JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS

APRIL 2011

Flowers offered to tsunami victims are seen at an area damaged by the March 11 earthquake and tsunami in Ishinomaki, Miyagi prefecture, April 10, 2011. REUTERS/Toru Hanai

(Click on the below headlines to jump to the story)

• Calls grow for Japan PM to quit in wake of quake • Japan economy to take hit from quake, nuclear accident • TEPCO's liability may be capped at $24-45 bln – Yomiuri • Nuclear fears keep shippers wary of travel to Japan • Details of Japan refinery, utilities and smelter shutdowns • Oil tanker, dry bulk fixtures to Japan since quake • Japan's disaster in figures

JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Calls grow for Japan PM to quit in wake of quake Aftershocks bigger than 6: ( http://link.reuters.com/net88r ) By Linda Sieg and Mayumi Negishi Picture, graphic packages: ( http://r.reuters.com/wyb58r ) TOKYO Tanigaki's comment reflects the view of many in his conserva- tive party that Kan must step down as a precondition for any apan's fragile post-disaster political truce unravelled on coalition as well as a hope that criticism of Kan within his own Thursday as the head of the main opposition party called Democratic Party will gather steam after party powerbroker J on unpopular Prime Minister Naoto Kan to quit over his Ichiro Ozawa blasted the premier over his crisis management. handling of the country's natural calamities and a nuclear crisis. Upper House speaker Takeo Nishioka, a well-known Kan critic from the Democrats, also urged Kan to resign, Kyodo said. At the stricken Fukushima Daiichi plant in the northeast of the country, engineers were struggling to find a new way to cool Kan, however, who took office as Japan's fifth leader since one of the six crippled reactors and Japan's Nuclear and In- 2006 last June, is not likely to step down readily, while oppo- dustrial Safety Agency said it was now "highly likely" there sition parties could come under fire if they try to take disaster was a hole in the suppression unit of the reactor. budgets hostage in a political battle, analysts said. Kan, whose public support stands at about 30 percent, had "Kan will probably ignore this," said Koichi Nakano, a Sophia sought a grand coalition to help the country recover from its University professor. "If they thought of the national interests, worst ever natural disaster and enact bills to pay for the coun- would they (Kan's critics) do this now?" try's biggest reconstruction project since World War Two. STILL NO CLOSER TO SOLVING NUCLEAR CRISIS Kan's Democratic Party controls parliament's lower house but Five weeks ago a massive earthquake and tsunami left nearly needs opposition help to pass bills because it lacks a majority 28,000 dead or missing, devastated a broad swathe of north- in the upper chamber, which can block legislation. east Japan and damaged the Fukushima nuclear plant. There But the head of the main opposition Liberal Democratic Party has been no sign of a resolution of the atomic crisis. (LDP) -- who last week ruled out joining hands -- on Thursday The nuclear safety agency said a new plan for cooling one of pressured Kan to go. "The time has come for (the prime min- six reactors at the plant, 240 km (150 miles) northeast of To- ister) to decide whether he stays or goes," Kyodo news agency kyo, may be needed due to the large volume of highly radioac- quoted Sadakazu Tanigaki as telling a news conference. tive water on site, and tests would be done to determine if Nuclear incidents since 1956: ( http://link.reuters.com/wym58r ) damaged spent fuel rods were emitting radiation. Evacuation zone: ( http://link.reuters.com/put78r )

Anna Monma, 5, walks with her teddy bear, which she retrieved from her house destroyed by the March 11 earthquake and tsunami, in Ishinomaki, northern Japan April 3, 2011. REUTERS/Carlos Barria

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "It may be difficult to completely remove the contaminated "Given the potential scale of the cost, it might need to be water and so allow work to proceed (in restoring power to the shouldered by the entire Japanese people. That's why I men- cooling pumps). We may need to think of other options," said tioned (the special tax). But nothing concrete has been de- Hidehiko Nishiyama, a deputy director-general of Japan's Nu- cided," Iokibe told a news conference after the panel's first clear Industry and Safety Authority. meeting. Nishiyama said there was 20,000 tonnes of contaminated Business confidence plunged to a record low in April, accord- water in the basement and a tunnel under reactor No. 2. ing to a Reuters survey, and the International Monetary Fund (IMF) has warned the risk to the world's third largest economy "What makes the No.2 unit decisively different from No.1 and No.3 units are that it is highly likely that there is a hole on the is firmly on the downside. (No.2 unit's) suppression chamber after as an explosion was The IMF cut Japan's economic growth forecast to 1.4 percent heard. It would be an accurate speculation that there is leak- this year from 1.6 percent, projected three months ago, and age." the Bank of Japan is expected to cut its January growth fore- Engineers are also concerned that some spent fuel rods were cast of 1.6 percent when it issues its twice-yearly outlook on damaged by the March 11 earthquake and tsunami and could April 28. ($1 = 83.890 yen) be emitting high levels of radiation. Japan's nuclear crisis has been rated on par with the world's Japan economy to take hit from quake, nuclear worst nuclear crisis at Chernobyl in 1986, although the total accident amount of radiation released is only a fraction of that when the nuclear plant in Ukraine exploded. By Shinichi Saoshiro and Taiga Uranaka Japan has expanded a 20-km (12-mile) evacuation zone TOKYO around the plant because of high accumulated radiation. No apan cut the outlook for its economy on Wednesday for radiation-linked deaths have been reported and only 21 plant the first time in six months, saying last month's devastat- workers have been affected by minor radiation sickness. J ing quake and tsunami would hurt growth, with no sign A series of strong aftershocks this week has rattled eastern yet when the nuclear crisis they triggered might be brought Japan, slowing the recovery effort at the plant due to tempo- under control. rary evacuations of workers and power outages. The total cost New data shows much more radiation leaked from the Fuku- of the damage has been estimated at $300 billion, making it shima Daiichi nuclear power plant in the early days of the cri- the world's most costly natural disaster. sis than first thought, though the U.S. nuclear safety regulator Makoto Iokibe, head of a newly created government panel said the crisis appeared to be "static" as engineers at the Fu- tasked to come up with a revival plan, floated the idea of set- kushima nuclear plant struggle to cool overheating fuel rods. ting up a special reconstruction tax in addition to bond sales and donations as ways to fund the bill.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS After recent fears of possible contamination in the region, strontium, one of the most harmful radioactive elements, had neighbouring China said that the impact there had been been found in soil near Fukushima Daiichi. small, noting the amount of radiation was about one percent Hidehiko Nishiyama, a deputy director-general of the Nuclear of what it had experienced from the world's worst nuclear dis- and Industrial Safety Agency (NISA), said the decision to raise aster at Chernobyl. The total cost of the March 11 triple disas- the severity of the incident from level 5 to 7 -- the same as the ter has been estimated at $300 billion, making it the world's Chernobyl disaster in Ukraine in 1986 -- was based on cumu- most costly natural disaster. lative quantities of radiation released. "The effects of the earthquake will be temporary. It will cause NO RADIATION-LINKED DEATHS various indirect damage such as dampening consumer senti- ment but the economy will pick up toward the end of this year. No radiation-linked deaths have been reported since the That's what many economists are thinking," Japanese Eco- earthquake struck, and only 21 plant workers have been af- nomics Minister Kaoru Yosano said. fected by minor radiation sickness, according to Chief Cabinet Secretary Yukio Edano. The new economic assessment for a country that has been mired in recession for most of the past 15 years came after Late on Tuesday, Edano said he was aware the upgrading of another relatively strong quake rocked northeastern Japan on the severity classification would worry people, although the Wednesday. But there were no reports of any damage to a top U.S. nuclear regulator backed the move. region already devastated by last month's tremor and tsu- "The efforts continue to ... transition from static to stable to nami. ensure long-term ultimate ability to cool the reactors and to Plant operator Tokyo Electric Power Co (TEPCO) appears to provide cooling to the spent fuel pools," Gregory Jaczko, chair- be no closer to restoring cooling systems that are critical to man of the U.S. Nuclear Regulatory Commission told a Sen- lowering the temperature of overheated nuclear fuel rods in ate committee hearing in Washington. the damaged reactors. Late on Tuesday, a senior official at the International Atomic The company has begun looking into how it will store and Energy Agency (IAEA) said the latest data from food samples transport the spent fuel from the reactors, though work can- in 8 prefectures showed contamination below permitted lev- not start until they are in cold shutdown, TEPCO official els. Mitsuo Matsumoto told reporters. Earlier, NISA said the amount of radiation released into the It is expected to take months before the damaged reactors atmosphere from the plant, 240 km (150 miles) north of To- will have cooled down. Some officials have speculated that kyo, was around 10 percent that of Chernobyl. the authorities may have to entomb the plant if the crisis The blast at Chernobyl blew the roof off a reactor and sent drags on too long, the solution that was eventually used to large amounts of radiation wafting across Europe. The acci- close off Chernobyl. dent contaminated vast areas and led to the evacuation of On Tuesday, Japan's science ministry said small amounts of well over 100,000 people.

A volunteer cleans a family photo that was washed by the March 11 earthquake and tsunami as baby photos are placed to dry at a volunteer centre in Ofunato, Iwate prefecture, April 12, 2011. REUTERS/Toru Hanai

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Still, the increase in the severity level heightens the risk of "We were in recession already," said Takuji Okubo, chief diplomatic tension with Japan's neighbours over radioactive economist for Japan at Societe Generale. "This time it will fallout. Chinese Premier Wen Jiabao told Kan on Tuesday he take longer for industrial production to rebound, because just- was "concerned" about the release of radiation into the ocean. in-time delivery systems have become even more compli- China has so far been sympathetic rather than angry, though cated." it and South Korea have criticised TEPCO's decision to pump Japan's economy is likely to grow 1 percent this year, down radioactive water into the sea, a process it has now stopped. from 2 percent growth forecast before the earthquake, as pri- vate consumption slows to a halt, Okubo said. The economy "Its impact on our country's environment has been small, equivalent to about one percent of the impact of the Cherno- could then accelerate to 3.9 percent growth next year, he said. byl nuclear accident on our country," China's nuclear safety Shortages of key components, including semiconductors, body said on Wednesday. "There is no need to adopt protec- point to the possibility of deeper and longer-running output tive measures." disruptions from Japan that could also hobble factories else- The statement appeared after Beijing issued an account of where in the world which rely on Japanese parts. Chinese Premier Wen Jiabao's phone call on Tuesday with Major Japanese automakers are grappling with complications Japan's premier, when the Chinese leader also sought to show caused by parts factories that have been shuttered or are run- Beijing is taking the radiation leak seriously but without sow- ning with limited power. ing panic among the Chinese people. Toyota Motor Corp on Monday warned that the uncertain supply of parts from Japan could threaten its output of vehi- cles through July. "Our economy is in a severe state," BOJ Japan quake's economic impact worse than first Governor Masaaki Shirakawa told lawmakers on Tuesday. feared Many BOJ members said power supply constraints are likely By Rie Ishiguro and Shinji Kitamura to impact the economy on top of the damage from the quake, TOKYO minutes from a March 14 meeting showed. The BOJ loosened policy at that meeting by doubling its asset-purchase pro- he economic damage from Japan's massive earthquake gramme to 10 trillion yen ($118 billion). and tsunami last month is likely to be worse than first T thought as power shortages curtail factory output and disrupt supply chains, the country's economics minister warned on Tuesday. The more sober assessment came as Japan raised the severity of its nuclear crisis at the Fukushima Daiichi nuclear plant to a level 7 from 5, putting it on par with the Chernobyl nuclear disaster in 1986. The Bank of Japan governor said the economy was in a "severe state", while central bankers were uncertain when efforts to rebuild the tsunami-ravaged northeast would boost growth, according to minutes from a meeting held three days after a record earthquake struck Japan on March 11. The government and main opposition party have agreed to a spending package to get some reconstruction work started, but setting a large additional budget will be difficult due to Japan's heavy debt burden. "After a natural disaster, people tend to refrain from spending and you get a sense that factory output will shrink," Econom- ics Minister Kaoru Yosano told reporters after a cabinet meet- ing. "In some areas, the impact could be very big." Japan is facing its worst crisis since World War Two after a 9.0 magnitude earthquake and a tsunami towering more than 10 metres battered its northeast coast, leaving nearly 28,000 dead or missing and rocking the world's third-largest econ- omy. The government estimates the material damage alone could top $300 billion, making it by far the world's costliest natural disaster. Finance Minister Yoshihiko Noda said on Tuesday that he would explain the Japanese government's efforts on post- quake reconstruction and the nuclear crisis at a Group of 20 meeting in Washington on April 15. Measuring the impact on consumer sentiment, factory production and the supply chain is proving more difficult, but as the crisis drags on at the nu- A man carries his belongings at a devastated area hit by the earthquake and tsunami in Kesennuma, clear power plant, the damage to the economy looks to be north Japan, March 17, 2011. REUTERS/Kim Kyung-Hoon more severe.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS At its latest policy meeting last week, the BOJ launched an A dearth of supply from Renesas, the world's top maker of ultra-cheap loan scheme for banks in the area devastated by microcontroller chips, is one of the main headaches for auto- the quake, and has signalled its readiness to ease monetary makers, including those outside Japan that have been af- policy further if damage from the quake threatens Japan's fected by the earthquake. A Renesas spokeswoman said it return to a moderate recovery. was not clear when manufacturing would resume, although Japan is set to compile an extra budget worth about 4 trillion power had been restored to one plant. yen, focusing on removing debris, building temporary housing OVERSEAS OUTPUT TO FALTER and restoring infrastructure such as schools. Japan plans to Even as Japanese factories gradually resume work, analysts allocate 1 trillion yen to stem job losses and help the unem- expect production overseas to begin falling as parts run out. ployed, the Nikkei business daily reported on Tuesday. Nissan said it would halt output at its Sunderland plant, in This is likely to be the first of several spending packages, but northeast England, for three days later this month, while Toy- cabinet ministers, including the finance minister, have said ota and Honda are also bracing for lower output in some fac- that Japan, which has a huge public debt already twice the tories outside Japan. size of its $5 trillion economy, should avoid new bond issu- ance. Honda Motor Co said on Friday that production cuts in North America would be extended by one week through the week of Lending at regional banks rose 1.1 percent year-on-year in April 18. Toyota said most of Toyota's plants in North America March, up from a 0.8 percent rise in February, which may re- would be idled for six days this month to adjust for supply flect an increase in demand for funding after the quake, a disruptions. Toyota said it would suspend production at its Bank of Japan official told reporters. North American vehicle plants on April 15, 18, 22 and 25. Most Outstanding commercial paper held by banks rose 0.2 per- of Toyota's plants will also be shut down on April 21 except for cent in March, marking the first rise since September 2008, its plant in Georgetown, Kentucky. also likely reflecting the impact of the quake, the official said. Toyota is expected to lose production of 35,000 vehicles in North America through April 25, spokesman Mike Goss said. Morgan Stanley analyst Adam Jonas said supply disruptions Japan automakers eye restart at half of output from Japan could delay the recovery in the U.S. auto industry plans to 2012 and 2013. By Chang-Ran Kim Jonas, who currently projects U.S. vehicles sales of around 14 TOKYO million this year, said the mix of low inventory of cars and higher pricing could push sales to less than 13 million. He apan's top automakers plan to resume production at all said, however, that it was very difficult to accurately predict domestic factories in stages starting on Monday, but out- the impact of supply disruptions. "We warn that our degree of J put levels will be at half of original plans and depend on confidence in even running the most basic scenarios is ex- the availability of parts and power. tremely low," he wrote in a note to clients. The historic 9.0-magnitude earthquake off Japan's northeast- BASE SCENARIO ern coast on March 11 damaged equipment, cut off electricity and disrupted the automakers' complex supply chain, forcing Credit Suisse analysts have drawn up a base scenario under them to suspend work at most factories. which Japanese automakers' global output would fall 19 per- cent in the business year that started this month. On Thursday, another big tremor shook the devastated coast of northeast Japan, cutting off power to tens of thousands of This assumes several factors, including the restart of Renesas' households and causing a key supplier to the auto industry, damaged Naka factory in July. Depending on how smoothly Renesas Electronics , to shut four factories. the recovery goes, the drop could range between 15 and 50 percent, the brokerage said. The head of Honda, which is due Despite the new disruption, Toyota Motor Corp said it would to restart limited production at all car plants on April 11, said reopen all 18 factories that build Toyota and Lexus cars from he wanted to return to production levels before the March 11 April 18 to 27, including a new site owned by subsidiary Cen- quake in two to three months. tral Motor that lost power on Thursday. With supply of about 150 components still disrupted, Toyota said it would work at "We will strive to get back to normal operation as soon as pos- about half the rate of initial plans. sible by stabilising parts supply while also considering other options including changing the model mix at some production Toyota's factories will be closed, as planned, between April 28 plants," Chief Executive Takanobu Ito told reporters at and May 9 for Japan's "Golden Week" holidays and the com- Honda's quake-hit R&D centre in Tochigi prefecture on Friday. pany will decide on production plans beyond that while moni- toring the supply flow. Ito, who visited the Tochigi site on his motorbike two days af- ter the earthquake, said he expected a two-week delay in vehi- The world's biggest automaker restarted limited production of cle development, which he hoped to make up during the cur- three hybrid models at two plants on March 28, and a third rent business year. The earthquake last month badly dam- factory will begin producing two more models next Monday. aged the R&D facility, killing one employee when a wall col- Toyota has lost potential production of 260,000 units during lapsed. the unprecedented 20-day suspension to date. Nissan Motor Shares of both Toyota and Honda closed up 1.4 percent on Co said it would resume normal production using parts deliv- Friday, while Nissan slipped 0.8 percent. The main Nikkei av- ered from suppliers, rather than inventory, in stages starting erage gained 1.9 percent. Toyota shares traded in New York on April 11, with the last assembly plant to resume on April 18. closed 0.87 percent higher.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Lengthy struggle ahead to contain Japan On the other hand, there is growing contamination in the nuclear crisis buildings and grounds which makes the conduct of work more difficult. There will be ups and downs, but based on what I By Scott DiSavino know, the overall trend is favorable," Meserve said. NEW YORK Japanese Prime Minister Naoto Kan on Friday said the situa- ew radioactive leaks and worker injuries at Japan's tion at the plant remained precarious. He sought to temper stricken nuclear power plant show that the worst hopes of a quick resolution. N atomic crisis in 25 years is far from over, with months "We are making efforts to prevent it from getting worse, but I of hard work still ahead. feel we cannot become complacent," he told reporters. "We Restoration of cooling water supplies to overheating fuel rods must continue to be on our guard." should help prevent conditions from deteriorating much fur- HOPES DASHED ther within the Fukushima Daiichi reactors. Still, radioactive material is scattered around the plants and workers must pre- When TEPCO restored power to the plant late last week, some vent more radiation from escaping. thought the crisis would soon be over. But two weeks after the earthquake, lingering high levels of radiation from the dam- On Thursday, three workers suffered radiation burns to their aged reactors has kept hampering worker progress. legs while laying electric cable in the Unit 3 turbine building as part of the effort to restore power to equipment used to At Three Mile Island, the worst nuclear power accident in the cool the fuel. United States, workers took just four days to stabilize the re- actor, which suffered a partial meltdown. Nuclear experts said plant owner Tokyo Electric Power Co (TEPCO) was in for a long hard slog as workers risk their lives No one was injured and there was no radiation release above to prevent more radiation from poisoning air, food and water. the legal limit. "The story is not yet over because the reactors and spent fuel At Chernobyl in the Ukraine, the worst nuclear accident in the pools have not yet been brought under control," Richard Me- world, it took weeks to "stabilize" what remained of the plant serve, former chairman of the U.S. Nuclear Regulatory Com- and months to clean up radioactive materials and cover the mission and current President of the Carnegie Institute told site with a concrete and steel sarcophagus. Reuters. In Japan, the fact that there was high levels of radiation in the "On the one hand, the challenge is getting easier over time turbine building, which is isolated from the containment because the rate of heat generation by the fuel is steadily de- building and spent fuel pools, makes it difficult for TEPCO to clining. know where workers can operate safely.

