SEOUL/BRISBANE, May 29 (Reuters) - Asia’s demand for natural gas to generate electricity is set to rise this summer as leading buyer South Korea joins Japan in snapping up cargoes of the fuel to plug a power shortfall after more nuclear reactors were shut over safety concerns.
Seoul has warned of power shortages and rolling blackouts due to the closure of two reactors and the extended shutdown of a third to replace parts supplied using fake documents.
Traders and suppliers of LNG, gas super chilled into liquid for shipping, see the extra South Korean demand boosting prices already being supported by additional Japanese needs after the Fukushima crisis two years ago crippled its nuclear industry.
South Korea, the world’s No.2 liquefied natural gas importer after Japan, is due to detail its plans on Friday on how it intends to cope with a loss of power just as demand peaks in the summer when air conditioning use spikes. Meteorologists are forecasting this summer could be unusually hot.
Korea Gas Corp (KOGAS), the world’s largest corporate buyer of LNG, has already said it will raise stock levels to 70 percent of its capacity of 3.96 million tonnes from about 60 percent now. That will mean an additional requirement of 396,000 tonnes of LNG, which is mainly supplied in Asia by plants in Australia and Indonesia.
“If the South Koreans start buying right now to add to their inventories, it could support prices,” said a LNG trader in Singapore. “A lot will depend on the summer, on the temperatures and LNG consumption.”
Asian spot LNG prices LNG-AS have traded in a tight range recentlyas the influence of steady Japanese demand was capped by weak demand from Europe, particularly UK purchases.
Prices have held around $14 to $14.50 per million British Thermal Units (BTU) for the last few weeks, and more South Korean purchases could take them up to $15-$16 per MBTU. But they are unlikely to rise back to highs of nearly $20 per MBTU earlier this year, traders said, citing ample supply and weak European demand.
“If they need more LNG this year, they shouldn’t have a problem getting it,” said Tony Regan, an analyst at energy consultancy Tri-Zen. “We might see prices come up a bit but it shouldn’t be too dramatic.”
South Korea’s energy ministry sees power supply this summer at about 77,000 megawatts, down 3,000 MW after the closure of the nuclear plants and short of demand projection of 79,000 MW.
To have a big impact on Asian prices, 5,000 MW or more would have to go offline, the Singapore-based trader said.
The problems at the South Korean reactors mark a fresh blow to authorities after the country previously halted the operations of some of its 23 reactors last November after a scandal emerged over parts being supplied using fake documents.
The reactors, which each have a capacity of 1,000 MW, would remain closed for about four months, the government said.
Reflecting the sensitivities of the closure, South Korean Energy Minister Yoon Sang-jick cut short a trip to the United Arab Emirates, where he attended the ground-breaking for a South Korean-built reactor, to deal with the power situation.
South Korea has a lot to lose. It plans to add another 11 nuclear reactors in the country by 2024 to lessen its dependence on fossil fuels.
The country also wants to play a growing role in the global nuclear industry, and aims to export scores of nuclear reactors. A $20 billion deal with the UAE has already been signed.
Coal and nuclear power plants together account for 55 percent of South Korea’s total generating capacity of 83,465 megawatts, according to Korea Power Exchange.
Most of the coal power plants are already running at full capacity, which means South Korea can’t step up imports of the fuel to meet the shortfall, an industry source said.
Gas-based power stations, which can generate 23,220 MW, accounting for 28 percent of the country’s total capacity, offer the best potential to increase power.
The timing of the nuclear closures comes at time when gas consumption would normally turn lower after winter when heating facilities run for 24 hours.
“Unless spot prices are low, we don’t plan to buy a lot more,” said a second source at KOGAS. “According to our calculations, we are not in any dangerous situation as LNG demand will only be half or a third of what it would have been in winter.”
The biggest Asian - and global - buyer of LNG is still Japan. Its LNG imports are likely to stay at record highs as 48 of the country’s 50 reactors remain shut awaiting safety checks under new rules that will be finalized in July.
Japan imported 7.05 million tonnes of the fuel last month, up 2.1 percent from a year earlier. In the year ended in March, imports came to a record 87 million tonnes, more than a third of global supply of 240 million tonnes during 2011. (Additional reporting by Aaron Sheldrick in Tokyo; Writing by Manash Goswami; Editing by Ed Davies)