TOKYO, May 2 (Reuters) - Indonesian and Australian coal exporters are moving aggressively to fend off competition to meet Japan's new-found appetite for the fuel to generate electricity while the country's nuclear reactors remain offline after the Fukushima disaster.
Japan's coal imports are set to hit another record over the next year as utilities led by Tokyo Electric Power Co burn more of the cheaper fuel to cut surging energy bills that pushed the nation into a record trade deficit last year.
The move to coal has already made some inroads into the fuel bill as Japanese utilities have been able to force down prices for annual contracts. Competition for the market in the world's second-largest importer is fierce as exporters struggle with a glut of supply on global markets that has pushed benchmark prices to a three-year low and is forcing higher cost producers to curb output.
Japan's government is encouraging utilities to burn more coal by relaxing environmental rules and to build power plants that use technology to limit emissions.
"This policy is important to diversify Japan's energy options while lowering fuel procurement costs and strengthening our bargaining power," trade and industry minister Toshimitsu Motegi said on Friday, referring to the easing of rules.
"We will boost usage of energy-efficient coal power generation in the light of its contribution to a stable energy supply and cheaper fuel costs," Motegi said, adding the government intends to promote Japanese clean coal technology sales overseas to help revitalize the economy.
The government estimates coal is about 10 percent cheaper than liquefied natural gas (LNG) per energy unit. Japan is the world's top LNG importer.
A weakening Japanese yen, the flip side of Prime Minister Shinzo Abe's aggressive stimulus efforts, provides another imperative for utilities to seek cheaper fuel.
The dollar's rise to a four-year high against the yen means power companies can expect to pay 3.8 trillion yen ($39 billion)more for fuel this business year than last, the government has said. That is double the fuel import bill before Fukushima.
Big coal producers in the United States, South Africa and Russia are looking for a share of a market dominated by Indonesian and Australian firms.
Two of Japan's utilities - Tohoku Electric Power Co and Chubu Electric Power Co - say they are looking at U.S. coal more closely after Kansai Electric Power Co and Kyushu Electric Power Co in November signed a contract for 1 million tonnes at lower prices than from Australia, Japan's biggest supplier.
Australia's exporters have had to cut prices in response to both increased competition and falling international coal prices. The largest thermal coal exporter Xstrata Plc and Tohoku Electric earlier last month settled a benchmark annual supply contract 17 percent lower than last year.
The talks dragged on beyond their usual deadline as Tohoku Electric, which was representing Japan's utilities, refused to budge.
The reduction was a little more than the 14 percent fall in the past year in Asia's benchmark coal prices, Australia's Newcastle spot index, to around $86.50 a tonne.
U.S. exports to Japan have more than tripled in the first three months of 2013 to 311,000 tonnes - and cost nine percent less than supplies from Australia, according to government data released on Friday.
U.S. coal exporters such as Florida-based Oxbow Coal & Petcoke, a wholly-owned subsidiary of Oxbow Carbon, are looking for new export markets to compensate for falling demand at home as domestic shale gas output rises and displaces coal as a fuel for power generation.
Imports from South Africa are up 57 percent this year, while the flow from Indonesia to Japan is down 15.4 percent and from Australia down 0.4 percent.
"The reality is that there is likely to be a queue of interested coal producers ready to spring increased volumes to Japan and we are amongst them," said Dileep Srivastava, a director at Indonesia's PT Bumi Resources TBK, Asia's biggest thermal coal exporter.
Coal consumption by Japan's 10 regional power monopolies and the biggest coal user, wholesaler J-Power, is set to rise 11 percent to a record 79.3 million tonnes in the business year that started in April, according to a Reuters survey of utilities. These companies account for nearly four fifths of Japan's imports.
Total thermal coal imports in the last business year were at a record 106 million tonnes with Russian supplies increasing to a historical high of 8 million tonnes.
Japan's coal imports slipped in the first three months of this year but will rebound after Tepco started test runs for two new coal units with 1,600 megawatts of capacity last month.
Tohoku Electric resumed full commercial operations of a 2,000 megawatt coal power station on Friday, after repairing damage from the natural disaster that set off the Fukushima catastrophe.
The government on Friday relaxed tough environmental rules on building new coal-fired power stations. The restrictions had been an effective ban on construction.
New plants employ burning techniques that have made Japan's coal plants among the world's most efficient. Design advances include combined cycle coal gasification, called IGCC, used at a plant in Fukushima operated by Tohoku Electric and Tokyo Electric that started in April.
"Coal has become the new source for base load power generation following the shutdown of nuclear reactors," said Ken Taniguchi, an analyst at Mathyos, a Tokyo-based energy consultancy.
How long the window of opportunity for coal exporters will last depends on how many reactors can restart after the country's nuclear regulator puts in place new standards in July before a vetting process that may take months. The regulator has said its rules will be the toughest in the world.
Only two of Japan's 50 nuclear reactors are running, and they need to shut for maintenance by September. Chubu Electric, the country's second biggest user of coal, on Friday conceded it doesn't expect to start any of its reactors until at least March 2015, over a year behind schedule. Chubu expects to use 10 million tonnes of coal over the next year.