A girl walks with her mother after her first day of school at the Shimizu elementary school in Fukushima, northern Japan April 6, 2011. Over 70 schools began their regular classes on Wednesday in the city of Fukushima, after the earthquake and tsunami that hit the country on March 11. REUTERS/Carlos Barria

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Nuclear experts said they were uncertain how the radiation Operator Tokyo Electric Power Co said radiation levels were got into the turbine building. Most believe it leaked in from over 1,000 millisieverts per hour at Reactor No. 2 and evacu- the spent fuel pools, but a few said it could have come from a ated workers from the turbine building there. possible breach in the reactor vessel. Japan's nuclear safety agency has said that as emergency "The data we're getting is very sketchy and makes it impossi- workers, they are allowed to be exposed to 250 millisieverts ble for us to do the analysis," said David Lochbaum, nuclear per year. Experts say the rise in radioactivity in the water at scientist with the Union of Concerned Scientists. "It's hard to the reactor does not pose much danger to those outside as connect the dots when there are so few dots." long as it is contained safely. Regardless of the source of the radiation, it could be weeks "It depends on where this water's going and what they're do- before TEPCO has the situation under control and many years ing with it," said Murray Jennex, professor at San Diego State before workers clean up the mess completely. University. "If it's allowed to run off into the ground and stuff, "I have no idea how long this can go on. The immediate crisis you're getting a concentration in the ground. If it's going into ends when the Japanese authorities say there is no chance of the ocean, you're getting some accumulation in the ocean." further radiation releases," said James Acton, Associate in the Here are some facts about radiation and the health dangers it Nuclear Policy Program at the Carnegie Endowment for Inter- poses: national Peace. "Worst case this can be another BP oil spill * Radiation is measured using the unit sievert, which quanti- with the constant risk of radioactive release for a long period fies the amount absorbed by human tissues. One sievert is of time," Acton warned. The BP Plc oil spill in the U.S. Gulf of 1,000 millisieverts and 1 million microsieverts. Mexico took more than three months to stop. * People are constantly exposed to some level of natural ra- diation. They also get exposed to tiny amounts through sitting FACTBOX-How much radiation is dangerous? in airplanes, routine chest or dental x-rays, and larger amounts through medical tests such as CT-scans and MRIs. A TOKYO single-organ CT scan, for example, gives a radiation dose of adiation levels remained a huge worry in Japan follow- about 6,900 microsieverts. ing a spike in radioactivity in water at the Fukushima * On Sunday afternoon, radiation levels in central Tokyo were R nuclear power facility. around 0.16 microsieverts per hour. That is a level experts But there has been no indication that people beyond the describe as minimal, and just below the global average of plant's immediate vicinity have been exposed to harmful naturally occurring background radiation of 0.17-0.39 per doses. hour, a range given by the World Nuclear Association.

A man burns a rice field in preparation for planting near Fukushima, northern Japan April 5, 2011. The operator of Japan's nuclear power plant that has been crippled after an earthquake and tsunami, started paying "condolence money" on Tuesday to victims of the worst nuclear crisis since Chernobyl while it kept pouring radioactive water into the sea. REUTERS/Carlos Barria

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS It is also significantly lower than the cosmic radiation of up to Both were important regional industries. Industrial production 7 microsieverts per hour experienced on a Tokyo-New York in the hardest hit region, Kinki, dropped nearly 5 percent in flight. January from December, pulling down national industrial out- Below are different levels of massive radiation exposure in a put by 2.6 percent. single dose -- all measured in millisieverts -- and their likely -- Personal consumption, weak to begin with, dipped. Electric- effects on humans, as published by the U.S. Environmental ity to Kobe was restored one week after the quake. Some 600 Protection Agency: shelters were operating by the end of January, housing more - 50-100: changes in blood chemistry than 236,000 people. - 500: nausea, within hours FIRST QUARTER OF 1995 -- National industrial output fell 2.6 percent month-on-month - 700: vomiting in January. Output recovered aftewards, increasing 2.2 per- - 750: hair loss, within 2-3 weeks cent in February , 0.9 percent in March and 1.3 percent in - 900: diarrhoea April. - 1,000: haemorrhage First quarter economic activity expanded at an annualised rate of 3.4 percent. Much of Kobe's water and gas services - 4,000: possible death within 2 months, if no treatment were restored. - 10,000: destruction of intestinal lining, internal bleeding and LATER IN 1995 death within 1-2 weeks -- In April and September, the government implemented - 20,000: damage to the central nervous system and loss of stimulus packages. Supplementary budgets provided 3 trillion consciousness within minutes, and death within hours or days yen for reconstruction. Private consumption, business invest- Sources: Taiwan Atomic Energy Council, World Nuclear Asso- ment and public investment picked up. ciation, US Department of Transportation, US Environmental -- Gross domestic product grew at annualized rates of 3.2 Protection Agency percent and 3.9 percent, in the second and third quarters re- spectively, before a pullback when the economy shrank 0.6 percent in the last quarter. FACTBOX-Japan's recovery from the 1995 Kobe Kobe instituted A three-year emergency housing reconstruc- earthquake tion plan. Sewerage services were restored to Kobe 135 days ecovery from Japan's devastating earthquake and tsu- after the earthquake. Evacuation shelters in Kobe closed on nami will take years. While the damage is more exten- Aug. 20, 1995. R sive and the impact deeper than the 1995 Kobe earth- 12 MONTHS TO FOUR YEARS quake, economists say that the earlier disaster offers a good point of reference for what recovery might look like. -- Rebuilding continued to boost the economy in 1996 when annualised growth rates each quarter were 3.7 percent, 4.0 The Kobe, or Great Hanshin, earthquake struck in the pre- percent, 0.9 percent and 5.9 percent. dawn hours of Jan. 17, 1995, with a magnitude of 7.3 near the city of Kobe, about 350 km (210 miles) southwest of Tokyo. In April 1996, Kobe Steel reported a 10.6 percent increase in net sales in the 1995 fiscal year, attributing it to higher activity It killed more than 6,400 people. Damage was estimated at from quake restoration efforts. Most ports were re-built by $100 billion. March 1997, but the volume of container cargo never recov- Here are some details on the Kobe damage and the recovery ered. In 2007, it was 85 percent of the 1994 level, a Kobe gov- from it: ernment report said. THE IMMEDIATE AFTERMATH -- Debris removal was completed by March 1998. -- More than 120,000 structures fully or partially collapsed MORE THAN FOUR YEARS while 7,000 others burned. Power and water failed for the -- Non-leather shoe production in October 2007 was 78.8 whole city; 80 percent of the people were without gas. The percent of what it was in the same month of 1994, according port of Kobe, one of the world's busiest, was destroyed. to a Kobe government report. Sake shipping figures in Octo- -- Kobe Steel Ltd , now the country's no. 4 steel maker, sus- ber 2008 were 40.4 percent of what they were in the same tained about 110 billion yen of damage. month in 1994. -- Some 80 percent of factories producing non-leather shoes -- Department store, market and shopping mall sales all re- were damaged and 50 percent of the region's sake breweries mained lower than pre-quake figures. Pre-quake population were seriously damaged. level does not recover for 10 years.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japan quake becomes world's costliest natural disaster By Leika Kihara and Kaori Kaneko TOKYO he Japanese government estimated the direct damage from a deadly earthquake and tsunami that struck the T country's northeast at as much as $310 billion, making it the world's costliest natural disaster. The first official damage estimates will serve to map out dis- aster relief plans and emergency budgets to fund recovery costs. Tokyo said the estimate covered damage to roads, homes, factories and other infrastructure, and eclipses the losses in- curred by other natural disasters such as the 1995 Kobe quake and Hurricane Katrina in 2005. The figure could go even higher, as the estimate does not in- clude losses in economic activity from planned power outages or the broader impact of a crisis at a stricken nuclear power plant in Fukushima, which economists say pose the biggest risks to the economy. "The impact from the planned power outages is likely to be significant," Fumihira Nishizaki, director of macroeconomic analysis at the Cabinet Office told reporters. The upper end of the 16-25 trillion yen ($197-308 billion) esti- mate range would amount to about 6 percent of Japan's gross domestic product. "This quake will cause the condition of Ja- pan's economy and output to be severe," Bank of Japan Gov- ernor Masaaki Shirakawa told a parliamentary committee.

Speaking separately, central bank board member Ryuzo Mi- A woman (C) looks for her personal belongings at a collection center for items yao repeated the bank's pledge to take appropriate policy found in the rubble of an area devastated by the March 11 earthquake and tsu- action if needed to support the world's third-largest economy. nami, in Natori, northern Japan, April 12, 2011. REUTERS/Kim Kyung-Hoon "We need to be mindful that the quake's negative impact on Yet with its debt already twice the size of its $5 trillion econ- the economy, at least on the supply side, may be bigger than omy -- the highest among industrialised nations -- Japan the Kobe quake 16 years ago, and be prolonged," he added. should not rush to borrow to pay for the reconstruction, Fi- In its initial response to the disaster, the central bank doubled nance Minister Yoshihiko Noda said. the funds earmarked for purchases of a range of assets and "With our public finances in a severe situation, we'll closely started pumping record amounts of cash into the money mar- watch how it (the quake) could affect tax revenues," Noda ket to prevent it from seizing up. was quoted by a government official as telling a cabinet It later followed up by joining forces with other G7 central meeting. banks in a rare coordinated move to keep a rallying yen from "As for financial resources for reconstruction, we need to inflicting further damage to the economy. ensure market confidence and should not rely too readily on SPENDING PLAN NEXT debt issuance," he said. With interest rates near zero and banks' cash balances at re- Economists and rating agencies say Tokyo should have little cords above levels seen in 2001-2006 when the BOJ sought trouble raising extra funds, but some analysts say there is a to flood the banking system with cash to spur lending, there is risk that additional supply of government bonds could push not much more the central bank can do to help the economy. up Tokyo's borrowing costs. "The ball is in the government's court," said Yasunari Ueno, BLACKOUTS RISK chief market economist at Mizuho Securities in Tokyo. While economists expect Japan's biggest reconstruction "Currency intervention was one thing. The next thing it needs push since the post-World War Two period to give the hard- to do is to come up with a credible fiscal spending plan." hit economy a badly needed lift in the second half of the Officials from the ruling coalition have said that at least two year, they warn that power shortages are the greatest risk to and perhaps more emergency budgets would be needed to such a scenario. pay for the reconstruction, with the first focused on immediate The 9.0 magnitude quake that struck on March 11 unleashed disaster relief, possible in April or May. a deadly tsunami that wiped out whole communities, leav- The government has yet to decide how it will finance those ing nearly 23,000 people dead or missing and 350,000 budgets, which some analysts say may exceed $100 billion homeless, and crippling the biggest power utility in Japan and most certainly will require new borrowing. and Asia.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Tokyo Electric Power Co , which serves Tokyo and the sur- harder about urban planning and protection, experts say. rounding area that accounts for 40 percent of Japan's eco- "Reconstruction after the 1995 Kobe earthquake in Japan took nomic output, lost about 20 percent of its operating thermal a bit less than five years, I would expect reconstruction here to and nuclear power generation and is unlikely to get enough last five years," said Abhas Jha, programme leader at the East back online to meet peak summer demand. Asia disaster risk management unit of the World Bank. The utility is unable to get much surplus power from opera- The world's third-largest economy, already saddled with pub- tors in the undamaged western part of the country because lic debt double the size of its $5 trillion output, must rebuild they operate with a different power frequency. its infrastructure -- from roads and rail to power and ports -- Toyota Motor Co , the world's top automaker, could be losing on a scale not seen since World War Two. about $74 million of profit for every day its 12 assembly plants Economists' estimate of Japan quake impact remain shut, Goldman Sachs estimated, and it is just one of dozens, if not hundreds, of Japanese manufacturers facing Some cost estimates put the recovery and reconstruction bill disruptions. at $180 billion, or 3 percent of Japan's annual economic out- put, but the World Bank's Jha cautioned that such initial num- Many analysts see a ripple effect from the disaster with dis- bers usually get revised. ruption to production, both inside Japan and abroad, and the impact of fears of radiation and food contamination hurting "This is a disaster of once in 100 or 200 years," said Hirokazu business and consumer sentiment worldwide. Anai, senior analyst at J.P. Morgan Securities in Japan. "This will force us to change the thinking of infrastructure and safety regulations and that will take time." Japan faces five-year road to reconstruction The extension of damage from the 9.0-magnitude quake is By Greg Roumeliotis, Infrastructure Correspondent still unclear.Planned blackouts including in the capital city of Tokyo aimed at saving energy in the wake of crisis at quake-hit AMSTERDAM nuclear plants are delaying economic activities as well. apan will take at least five years to reconstruct its earth- Anai said it might take at least three months to be able to quake and tsunami afflicted regions as it balances the rebuild minimal roads to distribute water, food, and fuel to the J need to rebuild houses, roads and power grids with plan- quake-hit northeastern Japan, with some towns completely ning for disaster-proof infrastructure. wiped out by the tsunami. As the world's third largest construction market, Japan has After that, the construction of temporary homes for survivors the resources, skills and social cohesiveness required to re- begins before starting a real rebuilding process, he added. build quickly, but that the disaster will spur it to think even

A man looks at a damaged port in Kamaishi, Iwate prefecture, one month after the area was devastated by a 9.0 magnitude earthquake and tsunami April 11, 2011. REUTERS/Toru Hanai

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS SHORT-TERM JOLT mist for Australia. "That's what makes it different from other major quakes." "People tend to compare it to Kobe and as- The rebuilding will give a short-term jolt to Japan's construc- sume a "v"-shaped recovery, but Kobe never caused this level tion industry, which faces a bleak future of declining popula- of power disruption," he added. "It means any proper recovery tion, slow economic growth and high public debt that ham- could be delayed right out to the fourth quarter." pers future investment in major infrastructure projects. Early estimates for the cost of the latest quake run up to This will buoy Japan's construction groups such as Kajima around $150-$180 billion, but most analysts have assumed Corp and Taisei Corp as well as engineers who specialise in the boost from rebuilding will spark a swift recovery. After all, seismic -- and increasingly tsunami -- protection. the Kobe quake of January 1995 is estimated to have cost The market is also likely to keep an eyen on Penta-Ocean around $100 billion but the economy rebounded faster from it Construction , which specialise in shoreline and river protec- than many expected at the time. tion work. While manufacturing production fell by 2.7 percent in January, But the quake could also cool interest in investing in Japan it climbed 4.4 percent over the following three months. That and is likely to hurt corporate capital spending in the con- largely reflected industry's ability to shift production to plants struction sector in the coming months, analysts said. in unaffected parts of the country. There is certainly still While the short-term needs of the population, from sanitation plenty of unused manufacturing capacity in Japan, but far less to a reliable power supply, will have to be quickly addressed, when it comes to power supply. social planning takes longer, said David Alexander, professor Analysts at Australian investment bank Macquarie estimated of disaster management at the University of Florence. the earthquake and resulting tsunami took a quarter of "Few are the cases where reconstruction takes less than five TEPCO's total capacity of 65 gigawatts, shared between nu- years, because it's a case of not just physically doing it but clear and oil. In all some 15 nuclear plants were shut down, also planning it, which requires things such as geotechnical and it was not clear how many would re-start or when. surveys and sorting out land ownership," he said on Tuesday. "We think power supply shortages and rations are likely to Standard & Poor's said on Tuesday that Japan's central gov- continue in TEPCO's supply area for months rather than ernment will play a major funding role in the reconstruction weeks," the analysts wrote in a note to clients. drive but that local governments will also need to finance the And the growing crisis at the Fukushima plant brings into efforts with their own bond issues. question Japan's whole experiment with nuclear power, which "Research seems to show that building in safety into new in- provides about one-third of total generating capacity. vestments adds about 5 to 7 percent over the regular costs, "We believe this increases the risk of Japan's nuclear policy but you more than make that up in terms of future reconstruc- being scaled back," said Macquarie. tions costs," Jha said. "But the lack of viable alternatives means this is more likely to But the government will need to be careful not to make dev- relate to safety rather than switching to other sources." No- astated regions too reliant on the construction sector. mura's Stephens said there was perhaps scope to ramp up "It is good practice not to have a boom and bust situation in power output at some of Japan's oil and coal plants, though which the only motor of the local economy is the construction at great extra cost. industry. Reconstruction can finish without any other viable Japan's increased demand for coal, oil and LNG for generation themes for the local economy," Alexander said. would also add to upward pressure on resource prices and so to inflation risks elsewhere in Asia. But even then it was unlikely to be enough to make up the current shortfall in Japan power gap could sap recovery power. By Wayne Cole "If this lasts to the summer, which is more than possible, there is no way the system could supply the power for air con- SYDNEY ditioning," he warned. "Tokyo in summer, without air con? apan's earthquake has left a gaping hole in the nation's Doesn't bear thinking about." power capacity that looks set to last months, threatening Even the simplest gas turbine power plants takes between to make economic recovery far more feeble than hoped. J one to two years to build, with coal plants generally a lot The first rolling power cuts in the history of the giant Tokyo longer. And that assumes the government could ram through Electric Power Co (TEPCO) have already closed many plants, planning permission in a crowded island like Japan. with Toyota shutting down until at least Wednesday. Still, Japan was lucky to have a potential major supplier of Rolling three-hour blackouts have wrecked the clockwork pre- liquefied natural gas (LNG) in Australia, where a number of cision of Japan's railways while a thousand schools across massive projects are underway. "Any potential switch away Tokyo cancelled classes. from nuclear power is likely to favour gas-fired generation, the Even Tokyo's ubiquitous neon signs have gone dark, a big most practical low carbon-emission alternative," said Arnon blow to confidence in a country that lives by routine and order. Musiker, a director in the energy team of ratings agency Fitch. With a new explosion at a nuclear plant in Fukushima threat- "Australia is well positioned to meet additional medium-term ening a far more serious radiation leak, the power shortage gas demand," said Musiker, noting the other traditional sup- will not get better anytime soon. pliers in the Asian region were running into gas shortfalls "It looks like Japan could be in a "power down" state for a pro- themselves. tracted period," said Stephen Roberts, Nomura's chief econo-

