Are LNG imports going to work for Tokyo Electric?

Tokyo Electric, Asia's biggest electricity producer, plans to increase imports of liquefied natural gas to a record next business year after an earthquake in July closed its largest nuclear plant.


LNG purchases will probably rise to 21.4 million tons in the year starting April 1, from 20.7 million tons planned this year. Tokyo Electric spokesman Shogo Fukuda wouldn't comment, saying the company hasn't made an official plan for its fuel purchases.

Tokyo Electric shares slumped 26 percent since the Kashiwazaki Kariwa reactor was closed July 16 on concern the costs of repair and increased fuel purchases will erode profit. Crude oil increased 40 percent this year and reached a record $90.07 a barrel in New York on Oct. 19, while Japan's LNG import costs have almost doubled in five years.

“Next year will be tougher for Tokyo Electric as fuel costs are expected to rise,'' said Shigeki Matsumoto, an energy analyst at Nomura Securities. “Oil prices rose to all-time highs, yet the company needs to burn more fossil fuels.''

The buying plan this year and next of LNG, natural gas cooled to a liquid and shipped in tankers, will exceed the record 19.2 million tons purchased in fiscal 2003, when all 17 of its reactors were shut after the company admitted hiding nuclear faults for a decade.

Japan paid a record $7.73 per million British thermal units for LNG in August, up from $3.98 in March 2002.

Crude and fuel oil purchases will rise to 12.1 million kiloliters, or about 209,000 barrels a day, in the fiscal year that starts April 1, the documents show. Consumption this year will increase to more than 10 million kiloliters, double the average, Tokyo Electric President Tsunehisa Katsumata said on Oct. 19.

The company plans to start decommissioned, oil fired plants before the summer to prevent shortages when demand for air conditioning peaks.

Tokyo Electric plans to purchase 1.56 million tons of LNG from the so-called spot market for immediate delivery, in addition to supplies bought under nine multiyear contracts with producers including Brunei LNG, Australia's Darwin LNG and Qatar's Qalhat LNG.

Fuel costs in the next fiscal year will increase by at least 100 billion yen ($871 million), Nomura's Matsumoto said.

The earthquake, which was measured at magnitude 6.8 by Japan's Meteorological Agency, hit Niigata prefecture northwest of Tokyo on July 16, shutting the nuclear facility. All seven reactors, with total generating capacity of 8,212 megawatts, will remain offline until the Japanese government and local municipalities approve a restart.

Tokyo Electric said on July 31 that fuel costs will rise by 320 billion yen because of the nuclear shutdown and cut its full-year profit forecast by 79 percent to 65 billion yen. The utility based its prediction on oil at $68 a barrel. The price of Dubai crude, an Asian benchmark, closed at $78.10 a barrel.

“I'm concerned about the impact of record oil prices, as we will be affected very much,'' Tokyo Electric's Katsumata said on Oct. 19.

Tokyo Electric had to shut all of its 17 reactors between 2002 and 2003 after saying it doctored safety documents and hid defects in nuclear plants since the late 1980s. Aside from LNG, the utility bought 9.45 million kiloliters of oil in fiscal 2003 and 5.79 million kiloliters of fuel oil.

Will Liquefied Natural Gas payoff for Asia’s biggest electric producer?