Fukushima fallout will hit LNG and coal

The Japanese earthquake could have heavy aftershocks in the energy markets. As the Japanese government today said that radiation levels from the crippled Fukushima nuclear plant have reached harmful levels, […]

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By Kelvin Ross

The Japanese earthquake could have heavy aftershocks in the energy markets.

As the Japanese government today said that radiation levels from the crippled Fukushima nuclear plant have reached harmful levels, analysts in the UK are warning of the fallout on the UK energy sector.

And the effects will hit more than just the UK’s plans for nuclear power.

Today, npower analyst Magali Hodgson told ELN that “all eyes are on Japan”. She said that yesterday, the UK market opened with an average increase of 7% for gas and electricity and added that “the gas supply picture doesn’t look good.”

“It is worth noting that Japan is the biggest importer of LNG and second biggest of coal,” she said, adding that both these commodities will suffer price hikes following the earthquake. Many of Japan’s coal stocks were damaged by the tsunami and several LNG cargoes have been redirected.

This had already forced an increase in commodity prices in the UK.

Her views echo those of Utilyx energy risk expert Andrew Horstead, who yesterday said: “The potential for a sustained increased LNG demand for Japan’s power generation could divert supply away from the UK lifting, prices.This will drive UK power prices up, given the dominance of gas in the UK generation mix.”

He added that South Korea, Indonesia, Qatar and Russia have all said that they will step up deliveries to Japan, “which would take some of the heat out of the European market”.

A warning was also issued today against “kneejerk” anti-nuclear reactions to the problems at Fukushima.

The Institution of Mechanical Engineers has called for calm and urged the UK to stand firm in its plans for a new breed of nuclear power.

IME chief executive Stephen Tetlow said: “We are beginning to see kneejerk reactions against nuclear power in this country and across Europe, which could prove to be profoundly damaging to our long-term energy security.”

He added: “The fact is that without nuclear power we face a very real possibility of the UK’s lights turning off in a decade’s time. We shouldn’t be complacent – we need to learn from what is happening now in Japan – however to make any long-term decisions before we know the facts would be reckless.”