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japanese ports sustain major damage, some out The closure of the ports was expected to cost Japan more for months than $3.4 billion in lost seaborne trade each day, according to shipping trade publication Lloyd's List Intelligence. Maritime By Chikako Mogi and Randy Fabi trade in the world's No. 3 economy totalled $1.5 trillion last TOKYO/SINGAPORE year. apanese ports handling as much as 7 percent of the coun- WORST HIT try's industrial output sustained major damage from a The northeast coast ports of Hachinohe, Sendai, Ishinomaki J earthquake, disrupting global supply chains and causing and Onahama were so severely damaged by Friday's disaster billions of dollars in losses, industry officials said. that they were not expected to return to operation for months, Japan has begun assessing the damage to port infrastructure, if not years. vital to receiving aid, commodities and goods for rebuilding The ports were medium-sized facilities that handle mostly areas devastated by the 8.9 magnitude quake and tsunami container freight, which includes everything from cars and that are likely to have killed more than 10,000 people. steel to sporting goods and furniture. At Hachinohe, the port The box shipping industry was seen as the most strongly af- also supplied fuel to the local fishing fleet and to U.S. military fected by the disaster as the destroyed ports handled contain- installations in Japan and South Korea. erised cargo for Hitachi Ltd. , Daikin Industries , and dozens of "These ports will need a lot of time until they can be fully re- other companies. stored," said Tetsuya Hasegawa, operation manager at Heisei "The short-term impact on economic activity could be greater Shipping Agencies in Tokyo, told Reuters. than after the Kobe earthquake," said Jiyun Konomi, Tokyo- Japan's ninth-largest container port, Kashima, and the based analyst with Nomura Securities, referring to the 1995 smaller port of Hitachinaka sustained milder damage and disaster which killed 6,000 people. "Following the Kobe both could be back in operation within weeks, he said. earthquake ... activity did not return to pre-earthquake levels within three months for freight transportation." The tsunami also destroyed and grounded dozens of vessels, including three of Kawasaki Kisen Kaisha's panamax ships Tokyo and all ports south of Japan's capital were operating and another chartered by Mitsui O.S.K Lines . The disaster was normally after briefly shutting down operations following Fri- expected to delay oil shipments and cause major port conges- day's disaster, while the rest of the country's ports were being tion. assessed for damage, a shipowner and port official said. "Our channels indicate that crude currently en route to Japan "Ports south of Tokyo are all operational, ports north of Tokyo will likely be discharged in India or elsewhere in Asia, with the are still under evaluation," said a shipowner based in Tokyo. refined products carried on to Japan once ports re-open," said Michael Webber, analyst at Wells Fargo Securities.

A man rests during a power shutdown at an evacuation shelter in Kesennuma, Miyagi prefecture, after a 7.4 magnitude earthquake April 8, 2011. The major aftershock rocked northeast Japan on Thursday and a tsunami warning was issued for the coast devastated by last month's massive quake and tsunami that crippled a nuclear power plant. REUTERS/Toru Hanai

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS One of Japan's largest crude oil and LNG ports, Chiba, has likely in coming months as Japan rebuilds its crippled econ- resumed some operations with at least one of 10 terminals omy after the devastating earthquake and tsunami. remaining shut, industry sources said. A fire broke out at That should keep freight costs relatively cheap for major im- Cosmo Oil's 220,000 barrels per day Chiba refinery after the porters such as China and India that are struggling to contain earthquake, forcing the company to shutdown the facility and spiralling inflation sparked by record high commodity prices. the area around it. "There is as much as a 10 percent difference between demand A damage assessment was being conducted for the facilities and supply growth this year," said Rigan Wong, a Hong Kong- and results were expected on Wednesday, a Japanese refinery based shipping analyst at Citgroup. "Japan alone will not be official said. The port of Chiba handled around 31.4 million able to push up demand in line with supply. That just isn't tonnes of crude (248 million barrels) and 20.4 million cubic possible." metres of LNG last year, according to Lloyd's List Intelligence. The Baltic Exchange's Dry Index has plummeted nearly 65 Grains shipments, however, were not yet affected following percent in 10 months, trading at 1,533 points on Thursday, as the quake. "Of Japan's some dozen major ports where bulk the world's economy has been unable to absorb a fast ex- carriers or tankers can dock, only two are damaged," said No- panding global fleet. It hit a two-year low of 1,043 last month. buyuki Chino, president of Unipac Grain. "Imports of grain to Japan therefore are not affected." The deadly earthquake, which has killed thousands, damaged numerous power plants, refineries, steel mills and buildings.

Japan's rebuilding to offer little to distressed freight market Recovery and reconstruction efforts will likely take at least five years, with initial cost estimates at $180 billion, or 3 percent of By Randy Fabi and Jonathan Saul Japan's annual economic output. SINGAPORE/LONDON Demand for vessels to move coal and iron ore to restore con- apan's reconstruction efforts will do little to boost global sumption will easily be met by the huge dry bulk fleet, with freight rates near two-year lows as fleet expansion over- hundreds of capesizes and panamaxes, the market's largest J shadows any demand surge from the world's third-largest vessels, already fighting for very limited work. economy. SURPLUS FLEET CAPACITY The benchmark index for seaborne trade, an indicator of world "I don't think Japan will affect dry bulk rates all that much. I economic activity, has struggled to recover after touching their still think we could see fresh two-year lows," said Janet Lewis, lowest since 2008 in February, with only a small, brief spike a shipping analyst with Macquarie Securities.

Earthquake and tsunami survivors walk through a flooded street searching for their belongings in the destroyed residential area of Kesennuma, REUTERS/Damir Sagolj

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "Through the end of the second quarter, we will see the BDI SHIPMENTS TO JAPAN firming up but probably not a whole lot higher than where we One bright spot for Japan's crippled infrastructure was that are now. I don't expect we will get above 2,000 anytime soon, many of its ports were unscathed by the earthquake, providing maybe we get up to 1,700." ample capacity to import coal, and other dry bulk needs. Only The supply glut was best reflected by the severe downturn in one iron ore and three coal handling ports were damaged, capesize daily earnings, which briefly dipped below $5,000 in which together represent about 20 million tonnes of capacity February after surging to nearly $60,000 eight months be- for each commodity. fore. Earnings traded at $9,430 on Thursday. Dry bulk ship Japan had a surplus import capacity of 68 million tonnes for owners ramped up orders of vessels before the economic iron ore and 147 million tonnes for coal in 2010, according to downturn in 2008. ICAP. South Korea, Russia, Indonesia and other major com- It normally takes three years for a ship to be delivered and modity exporters have pledged to supply the country with most of those vessels were now coming online, exacerbating extra cargoes of oil, coal and liquefied natural gas. an already oversupplied market. Yet, more than ports, Japan's ability to absorb supplies be- The world's dry bulk fleet, responsible for shipping iron ore, cause of damaged storage facilities, roads and power cables coal, grains and other commodities, is expected to grow be- may slowdown shipments into the country. tween 11 and 13 percent this year to top an unprecedented "In the very short term, we may see a short-lived negative im- 600 million deadweight tonnes, analyst said. pact on the seaborne market as production is halted or re- That would far outpace demand of between 5 to 8 percent. duced significantly due to disruptions from power cuts and in Global freight demand has largely been driven by the huge the supply chain," said broker firm ICAP Shipping in a re- economic growth in China, India and other emerging econo- search note. mies that are now battling to tame the impact of higher com- Port capacity was not expected to be tested as coal imports modity prices. were likely to be limited to between 5 to 10 million tonnes this Central banks across Asia are under pressure to act to stave year as generators based on the fuel were already working off inflationary pressures as crude oil prices stay near a 2-1/2 close to capacity. year high on unrest in the Middle East. China, India, South For iron ore, there was little global spare capacity so a rise in Korea, Vietnam and Thailand have raised rates multiple times Japanese demand would boost prices for the steel-making over the last year. ingredient, but would not affect freight rates. "Iron ore in Japan has only a downside," said Sverre Svenning, director of research at broker Fearnleys.

A woman places her handprint on a backdrop that represents the Japanese flag during an event in support of the victims of the March 11 earthquake and tsunami in Japan, in front of the Japanese embassy, in Jakarta March 27, 2011. REUTERS/Supri

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "We will see more steel imports to Japan, or we could see a combination of reduced exports and increased imports. The net result of that is not going to be dramatic for dry bulk." Iron ore and coal are the two most important commodities by volume for the dry bulk freight market, representing a total of around 60 percent of its seaborne trade.

Nuclear fears keep shippers wary of travel to Japan By Randy Fabi and Harry Suhartono SINGAPORE oreign crew members remain hesitant to travel near Japan's quake-crippled nuclear plant, including to some F ports outside the exclusion zone, forcing shippers to use Japanese vessels instead to transport goods, senior industry executives said. Maritime companies were supplying crew members travelling to the Tokyo Bay area, located 240 km (150 miles) from the damaged Fukushima nuclear complex, with special anti- radiation suits, Geiger counters and medicine. That was despite daily assurances from Japan's transport ministry that radiation levels in the area, which included the main container ports of Tokyo and Yokohama and the Chiba oil port, were at a "very safe" level. "Crews do not want to go there. Even Chiba, crews still do not want to go," Kyuho Whang, chief executive of South Korea's SK Shipping, told reporters at an industry conference in Sin- gapore. "So they rely more on the Japanese vessels than the foreign vessels." Whang did not say which companies were being forced to use Japanese vessels. Japanese fire trucks line a road in Sukuiso, Japan, March 18, 2011. REUTERS/Dylan McCord/U.S NOT YET WIDESPREAD One of the vessels, Mitsui O.S.K. Line's MOL Presence, was The use of Japanese-flagged vessels was not yet widespread, denied entry and sent back to Japan. It was later allowed into but a senior shipping executive, who wished not to be named, a Hong Kong port. said it could become more routine if more and more foreign Chinese Premier Wen Jiabao told his Japanese counterpart crews decide against travelling to the area. Naoto Kan on Tuesday he was concerned about the release of "We have had ships going to Japan since the tsunami," said radiation into the ocean and urged Tokyo to take "very seri- Morten Arntzen, president of U.S.-listed Overseas Shiphold- ously" the possible impact on neighbouring countries. ing Group . "The master of the ship has full authority to say The head of Japan's third largest shipping company urged we are not going there and that authority will not be second countries not to act irrationally to the nuclear crisis and base guessed." their trade decisions on science. Japan has restricted seaborne traffic 30 km from the Fuku- "We remain calm, but there is too much overreaction by some shima nuclear plant, while many shipping companies have countries," Kenichi Kuroya, chief executive of Kawasaki Kisen imposed a minimum 80 km exclusion zone. told Reuters late Tuesday. To alleviate concerns about contamination from the nuclear "Regrettably in the coming months, many buyers may de- plant, Japan said it would begin randomly measuring radia- mand to prove that cargo is safe, even for auto parts. Some tion levels of ships and containers leaving the Tokyo Bay area, buyers want proof it's not radioactive, but we don't know how and issue to ship owners certificates recording radiation levels to." confirmed as below a standard level. A handful of container shippers, mostly German owned, sus- Despite this, China's quality watchdog has found 10 cases of pended stops at Tokyo Bay ports following the March 11 disas- ships, aircraft or cargo arriving from Japan with higher than ter but most have since resumed operations. normal levels of radiation since mid-March.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS GRAINS Fukushima contained levels from 9 to 4,601 becquerels, the Soil samples show rice planting could proceed official said. in Japan's Fukushima-local govt The only soil that was above the limit were from the evacua- tion area of up to 30 kilometres around the stricken Fuku- By Chikako Mogi shima Daicihi nuclear plant, run by Tokyo Electric Power . TOKYO Those samples had levels ranging from 7,676 to 28,957 bec- querels of caesium per kilogram of soil. oil samples from most of the Japanese prefecture that is home to a nuclear power plant crippled by a devas- The passage of time has sharply reduced radiation from some S tating earthquake and tsunami last month are below elements with a short half-life, the time it takes for a sub- permitted levels, a local official said on Wednesday, possibly stance to decay by half, from the power plant but others will paving the way for rice planting to proceed as normal in the stay radioactive almost indefinitely. area. GOOD RESERVES The findings will further ease concerns about disruptions to Japan's farm ministry says the country has enough rice in re- rice supplies, with planting also beginning in Fukushima's serve, however. Rice stocks are estimated at 2 million tonnes immediate neighbours, Miyagi to the north and Ibaraki to the until the end of June when rice for this year circulates, while south, after they conducted similar soil tests and found con- the government has about 1 million tonnes in reserves. Japan tamination far below acceptable levels. produced 8.2 million tonnes last year, making total supply The six prefectures of quake-hit northern Japan account for a about 10 million tonnes, against demand for rice of 8.1 million quarter of the country's total rice output, though Fukushima tonnes annually. alone produces just 4.4 percent. While there are concerns abroad about Japanese agricultural The official from Fukushima said the prefecture plans to con- products, Japanese exports of such goods stood at 492 billion sult with the country's farm ministry to decide whether rice yen ($5.9 billion) in 2010, just 0.4 percent of the country's farming can start as usual this spring in areas where contami- total exports of 67 trillion yen, farm ministry data showed. nation is below allowed levels. The government has also said that agricultural produce con- "We wanted to conduct the tests as early as possible because taining caesium above 500 becquerels per kilogram of food now is the time for rice planting, but the government will de- will not be permitted to be shipped. cide whether planting can proceed," he said. There was also some speculation that disruptions to rice Fukushima's local government began taking soil samples planting could lead to an increase in Japan's negligible rice from 54 rice paddies spread across the prefecture late last imports. These stood at about 640,000 tonnes in fiscal month to assess whether they would be suitable for planting. 2010/11 which ended on March 31, with about 46 percent each coming from the United States and Thailand, and the rest Tentative safe limits were set by the health ministry at 5,000 from China and Australia. becquerels of caesium per kilogram of soil. Most samples in

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS FACTBOX-Restrictions on Japanese food radiation checks on other food products from those and other imports parts of Japan, China's quality watchdog said. It said in a statement that the restrictions were needed "to ensure the everal countries have banned milk and produce from safety of food and agricultural imports to China". the areas near Japan's tsunami-damaged nuclear plant S because of contamination fears. - VIETNAM Food makes up 1 percent of Japanese exports, according to Vietnam's Agriculture Ministry has tightened radiation checks World Bank data. Japan has already stopped shipments of on food imported from Japan and its agencies will pay close vegetables and milk from near the stricken Fukushima nu- attention to seafood and meat imported from Fukushima, a clear plant in the country's northeast. Following are steps state-run newspaper said. The official Saigon Giai Phong daily countries have taken to test or block Japanese food imports: said all farm products from Japan will also be examined by an agency in charge of agricultural product quality. * SINGAPORE SOUTH KOREA Singapore has suspended the import of milk, meat and pro- duce from areas near the crippled nuclear power plant due to South Korea banned food imports from four areas of Japan radiation contamination, a government agency said. affected by the country's nuclear crisis until radiation concerns are lifted, the prime minister's office said on Friday. The ban The import ban from the four prefectures of Fukushima, Iba- applies to food products from Fukushima, Ibaraki, Tochigi and raki, Tochigi and Gunma covers milk, milk products, fruits and Gunma prefectures and could be expanded if necessary, the vegetables, seafood and meat, the Agri-Food & Veterinary government said in a statement. Authority of Singapore said. The government has also sus- pended fruit and vegetable imports from the prefectures of It said tests of food products from Japan had yet to uncover Kanagawa, Tokyo and Saitama. any instances of radiation contamination, but pledged to pub- licise the test results and information on radiation levels in - CHINA Japan via government Web sites to ease public concerns. China has banned the import of some Japanese food and ag- TAIWAN ricultural products on fears they could be contaminated by radiation from the earthquake-damaged nuclear plant. The Taiwan will stop imports of foodstuffs from five Japanese pre- ban covers dairy, aquatic and vegetable products as well as fectures due to the nuclear crisis, the island's health authority fruit from five Japanese prefectures. China is also stepping up said on Friday.

