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Japan Earthquake: The Energy Players Who Stand to Benefit

The 8.9 magnitude earthquake and ensuing tsunami that hit Japan -- the strongest in at least 300 years -- has devastated the island nation and threatens to derail its fledgling economic recovery. It's also the first real test of Japan's energy infrastructure, which underwent a sweeping change after a 2007 earthquake exposed its over reliance on nuclear power generation.

Japan's energy operations have been severely disrupted, but the total extent of damage is unclear. Eleven nuclear reactors operated by Tokyo Electric Power Co., Asia's biggest utility, Tohoku Electric Power Co. and Japan Atomic Power Co. were shut down after the massive earthquake hit Japan, Bloomberg reported. A 220,000-barrel-a-day oil refinery is on fire; and JX Nippon Energy shut refineries with a total capacity of 554,000 barrels a day.

Unlike in 2007, however, Japan has somewhat of a fall back plan. After an earthquake in 2007 shut down most of its nuclear power generation Japan turned to liquefied natural gas. That shift, which has made Japan the world's biggest LNG importer, turned the global market on its head. U.S. companies that had banked on LNG demand in the states were impacted as Japan, which willing to pay more for the energy source, bought up supply. Other Asian nations have followed and major oil and gas companies like Chevron (CVX) and Exxon (XOM) recognizing an opportunity have invested in massive LNG projects in the region.

To be sure, Japan still has a number of vulnerabilities, most notably in the oil sector. It's the third-largest consumer of oil in the world, behind China and the U.S. And Japan still relies heavily on nuclear generation. Nearly 25 percent of its power comes from nuclear plants.

Who could benefit
With its nuclear plants shut down, Japan will be forced to rely more on LNG. Although it's better prepared than before, spot prices will surely increase, which is great if you're a major supplier like Royal Dutch Shell (RDS) or happen to operate the world's largest export refinery, like Reliance Industries.

Japan also may have to turn to coal as the country begins to recover and demand for electricity increases. That means companies like BHP Billiton (BHP) that operate coal mining operations in Australia, a major exporter of the fuel, will benefit from the uptick in demand. Australia also has become a major LNG supplier in recent years and will likely benefit from increased demand for that fuel source as well.

Economic fallout
Of course, not all earthquakes -- or the ensuing reaction -- are equal. The earthquake in 2007 led to a surge in LNG demand, but that might not happen this time around. The earthquake could be so devastating to the economy that demand for power will be sapped altogether. And then there's Japan's import terminals. If those have been damaged, the country won't be able to take LNG even if it wanted to.

Photo from Flickr user gywst, CC 2.0


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