in long-term off-take agreements. Such companies include Origin and Woodside Petroleum.

If other nations, principally India and Korea, follow China’s lead and delay or shelve plans to increase nuclear-generating capacity, prices for relatively clean burning LNG will rise still further, notes Moody’s.

Meanwhile, unlike prices for natural gas and LNG, those for crude oil have fallen since the disaster. The benchmark Brent crude price closed at $108.6 per barrel on March 15, down 9% from the two-year peak of $119.6 set on February 24.

“This drop reflects an expected contraction in crude demand after the shutdown of more than 25% of refining capacity in Japan, the world’s third largest consumer of crude oil with 5% of global oil consumption in 2009,” finds the report.

But Moody’s expects the fall in the oil price to be short-lived, with continued strong regional demand, uncertainties in the Middle East and an abundance of international liquidity keeping prices elevated. It lists China’s CNOOC and Citic Resources as longer-term beneficiaries.

Further, the earthquake and tsunami caused refinery shutdowns estimated at 1.2 million barrels a day and accounting for more than 9% of Asian capacity and about 2% of global capacity. This shortfall of refined products from Japan and an expected rise in petroleum imports into the country have pushed up Asian refining margins, finds Moody’s. The agency expects strong refining margins to continue at least in the near term.

It says prices of downstream petrochemical products will also remain buoyant. Japan’s disaster stopped production of about 4.6 million tonnes of ethylene production, amounting to half of Japan’s total capacity.

Downstream petrochemicals producers that are well positioned to fill the refining gap left by  Japanese producers include SK Innovation, GS Caltex and Thai Oil. Thailand-based PTT Chemical and Indonesia-based Chandra Asri Petrochemical, both petrochemicals producers, will also reap benefits from the widening spreads.

Moody’s also notes that Japan is the largest importer of sea-borne thermal coal, with its primary suppliers based in Indonesia and Australia. Substituted demand from crippled Japanese nuclear reactors and ongoing growth in electricity demand from China and India should keep prices buoyant.

Indonesian thermal coal producers such as Adaro and Bumi should benefit from increased demand from Japan and favourable price trends, notes Moody’s.