City workers move part of a shipment of 240,000 bottles of water to be distributed to government offices around Tokyo as part of an emergency program to supply infants with uncontaminated water in Tokyo REUTERS/Lee Jae-Won

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Taiwan's Fisheries Agency had also advised local boats not to phol Airport and Rotterdam port, Europe's biggest. At this fish in Japanese waters after radiation was detected in the sea stage, no contaminated food has been found in the Nether- around the Fukushima nuclear plant. The agency will check lands. all catches on fishing boats returning from Japanese waters HONG KONG and destroy any catches with radioactivity exceeding permit- ted limits. Bans food and milk products from five prefectures in Japan after samples of turnip and spinach were showed contami- EUROPEAN UNION nants 2.6 to 10 times over the permissible limit. The European Union will reinforce radiation controls on im- MALAYSIA ports of food and animal feed from. Food and feed from the 12 worst affected prefectures will have to be tested for radionu- Testing all consignments from Japan. Health Ministry is moni- clides before leaving Japan, and be accompanied by a decla- toring the situation daily but has no plans to ban so far. ration from the Japanese authorities that they do not breach PHILIPPINES EU radiation limits, the European Commission said in a state- ment. Not recommending any ban on food imports from Japan but will continue to conduct random tests for radiation. THAILAND UNITED STATES OF AMERICA Thailand will test all fruit and vegetable imports from Japan for possible radiation contamination, Pipat Yingsaree, secre- The United States will block imports of milk and fresh produce tary-general of Thailand's Food and Drug Administration, said from areas of Japan near the crippled nuclear power plant. on Thursday. All milk and milk products and fresh fruits and vegetables from four Japanese prefectures -- Fukushima, Ibaraki, Tochigi Pipat said the authorities had asked importers and distribu- and Gunma -- will be stopped from entering the United tors to avoid or at least reduce imports of Japanese food prod- States, the Food and Drug Administration said. ucts including meat, dairy products, seafood and seaweed.

AUSTRALIA Australia's government is set to restrict food imports from areas near the nuclear power plant, but said the risk to con- sumers was negligible due to the limited amounts being brought in. Australia's regulator Food Standards Australia New Zealand (FSANZ) said on its website that it was a "precautionary measure, and consistent with approaches in- ternationally". CANADA Canada intensified safety inspections of food imported from four provinces near the reactors to make sure it has not been contaminated with radiation. Milk, fruit and vegetables from the area will require documents verifying their safety before it can be allowed into Canada, the Canadian Food Inspection Agency said. GERMANY Germany has started extra checks on Japanese food imports to ensure they are free from radioactivity, Germany's Agricul- ture and Consumer Protection Ministry said on Wednesday. No suspect food has yet been found. FRANCE France has started testing for the level of radioactivity of all fresh food products from Japan, such as shellfish and fish, there had been no direct imports from Japan into France since the earthquake, the farm ministry said on Tuesday. A ban on food imports is not envisioned unless a test proves positive. BRITAIN Britain said it is screening food imports from Japan, mainly fish and shellfish, for the presence of radioactive material. No contaminated food has yet been found. NETHERLANDS The Dutch Food and Consumer Product Safety Authority said it has started extra checking Japanese food imports for radia- A woman carries a pot which she found at her destroyed house in Kamaishi, Iwate Prefecture in northern Japan, more than a week after the town was devastated by a magnitude 9.0 earthquake and tsunami, tion. These checks will be implemented at Amsterdam's Schi- March 20, 2011. REUTERS/Lee Jae-Won

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japan's feed grain imports to slow, limited rice "Some pig producers are seriously damaged with no feed, fuel need or power for warming the baby pigs, it is really a terrible situa- tion." By Naveen Thukral and Chikako Mogi Feed-making facilities were affected in the quake-hit Tohoku SINGAPORE/TOKYO region, which makes up about 18 percent of Japan's annual apan's feedgrain imports could slow to a trickle in coming feed output of 24 million tonnes, industry sources say. And months as quake-hit feed mills make importers wary of the Kashima area in nearby Ibaraki, which also produces some J signing new deals, and limited damage to the domestic 4 million tonnes of feed a year, has suffered damage. "It could rice crop will likely cap imports of the foodgrain. take half a year for feed manufacturers to fully recover," said Nobuyuki Chino, president of Tokyo-based trading firm Uni- Japan will instead resort to more imports of processed com- pac Grain. "Japan will need to import more pig and chicken modities such as soyoil, wheat products and meat to satisfy meat for the next few months." But a plentiful supply of immediate needs as it limps back from earthquake and tsu- foodgrains will avert a spike in domestic prices. nami, which hit a fifth of the country's animal feed makers. Benchmark U.S. grains have dropped nearly 6 percent since MEAT, GRAIN IMPORTS AT RISK the earthquake pushed Japan to the brink of a nuclear disas- If the world's third largest economy suffers in the aftermath of ter as investors worried about prospects for the world's third Friday's earthquake, analysts say, it could hurt the country's largest economy fled risky assets. grain and meat imports, a bearish factor for U.S. corn, wheat Almost 20 percent of Japan's animal feed plants were badly and soy futures. Economists' estimates of losses to Japanese damaged and few units will resume operations within the next output from damages to buildings, production and consumer six months, forcing the world's biggest importer of pork and activity ranged between 10 trillion yen to 16 trillion yen, at chicken to make up the shortfall from the international mar- worst one-and-a-half times the losses during the 1995 Kobe ket. earthquake. "Feed plants are flooded, silos are cracked and there is contin- Most expected the economy to contract in the second quarter ued shaking, so livestock producers may skip production for a of 2011 and a few economists also flagged the risk of pro- couple of months due to feed shortage and house damages," longed disruption to consumers and companies and a decline said Jim Echle, who heads U.S. soy industry body ASA Interna- in economic output through 2011 should power outages per- tional Marketing in Japan. sist until December.

Vegetables are displayed at a grocery store in Koriyama, Fukushima Prefecture, northern Japan, April 2, 2011, located about 70 km (44 miles) from the earthquake and tsunami-crippled nuclear reactor. REUTERS/ Kim Kyung-Hoon

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "If we do see significant adverse economic reaction in Japan to "Domestic stocks of corn and soybean will be the most this disaster, then we might see an overall decline in meat stretched if, as we expect, stockpiles are drawn down to ease consumption," said commodity strategist Luke Matthews of domestic market anxiety and ease the supply shortage until the Commonwealth Bank of Australia. "The magnitude of any industry logistics normalise," it said. "We also expect in- potential decline is uncertain at this point of time." creased imports of processed commodities, such as soyoil, to Operators of a quake-crippled nuclear plant in Japan said make up for the shortfall in processing capacity." they would try again on Thursday to use military helicopters to Most Japanese ports have resumed normal operations allow- douse overheating reactors, as U.S. officials warned of a rising ing grain ships bound for the affected northeastern region to risk of a catastrophic radiation leak from spent fuel rods. divert cargoes to unaffected areas, although trade sources AFTER S.KOREA, JAPAN MAY NEED MORE MEAT said on Wednesday nine vessels carrying grain for Japan were unable to discharge. Japan is the world's biggest importer of pork, buying 1.2 mil- lion tonnes in 2010, and it accounted for 745,000 tonnes of Japan is unlikely to boost its rice imports with enough stocks broiler meat shipments last year, the world's largest. Higher to last four months of consumption and planting not due until purchases by Japan in the months ahead could bolster U.S. May, which will give farmers enough time to prepare the tsu- livestock futures , which have suffered losses on the prospects nami-stricken fields, traders said. of the nuclear crisis. Analysts said as they will add to strong "Rice stocks are more than enough, there is no need to import pork purchases by neighbouring South Korea in last few additional volumes as there has been no damage reported to months. rice stocks," said Unipac's Chino. "Seedings will start in May South Korea, grappling with an outbreak of foot-and-mouth and farmers have lots of time to prepare." Rice stocks are disease, will nearly double tariff-free pork imports in the first estimated at 2 million tonnes until the end of June. In addi- half of this year and may extend the measure to the second tion, the government has about 1 million tonnes in reserves half to boost supply and ease inflation. ready for release anytime. Japan produced 8.2 million tonnes Besides pork and chicken purchases, Japan is the world's big- last year, taking total supply to about 10 million tonnes, gest buyer of corn and the third largest importer of soybean, against annual demand of 8.1 million. the main ingredients in animal feed. It is also the world's "In the short term, grain imports will suffer but when Japan fourth-biggest importer of wheat, and plans to buy 4.96 mil- recovers from the disaster and economic activities gather lion tonnes of milling wheat in the year to March 31. pace, we expect Japan to be back in the market to take a lead Japan has 2.5 months of wheat stocks, 22 days of corn and role in global grain imports," said Ker Chung Yang, invest- seven days of soybean cover, Standard Chartered Bank said in ment analyst at Phillip Futures in Singapore. a report this week, underscoring the need to replenish re- serves.

People line up for food and life supplies in front of a supermarket in Oshu, Iwate prefecture, after a 7.4 magnitude earthquake April 8, 2011. The major aftershock rocked northeast Japan on Thursday and a tsunami warning was issued for the coast devastated by last month's massive quake and tsunami that crippled a nuclear power plant. The words reads "Open 24 hours". REUTERS/Toru Hanai

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS METALS Mitsui Mining to resume Hachinohe zinc smelt- Japan smelters' metal output plans for April- ing in June Sept TOKYO TOKYO itsui Mining and Smelting Co said on Monday it opper output in Japan, the world's No.2 consumer, will plans to resume operations by early June at its Ha- tumble in the first-half of this financial year with two M chinohe zinc smelter, which has been shut since a C major smelters hit by last month's massive quake, massive earthquake and tsunami hit northeastern Japan on while unscathed Sumitomo Mining plans 60 days of plant March 11. maintenance, which it said will cut its output by 23 percent Before the quake, Mitsui Mining had planned to halt opera- from a year earlier. tions at the smelter from late March for regular maintenance, Pan Pacific Copper, Japan's biggest copper smelter, said on which the company conducts once every three years. Wednesday it will produce 12 percent less copper in the April- The company said its Hachinohe zinc operations will resume September period as its Hitachi refinery, northeast of Tokyo, after quake-related restoration and the maintenance were will remain shut until late this month. completed. Mitsubishi, the No. 3 smelter which is yet to reveal its output plan, is seen as the worst hit by the quake. Its Onahama cop- per plant, which is located 60 km south of a crippled nuclear Premiums rise as gold regains lustre in plant in Fukushima and accounts for three quarters of its cop- quake-hit Japan per output, remains shut. By Nick Trevethan The Onahama plant, owned about 50 percent by Mitsubishi, SINGAPORE produced an estimated 240,000 tonnes last year or about 15 percent of Japan's 2010 output. The table below will be up- scramble by Japanese investors for safe havens after a dated as new output plans are announced. deadly earthquake has pushed physical gold premi- ums to three-year highs as buyers in less affected It shows scheduled production of base metals at Japanese A parts of the nation stretched supply, unleashing a trend that smelters for April-September, with comparisons against esti- could give a lift to world prices. mated output in the second half of the last financial year ended on March 31 and actual production in the first half of Buying of the precious metal by investors and households in the last financial year (in tonnes): the west of Japan, combined with transport woes in the world's third largest economy, usually a net gold exporter, could dry up supplies elsewhere in Asia, and inevitably push H1 H2 H1 Pct Yr/ up world prices. 2011/12 2010/11 2010/11 Yr Investors in Japan dived into yen-denominated markets such COPPER as TOCOM gold after concerted intervention by the G7 group Pan Pacific 257,494 264,485 293,669 -12.3 of nations weakened the currency against the dollar last Fri- Sumitomo 155,000 203,782 202,000 -23.3 day, a day after the yen rose to a record high of 76.25. Mitsubishi n/a n/a 157,512 "If the dollar/yen stabilizes and a clear trend emerges that the Dowa n/a n/a 56,970 dollar has hit a bottom against the yen, then that may spur Furukawa n/a n/a 46,849 gold buying from households looking to get bullion cheaply," Nittetsu n/a n/a 21,554 said Koichiro Kamei of financial research firm Market Strategy TOTAL n/a n/a 781,873 Institute, adding that the G7 action could also lift the interna- tional gold market. ZINC Any hoarding or buying of the precious metal by Japan's in- vestors, who sold 50 tonnes of bullion back to dealers last Mitsui Mining 92,900 103,800 110,400 -15.9 year, could provide a spark to touch off global prices. Dowa n/a n/a 67,176 But the appetite for gold revived by Japan's devastating 9.0- Toho Zinc n/a n/a 56,981 magnitude quake and the ensuing tsunami, estimated to have Sumitomo 37,900 31,103 43,300 -12.5 killed more than 10,000 people, could hurt supplies across Mitsubishi 4,446 4,848 4,050 9.8 Asia, by cutting into the country's exports of gold, which stood at 78 tonnes in 2010. TOTAL n/a n/a 282,107 "A slowdown in Japanese exports due to hoarding and trans- port problems could also put pressure on physical supply in LEAD the rest of Asia," Mark Pervan, head of commodities research Toho Zinc n/a n/a 49,000 at ANZ, told Reuters.

Mitsui Mining 27,700 29,000 28,100 -1.4 "This is a buy on the dip opportunity and investors, not just Japan, but globally, have been looking for a trigger to get Sumitomo 11,000 11,319 12,600 -12.7 back into the market. The bounce in TOCOM and rising premi- Mitsubishi 14,520 14,400 12,570 15.5 ums in Japan could be it." Dowa n/a n/a 5,952 TOTAL 108,322

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS TOCOM gold futures significantly underperformed in the four Supply tightness in Japan could also spill into Hong Kong and days immediately after the March 11 quake as investors sold Singapore, where sales of scrap remain slow, despite a re- gold to cover margin calls in equities, which slumped almost bound in gold prices to above $1,400 an ounce. 20 percent. "Premiums on physical gold are rising as domestic stocks But both markets have since partially recovered, with TOCOM have been low after Japanese households had been selling gold up 4.4 percent on the day on Friday, trading above 3,720 their holdings late last month and early this month when yen an ounce, but 1 percent down on the week, having prices were rising," said Akira Doi, vice-president at bullion dropped by as much as 6.8 percent since the earthquake. house Daiichi Commodities Co. "What we are seeing right Spot gold hit a record high of $1,444.40 an ounce on March 7, now is mixed. In the west of Japan, households' buying of gold and was trading above $1,425 on Monday. Premiums for gold has generally picked up after the quake." bars in Japan rose to $2 an ounce late last week, from zero But in Tokyo, on the east of Honshu island, millions of people before the earthquake. remained indoors, fearing a blast of radioactive material from LOGISTICS Fukushima Daiichi complex 240 km (150 miles) to the north. Logistics problems have added to tightness in the physical RUSH TO BUY GOLD? market, with bullion houses unable to get extra supply from "It's possible theoretically that dealers are trying to procure other centres in Asia such as Hong Kong and Singapore. gold in anticipation for demand by retail investors for safe- "We have difficulty with transportation in parts of the coun- haven buying in the future," Kamei of Market Strategy Insti- try," said a dealer at a bullion trading house in Tokyo. "Even tute said. "For now, they are taking a wait-and-see stance." if people want to go to bullion shops, they can't. The more In 2010, Japan's retail investors sold a net 50 tonnes of gold important question is whether we can survive or not, although bars and coins. This compares to a 34 percent jump in gold we believe the situation will improve." bar and coin investment worldwide, to 995 tonnes, according Japan's largest bullion trading house, Tanaka Kikinzoku Ko- to the provisional data by the World Gold Council. gyo, said the earthquake had forced it to close some of its The country was a net exporter of a record 78 tonnes of gold, outlets and change business hours in others, but operations equivalent to around one fifth of top miner China's output, had largely recovered. making resource-poor Japan as significant a supplier to the "However, various infrastructure, such as highways and rail- market as Mexico is from its mines. roads are still cut off, resulting in part of material procure- Exports had already been expected to slow, with households ments and shipments not proceeding as scheduled," it said on cutting back on gold sales in hopes of higher prices. its website.

A man throws away a TV set damaged by the March 11 earthquake and tsunami at a temporary dump site, which was converted from a baseball field, in Sendai, north Japan March 25, 2011. Sendai city is providing five temporary dump sites to earthquake and tsunami victims, an officer from the city council said. REUTERS/Kim Kyung-Hoon

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "There may be some distress selling of gold by people in need, Top Japanese steelmaker Nippon Steel Corp , the world's No. but it won't be large-scale. This is likely to make people more 4 producer, has said all plants, except its Kamaishi unit in reluctant to sell whatever gold they have, even if prices do northern Japan, were back online. The Kamaishi plant, which rise," said a trader in Australia. makes wire rods used in tires and bridges, has a monthly out- put of 60,000 tonnes.

