Hormuz shutdown to cause electricity panic in Japan

Tensions over the Iran's nuclear development has been a factor to cause turbulence in the global energy market.

The strait of Hormuz might be closed in case of military conflict, it means suspending transportation of 17 million barrels per day of crude oil from Persian Gulf nations.

Some Persian Gulf nations such as Qatar and the United Arab Emirates are also known as major suppliers of Liquefied Natural Gas.

Japan has been eager to gather LNG for thermal power generation after suffering the severe earthquake in March 2011, in order to make up for the nuclear power shortage. The biggest part of the urgent LNG supply to Japan has been from Persian Gulf nations.

Japan's monthly LNG imports from the Persian Gulf area had been around 1 million tons prior to the earthquake. Those were based on long-term contracts held by CHUBU Electric Power Company, Tokyo Electric Power Company and some other utility firms.

Qatar decided straight away following the quake to supply extra 4 million tons of LNG to Japan over a year. Then additional shipments boosted Japan's LNG imports from Persian Gulf area significantly. It reached to 2.24 million tons in March 2012 when imports from the region accounted for 27% of total LNG imports by Japan.

Although the quantity from the Persian Gulf has calmed following the end of urgent shipments from Qatar, recent import figures are still over 1.5 million tons. Additional imports on 1 million tons per annum of new long-term contract between TEPCO and Qatar are scheduled to start in August.

The graph of Japan's LNG imports by origin describes that shipments from traditional main suppliers such as Southeast Asia and Australia have not increased after the earthquake despite stronger demand. The additional LNG supplies came from Persian Gulf, Russia, Latin America and Africa etc.

Japan imported LNG from 13-14 countries before 2010, but the number of exporting nations increased to 17 in 2011 then has risen to 20 in 2012.

Despite the diversification of supply sources, the most reliable supplier in case of emergency is Qatar which holds an annual 77 million tons of production capacity. Therefore, Japan's LNG dependence on the Persian Gulf area is unlikely to be less in the near term.

If Iran shuts the Hormuz strait, about 1.6 million tons per month of LNG supply to Japan will cease. Since the frequency of LNG tanker's departure toward Japan is every other day, even very short interruption could cause serious effects.

The suspended LNG is equivalent to about 500 thousand bpd of petroleum in order to generate same amount electricity. Japanese 10 major electric power companies used 470 thousand bpd of petroleum in total in June. Their historical record consumption of petroleum was 730 thousand bpd. We can imagin how the 500 thousand bpd of sudden additional demand causes turmoil in the market.

Meanwhile, LNG storage capacity in Japan is about 7.1 million tons which includes storage for city gas supply. If half of the storage capacity is used for electricity, domestic LNG-burning thermal power units could use up within 20 days in case of the high electricity demand period during summer and winter.

Especially, CHUBU is likely to be faced power blackout because 60% of its thermal power units use LNG as fuel and the company relies on Qatar for more than half of LNG supply. The company cannot restart its Hamaoka nuclear power plant over couple of years and its petroleum-burning units do not have enough supply capacity.