Hardest hit is the main Kashima plant of Japan's No. 3 steel- Japan steel capacity can feed massive maker Sumitomo Metal Industries Ltd , the mill closest to the reconstruction quake's epicentre. By Manolo Serapio Jr. and Yuko Inoue Operations at the plant, which makes 8.3 million tonnes of crude steel a year, remain suspended, with two major blast SINGAPORE/TOKYO furnaces off, although the company said on Wednesday it had teelmakers in quake-hit Japan expect a long-elusive no plan to declare force majeure on coal deliveries. spike in domestic demand as the country prepares for "There hasn't been any real structural damage to most of the the colossal task of rebuilding everything from homes S mills in Japan, so it looks like they could restart production to power plants, but huge capacity will limit imports. pretty quickly," said Graeme Train, commodity analyst at Mac- Japan's reconstruction efforts mean shipments from Asia's quarie in Shanghai. "They also generate about 85 percent of biggest steel exporter last year may be reduced, tightening their own electricity so they aren't going to be affected by is- Asian supply and lifting prices as it opens a void likely to be sues like nuclear power." Nippon Steel and Sumitomo Metal filled by China, the world's largest steel producer, and South last month announced plans to merge to create the world's Korea, Japan's biggest customer. Output in Japan, the world's No. 2 steelmaker. second-biggest steel producer, stood at 109.6 million tonnes LONG WAY BACK in 2010, but it only consumed 60 million tonnes and mostly exported the rest. But it will be a long and costly route back to recovery for Ja- pan with a reconstruction bill analysts have said could go up With total capacity estimated at 132.4 million tonnes at the to $180 billion, more than 50 percent higher than the total end of 2010, and with most Japanese steel mills unscathed by cost of the 1995 earthquake in Kobe. It is similarly difficult to the devastating quake and tsunami, even a doubling in do- determine when rebuilding can start as Japan is overwhelmed mestic demand can be met from local supply. "Any expecta- by a worsening nuclear crisis and taking care of people with- tion that Japan would suddenly import a lot more steel might out food and water. be overblown," said Patrick Cleary, analyst at CRU in London. How long the rebuilding will take is another big unknown with "Disruption to capacity might be very significant in the short many industrial plants located on the coastline where the term, but I think, going forward, Japan is, by and large, going ground level sank after the tsunami, analysts say. Reconstruc- to meet its own requirements." tion after the Kobe disaster began about two months after The 9.0-magnitude quake and the tsunami that followed it that earthquake and lasted for two years. forced some steelmakers to suspend operations but many Japan, which last year overtook China as Asia's biggest steel resumed production by Sunday though state-mandated exporter, may have to cut overseas sales once its reconstruc- power outages and damaged ports continue to disrupt pro- tion is underway, opening a gap in the Asian supply chain for duction and shipments. other producers in China and South Korea.

A worker checks steel coils at a steel collection facility in Tokyo, REUTERS/Toru Hanai

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japan exported a record 43 million tonnes of steel in 2010, A cut in Japan's output should curb demand for raw materials according to the Japan Iron and Steel Federation, as the likes like iron ore and coking coal, helping calm prices that have of Nippon Steel and global fifth-ranked JFE Steel Corp , which shot up early this year on tight supply and Australian floods. get nearly half of their revenue from exports, sold more Spot iron ore prices have already fallen to more than three- abroad amid a shrinking market at home. month lows. "Within Asia Pacific, any reduction in Japanese exports by 1 Japan imports about 135 million tonnes of iron ore and around million tonnes per month will be significant to pricing and 70 million tonnes of coking coal a year, mostly via long-term margins and impact will be larger to countries like South Ko- contracts with global miners Vale , BHP Billiton and Rio rea and Taiwan and much smaller to India and China because Tinto of the size of their domestic demand," said Colin Liang, ana- "There's certainly a threat to raw material prices in the near lyst at Bank of America-Merrill Lynch. term and the steel industry will welcome that because the China has excess capacity of more than 100 million tonnes margins in the steel sector have been really squeezed by high but quality issues may prevent Chinese steelmakers from tak- production cost," said Cleary. ing over some of Japan's market share. "Japan has strict qual- But Nikko Cordial analyst Kazuhiro Harada doubted the out- ity codes which would make it a bit difficult for the Chinese to put cuts will have a major impact on raw material prices, par- export en masse but the better-run Chinese mills could take ticularly iron ore, given China's buying power, around five advantage," said Macquarie's Train. times bigger than Japan. The likes of Baoshan Iron and Steel , China's biggest listed "Japan's purchases are much smaller than China's. I would steelmaker, which produce high-end flat products like say the impact will be limited even if Japanese mills cut pro- hot-rolled coil, cold-rolled coil and other sheets and plates, duction." should benefit, he said.

"But the Koreans are probably the most obvious beneficiary because they import a lot of steel from Japan," said Train. "It Japan quake opens buying window for platinum, will tighten up the regional market because Japan won't be palladium exporting any excess long products." By Chikako Mogi and Rujun Shen Japan usually exports thick plates for shipbuilding, semi- finished products like hot coils and slabs and sheet steel for SINGAPORE/TOKYO cars and electronic appliances. apan's earthquake has opened a brief window of opportu- South Korea's POSCO, the world's No. 3 steelmaker, which nity for consumers and investors to stock up on platinum counts Nippon Steel and billionaire investor Warren Buffett as J and palladium after demand from automakers crashed in major shareholders, has been struggling to pass on rising the wake of the catastrophe, slicing as much as 10 percent off costs because of weak steel demand. prices. "First, we will see a lot of exports flowing back to the domestic The market has already started to recover as weaker demand market and on top of that there might be additional imports from Japan is quickly being offset as consumers ramp up of construction steel products into Japan," said Liang at Bank component output in other countries. of America-Merrill Lynch. The nation's industrial demand for platinum was around IMPORTS MAY RISE BRIEFLY 745,000 ounces, Johnson Matthey said in a recent report, and demand for palladium was 1.37 million ounces in 2010. Japan is not a big steel importer with last year's imports only reaching 7.2 million tonnes. The country increased imports of Autocatalysts account for more than half of that. Platinum construction steel from China several years ago, but many of group metals are used to make catalytic converters to cut ve- them stayed at ports due to quality problems. hicle emissions, electronics, and pressure sensitive adhesive on Post-it notes. "I'm sure there is enough steel capacity in Japan, but imports could temporarily rise if mini mills can't operate due to power "The Japan quake impact is bearish for the PGM markets in outages," said a Japanese analyst who declined to be named. the near term, but bullish over the long term," said Naohiro Niimura, a partner at Tokyo-based research and consulting The small mills, which produce construction steel using firm Market Risk Advisory Co. scraps, have a total capacity of about 43 million tonnes, ac- cording to recent government estimates. "The global economy is not as vulnerable and there will be companies willing to supply parts that Japan can't, which will Government-imposed blackouts have forced big steel users likely also prompt Japanese firms to strive for an early recov- like automakers Toyota and Honda to halt operations at all ery in production," he said. "So, I am keeping a bullish outlook Japanese facilities for days, suggesting steel mills may have to on PGMs unchanged." cut back on production prior to the rebuilding. Manufacturing demand accounts for more than 65 percent of Japan's steel Spot platinum sank to $1,654 an ounce on March 17, losing 8 consumption, followed by construction. percent from before the massive earthquake and tsunami struck Japan on March 11. "If the power situation becomes a medium-term issue and power restrictions remain in place then capacity might be It traded at $1,743.50 by 0652 GMT, still below the closing taken out, and it may be possible that Japan has to import price of $1,762 on March 10. Spot palladium slid over 10 per- more," said CRU's Cleary, adding it was difficult to estimate cent to a 3-month low of $684.50 in the week following the how much imports may rise. quake, before recovering to $748 on Friday.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japan's total consumption, including jewelry and investment Japan accounted for roughly 30 percent of global automobile demand, was 1.16 million ounces, or 36 tonnes of platinum output and is a major consumer of platinum jewelry. and 1.47 million ounces, or 46 tonnes of palladium -- 19 and While estimates of lost demand for platinum and palladium 21 percent of global mine output in 2010. due to the quake is unclear, traders said both markets appear In 2009, total demand for platinum was 1.05 million ounces to have found support, after speculative positions were largely while palladium was 1.3 million ounces. Demand for the met- cleared in the post-quake turmoil. als is bound to go up as Japan's automakers slowly resume In the week to March 15, speculators shed their long positions production following the quake. in platinum by 19 percent and in palladium by 16 percent, SUPPLY CHAIN CRITICAL data from the Commodity Futures Trading Commission Toyota Motor Corp plans to restart production of three hybrid shows. models on March 28, after closing all 18 factories following The closing of such long positions has led to a sharp plunge in the quake. With the other vehicle makers, including Nissan platinum price below $1,700 and palladium falling below Motor Co and Honda Motor Co , suspending operations, Ja- $700. pan is expected to have incurred a production loss of 335,000 "I don't think platinum will fall sharply from here as it is near units of light vehicles by end of March 25, research firm IHS the production costs," said Yuichi Ikemizu, Tokyo branch man- Global Insight said. ager for Standard Bank. An average of four to five grams of platinum group metals goes into an autocatalyst, but the quantity varies depending on the size and type of the engine as well as the market. "It's very conceivable that some makers could start production and would have to suspend production again if parts are not available," said Christopher Richter, an auto analyst at CLSA Asia-Pacific Markets. "When will the industry get to a normal footing? We could be looking at a period of some weeks, or maybe even a month or two. It's very uncertain." The earthquake and tsunami, which left thousands of people dead and missing, destroyed key infrastructure and fueled concerns of a nuclear crisis, disrupting global supply chains of parts for the cars and electronic goods Japan makes. The longer-term outlook for the group of metals remains positive as Japan rebuilds shattered towns and people replace items lost to the disaster. Among the buyers who took the opportunity of lower prices are end-users, jewellers as well as investors. "There has been physical buying after prices dipped, from China and other countries," said Dick Poon, manager of pre- cious metals at Heraeus in Hong Kong. "It's providing support to prices, though the volume isn't substantial." PREMIUMS POSITIVE Those buyers include Chinese autocatalyst makers, which consumed 930,000 ounces of palladium, about 18 percent of global demand, according to the Platinum 2010 Interim Re- port by Johnson Matthey. Poon said premiums for platinum and palladium in Hong Kong rose to $2 an ounce over London spot prices, from $1.50 before the earthquake, suggesting demand for the physical metal is rising. "Once palladium prices went below $700, Chinese buyers went in. It would be a shame if they let the chance go by," said A trader reacts as he looks at computer monitors at a foreign currency trading company in Tokyo March a China-based trader of platinum group metals. 25, 2011. REUTERS/Toru Hanai "A rebound in Japan's demand will take some time, while

China's auto industry is expected to continue its robust growth, supporting prices of these metals in the medium term."

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS POWER Giving a fillip to the sector, China, the world's biggest energy Japan nuclear crisis spotlights prospects for consumer, has already announced plans to raise the price of power generated from renewable sources over the next two renewables years to help encourage investments. By Luke Pachymuthu and Francis Kan China's renewable energy law obliges grid firms to buy all the SINGAPORE renewable electricity produced in their region, even though it is more expensive than coal-fired power, but it also allows he threat of a meltdown at nuclear reactors in Japan them to charge "additional" fees for clean electricity sources. has prompted scrutiny of renewable power options by T many nations as growing public unease pushes top con- Besides trying to double solar power capacity, renewable en- sumers to either go slow or halt any immediate expansion in ergy officials have urged more government support, saying nuclear power. promotion of clean energy sources could help fill any likely supply gap if safety concerns were to slow China's nuclear Japan, one of the world's top nuclear power generators and a programme. key advocate of the technology, plans a review of policy to tap sources such as solar. China too may double its target for NATIONAL SECURITY photovoltaic capacity over the next five years, and Taiwan is "Nuclear power can probably improve China's energy security, studying cutting nuclear output. Germany and Switzerland but whether it improves overall national security is something are either shutting older reactors or suspending approvals. that needs to be thought about deeply," Li Hejun, chairman of Investors are already betting on the change, carrying global the China New Energy Chamber of Commerce, which lobbies benchmark indexes to their highest in 14 months. on behalf of the renewable sector. The global FTSE Cleantech index has spiked more than 8 per- After the Japanese nuclear disaster, German Chancellor An- cent since Japan's earthquake struck on March 11, beating a gela Merkel declared a three-month moratorium on an exten- rise of around 2 percent in the MSCI all-country world stock sion her government had given last year to 17 nuclear reactors, index. The WilderHill New Energy Global Innovation index of carrying their lifespan an average of 12 years beyond a prior alternative energy stocks has gained around 12 percent. 2022 cut-off date. "If nuclear contributes less, then something has to make up Taiwan's state-run Taipower also said it was studying plans to the difference and that could very easily be renewables," Paul cut nuclear power output. Hanrahan, president and chief executive of New-York listed "Whatever their exact outcome, the Fukushima events are global power firm AES Corporation said in Singapore. likely to shift the energy policy balance towards renewables," Pricewaterhouse Coopers said in a report on March 28.

A man rides a bicycle at an area hit by earthquake and tsunami in Kesennuma, north Japan, March 17, 2011. REUTERS/Kim Kyung-Hoon

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Swiss Energy Minister Doris Leuthard suspended the approv- als process for three nuclear power stations so safety stan- dards can be revisited after the crisis in Japan. Robin Batchelor, a fund manager at BlackRock responsible for $8.2 billion in energy-related funds, said renewables were not really in focus for fund managers prior to the crisis in Ja- pan, adding that the disaster may prompt countries to have a rethink. EUROPE In Europe, the bloc's Renewable Electricity Directive missed a 2010 target of a 21 percent share for renewable energy out of total electricity generated, and now aims for it to account for 20 percent by 2020, the body said on its website. Industry executives and experts say the events unfolding in Japan will help speed the push towards this goal. "The ball is already rolling here in Europe as you have seen with the way the Green Party is advancing in Germany," said Thorbjoern Jensen, oil market analyst at Global Risk Manage- ment. "You will certainly see a bigger push on the part of all govern- ments here in Europe to diversify their slate for power genera- tion." In 2010, nearly half the value of power sector deals concluded in the renewables sector globally originated from Europe. The overall value based on deals done in the region was just over $13 billion, according to PwC. Hydro accounts for around 13 to 14 percent of the total power generated in Asia Pacific; renewables, excluding hydropower, will account for only 2.3 percent in 2010 and are only ex- pected to increase to 4 percent by 2030.

Wind, solar and biomass power are the largest contributors to Owada Yuna carries her three-year-old sister Yumeka as she searches for names of her 20 missing high the renewable contribution. school friends at a shelter for those evacuated from the disaster zone in Rikuzentakat after the area was devastated by a magnitude 9.0 earthquake and tsunami, March 21, 2011. REUTERS/Damir Sagolj The renewable share of world electricity generation is ex- pected to increase to 23 percent in 2035 from 18 percent in China was ranked ahead of Germany and the United States 2007, supported by high oil prices and government incentives, with private investments in the sector pegged at $54.4 billion. according to a U.S. Department of Energy report last Decem- Cost may be another factor discouraging large-volume spend- ber. ing in renewables. Renewable projects on which work may The bulk of that increase in renewable electricity supply will have begun, and will be ready in the next five or so, will be far be fueled by hydro and wind power, the department said. more expensive to run than thermal power projects. "Renewables are a big player in the mix, there will still be The U.S. Energy Information Administration says that in 2016, other sources of energy but the share of renewables will in- onshore wind, the least expensive renewable energy source, crease," said Evgeny Fedorov, chief executive of EuroSi- will be 80 percent more expensive to run than a combined bErnego, Russia's largest private power generator and one of cycle, gas-fired electricity. the world's biggest hydro-electric power players. But conventional nuclear power will still be the lowest price RENEWABLE ENERGY EXPANSION energy option in 2016, according to an EIA projection issued in December 2010. Still, much as governments around the world talk about boosting the renewable energy sector, an immediate surge in That is probably part of the reason for South Korea, a major spending flows is unlikely because projects will take time to global supplier of nuclear plants, to carry on with its nuclear prepare and get off the drawing board, analysts said. plans despite the crisis at its neighbour Japan. Investment in renewable energy across the globe was ex- Nuclear power accounts for 31.4 percent of South Korea's pected to maintain the momentum seen in 2010, when the electricity generation needs, and the world's fifth-largest oil number of deals in green energy projects rose 66 percent ver- importer has a target to increase that to 48.5 percent by 2024. It has 7 reactors under construction, with plans to build sus the previous year, the Pricewaterhouse Coopers report 6 more and bring to 34 the number on-stream by 2024. showed. But renewable power must battle reliability concerns, com- Overall investments in clean energy, excluding research and pared with thermal or nuclear power, as supplies of sunlight, development funding, in the Group of 20 major economies wind or water are not always steady, a hurdle the sector must rose 33 percent last year to $198 billion amid recovery from overcome before it can displace conventional sources. the recession, according to the report.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "Renewables, yes, to a certain extent you can use, but it can The utilities, including Tokyo Electric, would contribute to the only supplement, it cannot replace," said Che Kalib Mohamad fund in proportion to the number of reactors they own. Noh, chief executive of Malaysian power company Tenaga This could come to about 30-50 billion yen for each reactor, Nasional , adding that conventional fossil fuels and nuclear the newspaper said. power would play a pre-eminent role for the foreseeable fu- ture. The draft plan will likely face hurdles including opposition from shareholders of other utilities such as Kansai Electric, which has 11 reactors and could be asked to contribute as TEPCO's liability may be capped at $24-45 bln - much as 550 billion yen under the scheme, the paper said. Yomiuri Shares of the regional power monopoly have lost roughly 80 percent of their value since the disaster amid growing uncer- By Taiga Uranaka tainty over its viability given the prospect of staggering TOKYO, April 13 (Reuters) - Japan may cap Tokyo Electric amount of compensation. Media have reported a variety of Power's liability to as little as $24 billion for damages stem- ideas floated by government officials, including outright na- ming from its crippled nuclear plant, the Yomiuri newspaper tionalisation of Tokyo Electric and a spin-off of the Fukushima reported, citing a draft plan being considered by the plant nuclear plant into an entity to handle the accident and com- operator and the government. pensation. Shares of the company also known as TEPCO jumped 9.6 "We think extraordinary losses will total 554 billion yen (in the percent, while Kansai Electric and other utilities fell as the year ended in March), for the costs of scrapping the Fuku- newspaper said they may be asked to shoulder some of the shima Daiichi plant and bringing thermal power plants back compensation costs under the draft scheme. on line and 2 trillion yen in (the current financial year) for the costs of damage compensation to the local community," To- The scheme is designed to ease worries in the financial market mohiro Jikihara, an analyst at JP Morgan, said in a note. over the fate of Tokyo Electric, which is the country's largest corporate bond issuer and whose shares are widely held by Shares of Kansai Electric, which provides power to Osaka and financial institutions, the newspaper said. its neighbouring areas, fell 4.5 percent to 1,772 yen, while Chubu Electric , which serves Nagoya and its surrounding ar- The company is yet to determine the extent of the damage eas, declined 3.4 percent to 1,854 yen. from the March 11 earthquake and tsunami, but Bank of Amer- ica-Merrill Lynch had estimated TEPCO could face compensa- On March 11, a magnitude 9 earthquake and a massive tsu- tion claims of more than $130 billion. nami tore through Tokyo Electric's Fukushima Daiichi facility, 240 km (150 miles) north of Tokyo, causing radiation leaks in "It's too early to tell the fate of TEPCO at this moment, buying the world's worst nuclear disaster in 25 years. or even selling could be very speculative," said Yuuki Sakurai, CEO of Fukoku Capital Management. "It's still very uncertain in terms of how far the government Tepco may face $23.6 bln compensation costs- will go in supporting TEPCO. I think the general feeling is that JP Morgan might be a natural disaster, but some part of it is human er- ror. By Antoni Slodkowski And most people want to see TEPCO punished for the human TOKYO error," he said. okyo Electric Power could face 2 trillion yen ($23.6 bln) Global nuclear incidents since 1956: in special losses in the current business year to March T 2012 to compensate communities near its crippled nu- ( http://link.reuters.com/wym58r ) clear plant, JP Morgan said in a research report obtained by Evacuation zone: (http://link.reuters.com/put78r ) Reuters. Aftershocks bigger than 6: (http://link.reuters.com/net88r) Shares of Tokyo Electric, commonly known as Tepco, have lost about three-fourths of their value since the March 11 earth- Picture, graphic packages: (http://r.reuters.com/wyb58r ) quake and tsunami tore through the Fukushima Daiichi nu- In a statement, Tokyo Electric said what was reported by Yo- clear complex, causing it to leak radiation. miuri was not something disclosed by the company and noth- The government has evacuated people living in a 20 km (12 ing has been decided. Separately, the company said its Presi- miles) radius of the plant and announced on Monday that it dent Masataka Shimizu would hold a news conference at would encourage people to leave certain areas beyond that 0600 GMT on Wednesday. exclusion zone due to accumulated radiation. Under the plan, Tokyo Electric's liability would be capped at 2 As Tepco has struggled to contain the crisis, analysts have -3.8 trillion yen ($24-45 billion) and the company, Asia's larg- struggled to come up with viable estimates for the financial est utility, would pay 100-200 billion yen annually for 15 years burden facing the utility given the unprecedented scale of the from its profits, the newspaper said. problem and uncertainty over the likely degree of government The plan calls for other power firms to contribute to a fund support. that would shoulder up to 2.7 trillion yen of compensation JP Morgan said Tepco could face 554 billion yen of extraordi- payouts, with the remaining damages to be handled by the nary losses in the financial year ended last month for scrap- government, the Yomiuri said. ping the crippled plant and bringing thermal power plants back on line.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS It estimated that Tepco would have to shoulder 600 billion The government last week announced power reduction targets yen in extra costs due to increased use of thermal power in the for Tokyo and northern Japan that will require big manufactur- financial year to March 2012, and some 2 trillion yen in dam- ers and other large-scale users to cut a day's peak consump- ages to compensate local communities. tion in the summer by one-fourth. The Nippon Keidanren's JP Morgan said how a law governing such cases is interpreted members include almost 1,300 major firms. would be key in determining the company's liabilities. "A key issue concerning damage compensation is whether the Uranium supply outlook clouded after Japan Fukushima nuclear power plant accident is considered an unavoidable natural disaster," JP Morgan analyst Tomohiro crisis Jikihara wrote in the report. By James Regan "In the case of losses, Tepco also bears liability. We assume SYDNEY compensation of 2 trillion yen." lans for nuclear reactors have been put on hold world- Under Japanese law the operator of a nuclear facility can be wide in the wake of Japan's nuclear crisis, blurring the granted an exemption from damages caused by a reactor if P short term outlook for uranium, but the need for low- the accident was deemed to have been triggered by "a grave carbon energy supplies promises to keep demand for the metal natural disaster of an exceptional character." burning for a long time. The government has not yet decided whether it would classify Reactor programmes are under threat as Europe, the United the 9.0-magnitude earthquake and tsunami as an States and China review plans after Japan's worst earthquake "exceptional" disaster. Depending on the cause of a nuclear left some reactors on the edge of meltdown, stirring fears that accident, either the government or insurers can be required to additional mine supply being developed after years of under- provide the first 120 billion yen in liability coverage. investment could find few takers. Tokyo Electric would be liable for all damages exceeding that Uranium prices have fallen 10 percent to below $60 a pound amount if the exemption is not granted. If threatened with since the March 11 earthquake and tsunami, losing a fifth from financial ruin, however, it could ask the government for assis- January's price of nearly $75, itself nearly half an all-time of tance. $136 in 2007, . JP Morgan initiated coverage of the electric power industry with the report dated April 11, but it did not assign a rating or target share price to Tepco, citing the uncertain impact of the Fukushima nuclear accident. Among other utilities, JP Morgan started coverage of Kansai Electric with an "overweight" rating, citing expectations for an increase in profit growth over the medium term on rising ca- pacity use at its nuclear power plants. It rated Tohoku Electric "underweight", saying higher fuel costs would weigh heavily on earnings. The power company is expected to increase reliance on thermal fuel after the quake shut its Onagawa nuclear plant in northeastern Japan. Shares of Tepco finished up by their daily limit of 80 yen for a second straight session on Monday, at 500 yen. It was the most actively traded stock on the Tokyo bourse's first section, accounting for 10 percent of total volume.

Japan business lobby asks firms to compile power-saving plans TOKYO apan's biggest business lobby has asked its member companies and associations to compile by April 20 elec- J tricity-saving plans for the summer, an industry source with knowledge of the matter said, to help avoid rolling black- outs that could hobble the economy. The Nippon Keidanren on Monday requested that its mem- bers come up with the gist of their plans in line with govern- ment targets, the source said, as the country grapples with a shortage of power production after last month's massive earthquake and tsunami shut down several big nuclear and thermal stations.

A tsunami victim sits next to laundry hung to dry at an evacuation shelter in Yamada town. REUTERS/Damir Sagolj

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Commodities analysts do not rule out further declines as the Japan is a large consumer of uranium, accounting for 12 per- sector faces the equivalent of a nuclear winter of public oppo- cent of global demand, which is estimated at around 85,000 sition and consequent divestment. tonnes, but the run-up in prices over the last six months was "A $60-per-pound uranium oxide figure is the minimum re- fuelled by Chinese demand. quired to encourage new mines," said Warwick Grigor, a sector Energy-hungry China's ambitious reactor building programme analyst and chairman of BGF Equities in Sydney. has been the spur for plans by mining companies to boost out- It is too early to tell if the world will again turn away from nu- put of the uranium oxide necessary for nuclear power plants. clear power generation as it did in 1979, after the Three Mile China put on hold approvals last week for proposed plants and Island incident in the United States, and the 1986 Chernobyl vowed to reconsider long-term plans for 28 new reactors, or 40 disaster in what was then the Soviet Union. percent of all those being built worldwide. "If the outcome of the reviews leads to widespread cancella- Before the disaster at Japan's Fukushima Daiichi nuclear facil- tion of new nuclear capacity, there could be sufficient new ity, China's demand for uranium was projected to grow 44 per- demand for liquefied natural gas to compensate for the short- cent a year to reach 18,000 tonnes by 2016, said Rebecca fall," said Arnon Musiker, an energy and utilities analyst for Petchey, an analyst for the Australian Bureau of Agricultural credit ratings agency Fitch. and Resource Economics and Sciences. Japan's worst humanitarian crisis since World War Two ap- But a strategy heavily weighted toward China now appears pears far from over more than a week after a 9.0 magnitude more risky after Beijing suspended construction plans for nu- earthquake and 10-metre (33-foot) tsunami flattened coastal clear power stations in the wake of the disaster. cities and killed thousands, as well as triggering the world's Further clouding China's future uranium requirements, the worst nuclear crisis since Chernobyl. State Council also ordered relevant departments to make While every existing plant in the United States is likely to un- emergency safety checks at existing nuclear plants. dergo a review, Jerry Grandey, chief executive of Canada's top And in Europe, where nuclear power is widely employed, Ger- uranium producer, Cameco said he didn't see an end to re- many has shut down seven reactors built in the 1980s for licensing. safety checks in response to the crisis. "I don't think they're at risk of being shut down," he told No new forecasts have been issued since the Japanese disaster, Reuters. "I think they're all going to go through this self- but industry and analyst forecasts of a shortfall in mine supply examination and that would be expected." of uranium, seen at around 59,000 tonnes against consump- There are 23 reactors in the United States of design similar to tion of 86,800 tonnes this year, may now be overstated. the one affected by the crisis in Japan.

Kuala Lumpur Tower (C) is illuminated white and red in a sign of support for the quake and tsunami-hit Japan, April 4, 2011. REUTERS/Bazuki Muhammad

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Sydney-based Stock Resource is warning clients it could take The country now has only three mines, BHP Billiton's Olympic three to four years for tightness to return to the uranium mar- Dam, the world's biggest, Energy Resources Australia's ket because of the problems in Japan and uncertainty over Ranger mine in the Northern Territory, and the Beverly mine, other nuclear power plants. owned by U.S. company General Atomics. The big uranium After falling as far as $7 a pound on spot markets in 2000, producers developing plants in Australia have mostly been uranium prices staged a spectacular rebound to highs of silent on the implications of events in Japan. $136/lb by mid 2007 on the spot market U3O8 . BHP Billiton, Cameco , Rio Tinto and others are taking steps to Prices were pushed up as it became apparent that demand for dig new mines and expand old ones in hopes of capturing a uranium was increasingly outpacing new mine supplies, a forecast 20 percent leap in consumption of uranium raw mate- feature of the market since 1990. rial yellowcake, by 2015. Much of the gap was being filled with secondary supplies of In Australia, BHP wants to mine 90,000 tonnes of uranium uranium -- stockpiled fuel and nuclear arms decommissioned from its yet-to-be-developed Yeelirrie over 30 years but has yet since the end of the Cold War -- which are now in decline. to break any ground. BHP's Yeelirrie deposit in northwest Aus- That additional supply provided nearly half of demand in 1999 tralia is the country's second-biggest unmined uranium deposit but by 2010 it had dropped to 30 percent, Petchey estimated. after Rio Tinto's mothballed Jabiluka lode in the Northern Ter- ritory. The decline in secondary supply may accelerate once the megatons for megawatts program that converts Russian nu- BHP also owns the Olympic Dam mine in neighbouring South clear warheads into reactor fuel expires in two years, taking Australia, where it plans a massive expansion to 19,000 tonnes secondary supply lines from Russian and U.S. uranium stocks a year from 4,000 tonnes now, but has given no further details. to as low as 5 percent from 40 percent now, analysts say. Cameco has set a tentative start date of 2015 for its Kintyre MARKET VOLATILITY MAY HIT JUNIORS uranium mine. Nearby, ERA owns the Mulga Rock deposit, holding enough uranium to light up Tokyo for 30 years. John Borshoff, chief executive of uranium miner Paladin En- ergy , predicts uranium prices will rise in the short term on a Countries such as Kazakhstan, the world's top producer, and supply shortage and demand will remain strong from devel- parts of Africa, are also racing to dig new lodes, with Kazakh- stan's output alone forecast to grow 12 percent this year to oped nations that have no alternative to nuclear energy for 20,200 tonnes, according to Petchey. significant portions of electricity output. Japan's envoy to Kazakhstan, Yuzo Harada, has said he doubts But market volatility amid the Japanese crisis will make it the tragic events in his country will affect nuclear cooperation more difficult for junior miners to raise funds, presenting some or uranium supply pacts, adding that Kazakhstan aims to cap- opportunities for bigger players, the executive said in a TV ture 40 percent of the Japanese uranium market. interview on Australia's Inside Business. "I think that the position of all sensible people is that the in- dustry will learn and it will become even safer, and if you think Resource-poor Japan has little option but Japan is going to give up its nuclear generating, well, I don't know what's going to replace that," Borshoff said. nuclear power Doug Ritchie, chief of the energy division of global miner Rio By Chikako Mogi and Risa Maeda Tinto , is in the same camp as Borshoff. TOKYO Ritchie sees the uranium market in balance through at least apan's nuclear industry faces tougher safety norms and 2020, he said in a presentation on the company's website, higher costs for new plants but blasts and radiation leaks without making any mention of the Fukushima Daiichi catas- J at a quake-crippled complex won't soon displace nuclear trophe. from its key role in the nation's energy mix. He said Rio was doing studies to extend the life of its Rossing Less clear is whether the government will scale back a 2030 mine in South Africa, the world's third-largest uranium mine, goal of boosting nuclear power generation to half of national beyond 2023. electricity output from nearly 30 percent now, a target that Rio was also pursuing "multiple options" to extend the life of could come under pressure. Ranger Pit 3 deposit in Australia, operated by its 68 percent Chugoku Electric Power Co said on Tuesday it would put on subsidiary Energy Resources Australia beyond 2012. hold steps to build a new nuclear plant, plans for which had An increase in outstanding shares of a uranium exchange- begun in 2009, despite decades of resistance from local resi- traded fund suggests others too still see a bright future for the dents. nuclear industry. About 500,000 new shares in Global X Ura- Safety reviews, tougher and costlier design standards and nium were created last week, even as the share price of the likely longer approval steps in quake- and tsunami-prone Ja- ETF plunged about 25 percent since the disaster. pan, as well as an expected surge in public opposition to new Despite its uranium endowment as home to the world's larg- plants could lead to further delays, analysts say. est deposit, Australia holds barely a fifth of the global market. This could boost investment in gas-fired and cleaner coal Australia has almost 40 percent of the world's known ura- power plants and renewables."A single big accident can en- nium reserves, but supplies only 19 pct of the world market. It tirely change the trend for nuclear power plants," said Kuni- has no nuclear power stations. haru Miyachi, an analyst at Nomura Securities Co. in Tokyo.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "The latest development poses a turning point -- demand will The crisis has exposed how other plants in Japan and else- naturally rise for highly efficient thermal power," he said, re- where could be vulnerable and shows the global dilemma of ferring to combined-cycle gas turbine (CCGT) and integrated where and how to build nuclear power stations. "It is inevitable gasification combined cycle (IGCC) coal plants, for example. that confidence in nuclear power declines," said Tsutomu These are cheaper and quicker to build, but could pump out a Toichi of the Institute of Energy Economics of Japan. substantial rise in greenhouse gas emissions. In Japan, build- "Japan's nuclear renaissance, as a best option scenario, in ing a CCGT plant costs about half the price of an IGCC power terms of economy, environment and energy, has deadlocked, station, on a long-run marginal cost basis over an asset life of due to the Fukushima accident," said Yu Shibutani, director of 30 years. Energy Geopolitics Ltd of Japan. The gas plant also has a thermal efficiency of 57 percent com- The views of people living in the vicinity of nuclear plants must pared with about 40 percent for the coal plant, according to a be weighed, said Hideyuki Ban of the Citizens' Nuclear Infor- ThomsonReuters report, "Power generation in Asia-Pacific, mation Center in Tokyo. will Asia step on the gas?" The International Atomic Energy Agency, in a 2010 draft of new TOUGHER STANDARDS safety standards, recommended nuclear power plants be lo- A fire broke out on Wednesday at the six-reactor Fukushima cated more than 10 km (6 miles) from the sea or ocean shore- Daiichi complex owned by TEPCO , Asia's No. 1 utility. Winds line, or more than 1 km from a lake or fjord shoreline; or at an have carried low levels of radiation into Tokyo in the past 24 elevation of more than 50 m. from the mean water level. hours in a crisis that has heightened safety fears over nuclear Japan's 54 nuclear plants are along its coast. Friday's tsunami plants. struck the 40-year-old Fukushima complex, wiping out diesel "There's clearly going to be a review and there are clearly go- generators that had been providing power to pumps trying to ing to be probably further design assessments of some of cool the reactor core, worsening the disaster. these plants," said Fiona Reilly, head of nuclear services for "The cost of building and operating a nuclear power plant may global law firm Norton Rose, which specialises in the areas of increase significantly, but nuclear power is not expected to energy, infrastructure and commodities. disappear from the energy basket," said Ravi Krishnaswamy, of "I don't think Japan will ever stop having nuclear," she told Frost & Sullivan's regional energy and power systems practice. Reuters from London. "There will still be investors." "The disaster will most likely shift the focus to other base-load But she said new plants will have to be designed to meet even technologies like hydro and clean coal. More specifically, devel- tougher seismic standards after Friday's magnitude 9 quake opment of clean coal technologies like carbon capture and and devastating tsunami. sequestration and IGCC will get a boost," he said in a report.

Police officers in protective suits observe a moment of silence for those who were killed by the March 11 earthquake and tsunami, as they search for bodies at a destroyed area in Minamisoma, Fukushima prefecture, about 18km from the damaged Fukushima nuclear power plant, April 11, 2011. REUTERS/Kim Kyung-Hoon

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Players in the nuclear sector such as GE , which made the re- All six reactors at the complex have problems -- be it blown- actors at Fukushima, as well as Hitachi and Doosan were out roofs, potentially cracked containment structures, exposed also leading suppliers of these alternate energy technologies, fuel rods or just the risk of explosion that has been great he said. enough to force emergency measures. WHITHER GREEN GOALS? Of particular concern are a fire in a massive pool holding spent atomic fuel rods and a blast at the building housing the pool Japan last year set a 2030 goal of achieving 20 percent of energy output from renewable sources, 10 percent each from and reactor No.4. coal and LNG and less than 10 percent from oil, with nuclear The pool is exposed to the elements, unlike the reactor core making up the rest as way to cut globe-warming carbon emis- protected in steel and concrete. sions. "The nuclear renaissance was on the rocks in any case," said Fossil fuels are almost all imported, costing Japan about 3 Peter Bradford, a former commissioner on the U.S. Nuclear percent of annual gross domestic product. Renewable, includ- Regulatory Commission. ing hydropower, make up about 10 percent now and that He served on the commission in 1979 during the Three Mile share is expected to rise, fed by government subsidies. Island accident in the U.S. state of Pennsylvania. But even to replace the 9,100 megawatts from the Fukushima Bradford said a video of the explosion that destroyed a struc- Daiichi plant and its nearby sister complex Fukushima Daini, ture at the reactor at Japan's Fukushima complex would have a also shut down, would need major investment and cover large deep impact on the world's perception of nuclear power "It's areas in land-scarce Japan. going to be difficult to erase that from people's mental image A government estimate has shown, for example, solar panels of nuclear power for a long time," he said. But industry advo- spread across the same acreage as the city of Tokyo, would cates were quick to call for calm. generate enough power to replace the two Fukushima plants, "It's probably a little premature to draw conclusions from even factoring in the far lower energy efficiency of solar en- what's going on in Japan," said Mitch Singer, a spokesman for ergy. the U.S. Nuclear Energy Institute. "The nuclear policy should be replaced by alternatives such as "Even the most seriously damaged of the ... reactors has not wind power and solar power, which can be established swiftly yet released radiation at a level that is dangerous to the pub- and accelerated," said Tetsunari Iida, executive director of the lic." Institute for Sustainable Energy Policies. RECONSIDERING A RENAISSANCE But solar and wind expansion will be limited because neither can provide baseload, or on-demand, power and need to be Even so, the perception of the industry is likely to suffer a se- balanced by coal-, oil- or gas-fired power stations. vere setback, analysts said. In 2007, GE combined its nuclear Japan is not expected to abandon nuclear power but reining ventures with Hitachi on expectations of a nuclear renaissance in its growth could boost pressure to cut a spike in carbon in the coming years. emissions. The prevailing view was that concerns about carbon dioxide The government wants to boost nuclear capacity by about emissions and rising oil prices would push the world to look 9,000 MW in the next decade to meet a pledge to cut green- more favorably on nuclear power generation. house gas emissions by 25 percent by 2020 from 1990 levels. While the nuclear business is still just a small piece of GE's A greater switch into gas and coal-fired generation will make massive portfolio, investors could knock down its share price. that hard to meet and drive greater purchases of U.N. carbon The conglomerate built the Fukushima Daiichi Unit 1 reactor, offsets. where there was an explosion and radiation leak after Friday's quake and tsunami. "The area of the nation is small, so the ability to collect alter- native energy is small, so they really have to look at nuclear," The backlash could also send shares of Cameco and Uranium said Stephen Lincoln, who teaches nuclear chemistry at the One down sharply, after the uranium producers rose 55 and University of Adelaide in South Australia. 100 percent, respectively, over the past eight months as inves- tors bet on growing global demand for nuclear fuel.

The shutdown of 11 of the 54 operating reactors in Japan will Japan nuclear crisis passes Three Mile likely depress the short-term market for uranium, with the By Ben Berkowitz country deferring deliveries and leaving producers with a sur- plus. The situation will only worsen as investor confidence NEW YORK sours on the overall future of the industry, pushing spot prices onditions at a stricken nuclear power plant in Japan further down. have deteriorated so much that there is a growing con- CHINESE PLANS MAY NOT CHANGE C sensus the crisis is greater than the Three Mile Island accident in 1979, and there are fears that it could get signifi- While the incident could hurt nuclear roll-out in the United cantly worse. States and Japan, China and India are expected to push for- ward with plans to increase their nuclear footprint as they look Academics and nuclear experts agree the problems at the to expand power sources to fuel rapid urbanization. Fukushima Daiichi reactors are grave, and the solutions being proposed are last-ditch efforts to stem what could well be China plans to boost its nuclear generation from about 11 giga- remembered as one of the world's worst industrial disasters. watts a year to at least 80 gigawatts by 2020. The Asian na- tion has 50 reactors in the planning stage.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Current global demand for uranium is 180 million pounds a "This is what you would call a show-stopping event," said year, of which 140 million pounds comes from mine produc- Robert Alvarez of the Institute for Policy Studies, who is an tion. The rest is filled by stockpiles and downgraded weapons- opponent of nuclear power development globally. "At a mini- grade uranium, according to Cameco. mum, I think there's going to be some reappraisal about the China alone will need up to 60 million additional pounds a degree to which countries want to pursue a nuclear future." year if it is successful in its roll-out. While analysts don't expect China to back down due to the BREAKINGVIEWS-Japan's nuclear mishap risks situation in Japan, the Asian nation will face increased pres- world energy balance sure to make sure its new reactors meet the highest safety standards. -- The author is a Reuters Breakingviews columnist. The opinions expressed are his own -- "I would hope that since China is in an earthquake zone as well, that these events provoke the Chinese to install more By Christopher Swann safety precautions," said Salman Partner's Goldie. NEW YORK The situation is less clear in India, which has plans to double ven if Japan brings the steaming Fukushima Daiichi nu- its nuclear output over the next 10 to 15 years, but already clear reactor under control, fallout from the earthquake- faces massive bureaucratic delays in developing atomic E caused accident threatens the world's energy balance. power. America's nuclear industry has never really recovered from the The Japanese quake could also slow Brazil's plans for new relatively harmless Three Mile Island mishap in 1979. nuclear power generation to help meet growing demand -- The price of a decline in Japan's ardor for nuclear power would and prevent a repeat of recent blackouts. be higher coal and natural gas prices. "Nuclear power has gained traction in Brazil because it has Public confidence in nukes always hangs by a delicate thread. less climate impact than fossil fuel generation, but this acci- The industry can ill afford even the smallest mishap. Even dent in Japan could renew environmental opposition to nu- though the prospect of a full-scale meltdown at Japan's mal- clear," said Adriano Pires, an energy expert at the Brazilian functioning nuclear plant now looks remote, plenty of damage Centre for Infrastructure. may already have been done. While the full impact of Japan's nuclear accidents remain to And Japan is one of the giants of the world nuclear industry, be seen, opponents say that the risk has been made clear producing almost 30 percent of its electricity from the source. enough to force most governments to reconsider plans to Ambitions to boost this to 50 percent by 2030 may now be build out nuclear capacity. called into question.

A man warms himself next to a stove as tsunami victims take shelter in a Buddhist temple in Kesennuma, two weeks after the area was devastated by a magnitude 9.0 earthquake and tsunami, March 25, 2011. The March 11 quake and tsunami have left at least 27,000 dead and missing in northeast Japan. REUTERS/Damir Sagolj

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS If so, the implications would be truly global. The growing Fear of radiation is deep-seated in the country -- just look at its world hunger for energy is already likely to strain supplies over great cinematic export, Godzilla movies. o a minor lapse could coming decades. By 2030 consumers and businesses world- prove a big setback -- one that makes meeting the world's vo- wide will be gobbling up 35 percent more energy than in racious demand for energy look still more intimidating. 2005, according to Exxon Mobil. CONTEXT NEWS That leaves little margin for error. Furthermore, until renew- -- Radiation leaked from Japan's earthquake-crippled Fuku- able sources become more economical and scalable, the nu- shima Daiichi nuclear power plant on March 12 after a blast clear industry is the biggest source of low carbon electrical blew the roof off, and authorities prepared to distribute iodine energy. to people in the vicinity to protect them from exposure. If atomic energy growth is retarded it will become harder to -- The government insisted radiation levels were low because balance rising energy demand with a desire to avoid cooking although the explosion at the facility severely damaged the the world's atmosphere. main building of the plant, it had not affected the reactor core Nuclear enthusiasts will point out that Japan's accident need- container. n't deter others. Local media said three workers suffered radiation exposure at After all, most other big nuclear nations -- notably France -- the plant in the wake of Friday's massive earthquake, which don't face big seismic risks. Such nuances may be lost on sent a 10-meter (33-foot) tsunami ripping through towns and members of the public, however. cities across the northeast coast. A renaissance in the U.S. nuclear industry -- still the largest in -- Kyodo news agency said more than 1,700 people were killed absolute terms -- looks even less likely than a week ago. Even or missing as a result of the 8.9 magnitude earthquake, the a minor scaling back of Japan's nuclear ambitions could be biggest in Japan since records began in the nineteenth century. enough to shift the global energy balance by forcing the Later it said 9,500 people in one town were unreachable, but country to rely more on natural gas. gave no other details. The public demands nothing less than perfection from the The blast raised fears of a meltdown at the power facility, 240 nuclear industry in terms of safety. km (150 miles) north of Tokyo, as officials scrambled to contain That's particularly true in Japan, the only nation to have en- what could be the worst nuclear disaster since the Chernobyl dured a nuclear attack. explosion in 1986 that shocked the world.

A woman waits in line during a food distribution effort at an area destroyed by the March 11 earthquake and tsunami in Ishinomaki, northern Japan April 3, 2011. Japanese engineers grappling on Sunday to control the world's worst nuclear crisis since Chernobyl tried to seal a crack leaking radiation into the Pacific sea from a crippled reactor. REUTERS/Carlos Barria

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS IAEA concerned about Fukushima food radiation Last week, Japanese authorities recommended that people who have evacuated the area near the Fukushima plant should By Michael Shields and Fredrik Dahl take stable iodine as a precaution, the IAEA said on Saturday. VIENNA Taken as pills or syrup, stable (non-radioactive) iodine can be he radioactive contamination of some food near Japan's used to help protect against thyroid cancer in the event of ra- stricken nuclear plant has become a concern even as diation exposure in a nuclear accident. T authorities report progress in their battle to prevent a China's energy chief Liu Tienan, head of the National Energy meltdown at the site, U.N. officials said. Administration, said relevant Chinese parties must carefully "There have been some positive developments in the last 24 analyse the Japanese accidents. hours but overall the situation remains very serious," said Gra- Nuclear safety is critical and developing a nuclear power sector ham Andrew, a senior official of the International Atomic En- safely must be guaranteed, he said in a report posted on the ergy Agency (IAEA). website of the National Development and Reform Commission He was speaking at a news conference after Japan restored (www.ndrc.gov.cn). power to some units at the crippled nuclear reactor in a race Liu made the comment on Sunday during a visit to the China to avert disaster at the plant wrecked by an earthquake and Institute of Atomic Energy, where China is building its first ex- tsunami that hit Japan on March 11, killing thousands of peo- perimental fast reactor. ple. China has long set a three-stage nuclear strategy: first devel- In addition, workers have successfully placed two other reac- oping thermal reactors, then fast reactors and finally fusion tor units into "cold shutdown", with cooling systems stable reactors, the statement said, without giving a timeframe. and under control, the IAEA said. Zhang Lijun, a vice environment minister, said on Saturday "Japanese authorities have notified the IAEA of progress at China would not change its plans to develop nuclear power the Fukushima Daiichi nuclear power plant," the Vienna- even though some lessons learned from Japan would be con- based nuclear agency said in a statement on its website. But sidered in the construction of China's nuclear power plants. cases of contaminated vegetables, dust and water have raised new fears in Japan. FAST EXPANSION The government has prohibited the sale of raw milk from Fu- China is building about 28 reactors or roughly 40 percent of kushima prefecture and spinach from a nearby area. It is con- the world's total, part of a massive drive to reduce its heavy sidering further restrictions on food. dependence on dirty coal and cut carbon emissions. The IAEA confirmed that in some areas iodine 131 -- a radioac- Coal is the source of around 80 percent of China's power out- tive isotope -- had been found in milk and freshly grown vege- put. tables "significantly above the levels set by Japan for restrict- China has only 10.8 gigawatts of nuclear generating capacity in ing consumption of these food products", Andrew said. operation after more than two decades of construction, so the LOCAL PROBLEM plan to get almost four times as much underway in the next five years represents a dramatic acceleration. "The contamination of food and water is a concern," another IAEA official, Gerhard Proehl, told the news conference. He The country's rapidly expanding nuclear power industry is de- said the situation must be monitored carefully. Measurements manding more professionals than the country can produce, a at a location about 46 km from the plant showed iodine 131 potential threat to safety, a senior government official has levels in milk up to 15 times above the level suitable for in- warned. fants, he said. For spinach, detected levels were also many The official Chinese target had been delayed for some months times above the limit. already due to conflicts between those who favour an aggres- Proel said Iodine 131 decays quickly and is not a long-term sive expansion and those who want a more cautious approach, concern, but another radioactive element called caesium 137 due primarily to concerns over safety and a lack of experienced "could stay in the soil for quite a long time" and could poten- personnel to run so many plants, a senior official with the tially be absorbed by plants. China Nuclear Society told Reuters on Monday. Andrew described the food contamination as "a very localised It will probably take some time before China can fully assess phenomenon at the moment as far as we know" and also said what the Japanese case might mean for future Chinese plans, that food produced in other countries had not been affected. said the official, who declined to be named. Asked whether there may be any trade implications, U.N. food China's nuclear power plants are safe because the reactors in agency official David Byron said national authorities were re- service adopted mostly improved technologies and nuclear sponsible for food production, distribution and sale. sites were far away from geological rift zones, "That doesn't mean the importing countries aren't doing any- CNNC said in a report on its website (www.cnnc.com.cn), citing thing as well," said Byron, who is currently seconded to the its chief fast reactor expert Xu Mi. IAEA. "One way or another it is either being controlled by the Japanese, which I assume aren't shipping anything at this point, or being monitored ... by the importing control author- ity."

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS OIL The magnitude 9.0 quake on March 11 caused the loss of Japan oil stocks release may cap need for 14,903 megawatts of TEPCO's nuclear and thermal plants, or 23 percent of its total power source including hydro plants, and plentiful imports it has imposed rolling power blackouts to most of the areas it By Florence Tan and Jennifer Tan covers for the first time in its 60-year history. SINGAPORE TEPCO, Japan's biggest utility, said on Friday it expects its power supply capacity for the summer to reach 46,500 MW, apan's move to release reserve oil stocks will boost sup- excluding hydro power using pumped water, nearly 10,000 plies by more than three times the refining capacity it lost MW less than projected peak demand, which is expected to hit following the earthquake and tsunami, dispelling expec- J 55,000 MW even after taking into account users' efforts at tations of a sudden spurt in fuel imports needed to kickstart power saving. reconstruction. Toshinori Ito, a senior analyst at UBS Securities Japan, said he The world's third-largest economy is making available a total expects TEPCO to supply around 48,000 MW this summer, of 10 million kilolitres of oil, or 66 million barrels, compared excluding hydro generation from pumped water. TEPCO sees power shortage despite restart of "Peak summer demand in the past few years ranges from some units 55,000 MW to 62,000 MW, so the power shortage will be By Osamu Tsukimori much more significant than last week," he said, adding that there will be a need for rolling blackouts that would affect TOKYO wider areas, including central Tokyo, which is currently exempt. okyo Electric Power Co (TEPCO) expects power short- Ito said if TEPCO's 1,100 MW No.3 reactor at its Kashiwazaki ages during the peak summer demand period to be Kariwa plant on the Sea of Japan coast, which has been shut T more severe than in March, even though it will have since a 2007 quake, and Tohoku Electric Power's 1,100 MW restarted by then most thermal and mothballed units shut No.1 reactor at its Higashidori plant, from which TEPCO gets due to the earthquake that devastated large parts of north- half of the electricity generated, are able to resume operations east Japan. by the summer, TEPCO's target summer capacity of 50,000 MW is theoretically possible.

An employee cleans as a sign reading "out-of-stock" is displayed at a gas station in Tokyo March 18, 2011. Japan's Cosmo Oil Co said it has raised crude refining capacity at its Yokkaichi and Sakaide refineries in western Japan by 50,000 barrels per and 30,000 bpd, respectively, as its biggest refinery in Chiba remains shut for the foreseeable future after a devastating earthquake a week ago. REUTERS/Toru Hanai

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS TEPCO aims to resume by late July 7,600 MW worth of power "The release of the reserves will definitely soften cracks," said units shut after the quake, although capacity will still be short Victor Shum, an analyst at Purvin & Gertz. "It will impact senti- of peak summer demand. It also said it would restart ment in the refined products market, and cracks will give back mothballed power units at its Yokosuka plant, south of Tokyo, some of their recent gains." totalling 900 MW. Following are details of additional power WEIGH ON MARGINS supply that TEPCO has factored into its plans for the end of July: Japan is likely to release more oil products than crude as they could be used directly, local traders said. "The message from - To resume operations at its quake-shut 4,400-MW oil-fired the government is to supply as much products as possible to Kashima plant and 1,000-MW coal-fired Hitachinaka No.1 domestic markets," one trader said. The release would depend unit. That will raise its operable thermal units that shut after on what the companies have stored, he said. the quake to 7,600 MW from the present 2,675 MW. At the end of January, Japan's reserves were at 36.37 million - Does not expect the restart by the summer of its oil-fired kilolitres of oil product equivalent, or 230 million barrels, - of Hirono No.2 and No.4 units, with total capacity of 1,600 MW, which 18.06 million kilolitres in crude and 19.22 million kilo- that were shut after the quake. - To resume 900 MW of op- litres in oil products. The total privately-held reserves as of erations of mothballed power units at its Yokosuka plant. December were at 87 days worth of domestic demand for oil. These consist of No.3 and No.4 units, oil-fired units with ca- pacity of 350 MW each, and gas-turbine No.1 and No.2 units, Asian gas oil cracks held below $23 a barrel on Tuesday, falling with capacity of 30 MW and 144 MW respectively. for the third straight session, on the prospect of lower require- ment as Japan began tapping its reserve barrels to plug a sup- - It says 3,700 MW worth of power units currently under ply gap and several refineries boosted output. planned maintenance will return to operation. These include 380-MW city gas-fired Shinagawa No.1-1 unit and 350-MW Japan's seasonal kerosene demand will come off very sharply Yokohama No.7-2 unit. Sees 400 MW of additional output in the next two months when winter is over, and as Chinese from installing equipment including gas turbines. refineries come back from maintenance next month, J.P. Mor- gan's Bustnes said.

RECONSTRUCTION, RESTOCKING Japan oil stocks release may cap need for Still, analysts don't expect oil product prices in the region to go plentiful imports back to pre-quake levels as Japan starts to rebuild itself from By Florence Tan and Jennifer Tan the world's costliest ever natural disaster, with the government estimating damage at 15-25 trillion yen ($185 billion-$308 SINGAPORE billion). The upper end of that range would equate to about 6 apan's move to release reserve oil stocks will boost sup- percent of Japan's gross domestic product. plies by more than three times the refining capacity it lost "We don't expect a sharp correction in cracks to pre-quake lev- J following the earthquake and tsunami, dispelling expec- els, because this is a temporary measure," Shum at Purvin & tations of a sudden spurt in fuel imports needed to kick start Gertz said. "Once reconstruction goes into full swing, probably reconstruction. by summertime, we will see increased demand for diesel, gaso- The world's third-largest economy is making available a total line and fuel oil for power generation." of 10 million kilolitres of oil, or 66 million barrels, compared It could also help the crude market in the next year or so as the with a loss of refining capacity of 19.6 million barrels to date, country starts to replace the stocks it is releasing. Japan's refin- according to Reuters calculations. ing capacity before the quake was 4.62 million barrels per day, That additional volume will help balance Asia's oil product and the country mostly processes crude oil from the Middle market that saw diesel cracks surge to a 2-1/2-year high last East. week on expectations Japan will soak up cargoes. It may also "Using the release in the U.S. following the Katrina and Rita dampen Middle East crude prices as refiners opt to process oil hurricanes as an example, the industry will most likely be from the reserves, hurting a market that is already saddled asked to replace the volume within a year, perhaps even sooner with surplus barrels as the nation defers and cancels imports. as recovery takes hold," J.P. Morgan analysts led by Lawrence "The impact of releasing inventories is usually greater than Eagles said in a note on March 22. that of re-filling it," Brynjar Bustnes, a Hong Kong-based ana- SUPPLIES IMPROVE lyst at J.P. Morgan said. Some progress has been made in restoring energy supplies to "It will prevent Japan from importing" or it will import less. the quake-stricken areas. The release of about 9.24 million kilolitres (58.1 million bar- The trade ministry said that since Monday, oil product ship- rels) of reserves, follows 1.26 million kilolitres from mandatory ments to metropolitan areas in the Kanto region around Tokyo stockpiles, or three days' worth of demand, last week. have recovered to year-earlier levels, with 50,000 kilolitres That was only the second release of reserves since a 70-day transferred from west Japan, the draw down of stocks in the inventory cover system was introduced in 1993. In the after- region and restarts at some refiners. math of Hurricane Katrina in 2005, Japan left a lower reserve JX Nippon Oil & Energy Corp, a refining unit of JX Holdings , requirement in place for about four months. With the latest resumed operations at its Negishi refinery in Yokohama, south measure, the ministry has relaxed the requirement to let com- of Tokyo, on Monday. panies hold 45 days worth of oil.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS The refinery, which produces 270,000 barrels per day, has Japan oil stocks release may cap need for started production of gasoline and light oil to be shipped to plentiful imports areas damaged by the earthquake and tsunami. By Florence Tan and Jennifer Tan Another major oil producer, Idemitsu Kosan Co , also said it began unloading oil products totalling 2,010 kilolitres at its SINGAPORE Shiogama oil terminal in Miyagi Prefecture in the vicinity of apan's move to release reserve oil stocks will boost sup- the quake on Monday. The products included 1,050 kilolitres plies by more than three times the refining capacity it lost of gasoline, 470 kilolitres of kerosene and 490 kilolitres of gas J following the earthquake and tsunami, dispelling expecta- oil. tions of a sudden spurt in fuel imports needed to kickstart re- The release of reserves should help balance oil markets in construction. Asia, but may erode refining margins in the next one to two The world's third-largest economy is making available a total months, Injae Lee, a Seoul-based oil analyst at KB Investment of 10 million kilolitres of oil, or 66 million barrels, compared and Securities, said. with a loss of refining capacity of 19.6 million barrels to date, Going forward, margins are likely to remain firm as only according to Reuters calculations. 700,000 barrels per day (bpd) of refining capacity will be That additional volume will help balance Asia's oil product added in 2011, less than half of the demand growth forecast. market that saw diesel cracks surge to a 2-1/2-year high last- "It won't be a problem to see refining margins rise in the third week on expectations Japan will soak up cargoes. and fourth quarters," Lee said. It may also dampen Middle East crude prices as refiners opt to process oil from the reserves, hurting a market that is already saddledwith surplus barrels as the nation defers and cancels Japan's JX: Negishi refinery running at full imports. "The impact of releasing inventories is usually greater capacity than TOKYO, that of re-filling it," Brynjar Bustnes, a Hong Kong-based ana- apan's top oil refiner JX Nippon Oil & Energy Corp said on lyst at J.P. Morgan said."It will prevent Japan from importing" Tuesday its 270,000 barrels per day (bpd) Negishi refin- or it will import less. J ery, shut temporarily after a massive March 11 quake, has The release of about 9.24 million kilolitres (58.1 million barrels) raised its output to full capacity since Sunday, to offset lost of reserves, follows 1.26 million kilolitres from mandatory output from two other refineries damaged by the quake. stockpiles, or three days' worth of demand, last week. That was The company added that its 115,000 bpd Osaka refinery, a only the second release of reserves since a 70-day inventory joint venture with Petrochina which has been shut since March cover system was introduced in 1993. 11 for planned maintenance, will resume output on April 13, as scheduled.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS In the aftermath of Hurricane Katrina in 2005, Japan left a JX Nippon Oil & Energy Corp, a refining unit of JX Holdings , lower reserve requirement in place for about four months. resumed operations at its Negishi refinery in Yokohama, south With the latest measure, the ministry has relaxed the require- of Tokyo, on Monday. The refinery, which produces 270,000 ment to let companies hold 45 days worth of oil. barrels per day, has started production of gasoline and light oil "The release of the reserves will definitely soften cracks," said to be shipped to areas damaged by the earthquake and tsu- Victor Shum, an analyst at Purvin & Gertz. "It will impact sen- nami. timent in the refined products market, and cracks will give Another major oil producer, Idemitsu Kosan Co , also said it back some of their recent gains." began unloading oil products totalling 2,010 kilolitres at its WEIGH ON MARGINS Shiogama oil terminal in Miyagi Prefecture in the vicinity of the quake on Monday. The products included 1,050 kilolitres of Japan is likely to release more oil products than crude as they gasoline, 470 kilolitres of kerosene and 490 kilolitres of gas oil. could be used directly, local traders said. "The message from the government is to supply as much products as possible to The release of reserves should help balance oil markets in Asia, domestic markets," one trader said. The release would de- but may erode refining margins in the next one to two months, pend on what the companies have stored, he said. Injae Lee, a Seoul-based oil analyst at KB Investment and Se- curities, said. At the end of January, Japan's reserves were at 36.37 million kilolitres of oil product equivalent, or 230 million barrels, - of Going forward, margins are likely to remain firm as only which 18.06 million kilolitres in crude and 19.22 million kilo 700,000 barrels per day (bpd) of refining capacity will be added in 2011, less than half of the demand growth forecast. litres in oil products. "It won't be a problem to see refining margins rise in the third The total privately-held reserves as of December were at 87 and fourth quarters," Lee said. days worth of domestic demand for oil. Asian gas oil cracks held below $23 a barrel on Tuesday, fal- ling for the third straight session, on the prospect of lower Japan quake may spur more Sakhalin LNG -Shell requirement as Japan began tapping its reserve barrels to plug a supply gap and several refineries boosted output. By Olesya Astakhova and Jessica Bachman Japan's seasonal kerosene demand will come off very sharply MOSCOW in the next two months when winter is over, and as Chinese he nuclear crisis that followed an earthquake in Japan refineries come back from maintenance next month, J.P. Mor- may help Shell's case in talks with Russia's Gazprom on gan's Bustnes said. T new liquefaction capacity at their Pacific gas fields, RECONSTRUCTION, RESTOCKING Shell's Russia head said . Still, analysts don't expect oil product prices in the region to "This disaster, if you like, is an impetus to those discussions," go back to pre-quake levels as Japan starts to rebuild itself said Royal Dutch Shell's Russia country chairman, Charles from the world's costliest ever natural disaster, with the gov- Watson, who flew into Japan 20 minutes before the earth- ernment estimating damage at 15-25 trillion yen ($185 billion- quake hit and stayed there for five days. "I got some sense of $308 billion). the social and economic shock it created," Watson told Reuters in an interview. The upper end of that range would equate to about 6 percent of Japan's gross domestic product. "We don't expect a sharp "Of course the consequences are not yet clear, but it seems correction in cracks to pre-quake levels, because this is a tem- obvious that nuclear as part of the mix is now highly chal- porary measure," Shum at Purvin & Gertz said. "Once recon- lenged and that there is an opportunity in the short term and in struction goes into full swing, probably by summertime, we the longer term for more gas." will see increased demand for diesel, gasoline and fuel oil for Shell's main asset in Russia, a stake in Sakhalin-2 established power generation." in the 1990s under a production sharing agreement, supplies 5 It could also help the crude market in the next year or so as percent of the world's liquefied natural gas, or about 10 million the country starts to replace the stocks it is releasing. Japan's metric tonnes a year. refining capacity before the quake was 4.62 million barrels Talks with Gazprom on expanding Sakhalin-2's liquefaction per day, and the country mostly processes crude oil from the capacity to include a third train have been going on for some Middle East. time. "Using the release in the U.S. following the Katrina and Rita Earlier this month, Sakhalin Deputy Governor Sergei Khotochin hurricanes as an example, the industry will most likely be told Reuters the project's shareholders were looking to in- asked to replace the volume within a year, perhaps even crease the liquefaction capacity of the plant by 50 percent to sooner as recovery takes hold," J.P. Morgan analysts led by reach an annual project of 15 million tonnes. Lawrence Eagles said in a note on March 22. Sakhalin-2 is currently Russia's only LNG project. SUPPLIES IMPROVE OTHER PROJECTS Some progress has been made in restoring energy supplies to Shell is also in talks with fast-growing independent gas pro- the quake-stricken areas. The trade ministry said that since ducer Novatek to join Total as a foreign partner in Yamal LNG, Monday, oil product shipments to metropolitan areas in the Novatek's landmark Arctic extraction and liquefaction project. Kanto region around Tokyo have recovered to year-earlier Sources have said Norway's StatoilHydro is also in advanced levels, with 50,000 kilolitres transferred from west Japan, the talks to join. draw down of stocks in the region and restarts at some refiners.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "We are in discussions with Novatek on joining the Yamal LNG These estimates, however, do not factor in changes following project .... and we're talking about potential exploration with the massive quake, Japan's biggest on record, that struck on Rosneft in the offshore Arctic," said Watson. March 11. He also said Shell, which is building a motor oil production Crude and fuel oil volumes are in thousands of kilolitres, while facility in the town of Torzhok, is looking for downstream deals liquefied natural gas (LNG) and coal volumes are in thousands to pursue with Gazprom's oil arm, Gazprom Neft , which is of tonnes. Shell's partner in oil joint venture Salym Petroleum.

Following the earthquake, Gazprom, Shell and Japanese part- ners Mitsui and Mitsubishi Corp in the Sakhalin-2 LNG pro- Japan's sudden demand to boost W Africa crude ject pledged two extra cargoes of LNG for Japan. Japan's flows to Asia northern island of Hokkaido is just over 40 kilometres from By Florence Tan Sakhalin or a two-day trip by LNG tanker, making Russia the best suited neighbour to export its gas to Japan, the world's SINGAPORE largest LNG importer. sia will get a larger inflow of low sulphur crude oil over Shell lost the operatorship of Sakhalin-2 to Gazprom after a the next month or so from the West as quake hit-Japan dispute over investment and development of the project, in A soaks up the region's production to feed its refineries what was seen as a harbinger of tough times for foreign inves- and supplement fuel for power, forcing other buyers to turn tors as Russia sought to reassert control over natural re- elsewhere. sources. Japan, the world's third largest oil consumer, is ramping up But the past three months, a flurry of drilling deals between output at refineries to boost output of fuel to fill shortages and state-owned Rosneft and foreign majors has shown a change compensate for lost production at plants in its north affected in the stance of the Russian government, which must help oil by this month's devastating 9.0-magnitude earthquake and companies fight waning production and drill on more chal- tsunami. lenging terrain. It is also seeking crude to generate power to make up for the "Russia is open for business now," said Watson. 9,700 MW of nuclear capacity lost, or about a fifth of total ca- pacity, while an estimated 10,800 MW of thermal power gen- Russia is also struggling to maintain its share of the gas mar- eration has also been lost. ket in Europe, where state export monopoly Gazprom sup- plied about 25 percent of the total 560 billion cubic metres That sudden surge in demand has quickly absorbed already (bcm) consumed last year. limited supplies from within the Asia-Pacific region because of reduced output from ageing fields, leaving buyers with little "The optimal way for Europe to fulfil its energy policy is to choice but to resume arbitrage purchases. increase its gas consumption, and Russia has every chance to maintain its very significant share of that total market. There- High prices had slowed the flow of Atlantic Basin crude into fore this energy (Yamal LNG) project out of the northwest is Asia for April. attractive," said Watson. "All of the Asian sweet production is processed regionally and so supplemental requirements must come from outside the region," said John Vautrain, director at Purvin & Gertz in Singa- FACTBOX-Japan utilities' fossil fuel use plan in pore. "Those requiring sweet grades have few options." 2011/12 Japan would need around 200,000 barrels per day on an an- TOKYO nual basis for burning at power plants if it decided to use oil to fill the entire shortfall in nuclear power generation, the Interna- hubu Electric Power Co announced its fuel purchase tional Energy Agency said. In January, Japan imported around plan for the business year starting on April 1, to be fol- 4 million barrels of crude oil a day, government data show. C lowed by similar announcements this month from other major power companies except for quake-affected To- By comparison, in 2007, during a 21-month outage of the Ka- kyo Electric Power Co and Tohoku Electric Power Co . shiwazaki-Kariwa plant, burning of fuel oil and crude rose by 250,000 bpd, the IEA said. The following table shows Chubu Electric's fuel buying plan for 2011/12, versus estimated volume for the current business Oil firm Chevron Corp has sent a shipment of Indonesian Mi- year, reflecting an expected increase of supply from nuclear nas crude to Tokyo Electric Power Co. and will help with en- power. ergy needs of the country, the U.S. firm said. Japan also needs utilities fuel -- liquefied natural gas (LNG), diesel, fuel oil -- to In February, the last reactor at its sole Hamaoka nuclear plant stave off power shortages after the quake. resumed commercial operations, after having been shut down since a magnitude 6.5 earthquake hit central Japan in 2009. REFINERIES RAMP UP OUTPUT Japan has soaked up all the available Indonesian Duri crude in the market besides Sudanese Nile Blend and heavy sweet COMPANY/YEAR FUEL OIL CRUDE TOTAL OIL LNG COAL grades from Australia, traders said, driving up spot premiums. Chubu Electric (purchase) "A key use of sweet crude oils is to manufacture low sulphur 2011/2012 50 690 740 8,420 9,290 fuel oil that is required by some power plants and industrial consumers, principally in North East Asia, but also elsewhere," 2010/2011 60 550 610 10,430 11,040 Vautrain said.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS About half of the 1.398 million barrels per day (bpd) of refin- Still, high prices have not deterred Indian buyers, who continue ing capacity shut after the earthquake will resume operations to buy West African grades, trying to diversify sources to ensure by next week. Japan's total capacity is 4.2 million bpd. ample supplies. Kyokuto Petroleum Industries (KPI), a joint venture between An ongoing pricing row with Iran over oil payments has fuelled Mitsui & Co and ExxonMobil , restarted its 175,000 barrels the uncertainty. per day Chiba refinery east of Tokyo, last Wednesday, while "They are willing to pay the premiums because they under- another Exxon subsidiary, TonenGeneral Sekiyu KK, has re- stand what's going on in Libya," said Praveen Kumar, who started its 335,000-bpd Kawasaki plant. heads consultancy FACTS Global Energy's South Asia oil and JX Nippon Oil & Energy Corp, an oil refining unit of JX Hold- gas team. ings, restarted its 270,000-bpd Negishi refinery near Tokyo on India's demand for April-loading West African crude remained Monday, NHK broadcaster said. strong as its largest state-run refiner, Indian Oil Corp , has "The capacity in Japan is now recovering. We hope that, in the bought 12 million barrels of West African crude, similar to the near future, they can supply the necessary fuel to northern record volume it bought a year ago. Japan," a local oil trader said. Other state-owned refiners Bharat Petroleum Corp (BPCL) STRONG DEMAND FOR SWEETS and Hindustan Petroleum Corp (HPCL) , also bought nearly 4 Asia's demand for light crude is also rising, with gas oil cracks million barrels of the sweet grades. having risen to 2-1/2-year peaks as expectations of strong "They are trying to diversify as much as they can...looking at Japanese demand for power generation fuels buoyed senti- what's available and just trying to get their cargoes on time," ment while the shutdown of the country's refining capacity Kumar said. tightened up supply of local oil products.

"If the Japanese power plants buy regional grades, someone else will have to look for alternatives," said a Singapore-based Japan's ruined infrastructure may delay energy crude trader who declined to be named due to company pol- demand revival icy. By Randy Fabi and Francis Kan Before the crisis, strong Brent prices versus Dubai, high freight SINGAPORE rates and multi-year high spot premiums had slowed the flow of Atlantic Basin grades into Asia in April. apan is in urgent need to import coal, LNG and oil prod- ucts to restore energy consumption, but damaged storage The front-month Brent/Dubai Exchange of Futures for Swaps J tanks, ports and refineries render the country incapable of (EFS) for April rose to its highest in more than two years in absorbing all the fuel and raw materials foreign suppliers February and remained firm at around $6 a barrel for the rest might want to rush in. of the year, the Reuters forward curve showed. Buyers usually turn to cheaper Middle East crude when the EFS, an indica- The world's No. 3 economy is struggling to restore power sup- tion of the price gap between sweet and sour crude, soars. plies as electricity blackouts affect five million houses and to ramp up availability of gasoline to end queues of cars at fuel "Even if demand remains strong in Asia, the marginal spot stations after the earthquake and following tsunami flattened pull on light crude from the Atlantic Basin may be lessened buildings, factories and ports. notably if they see their Brent differentials remain strong," Harry Tchilinguirian, London-based analyst at BNP Paribas, The country has initiated measures such as reaching out to said. neighbour South Korea for fuel, seeking more liquefied natural gas cargoes and stepping up purchases from the spot market China, the world's second-largest energy consumer, cut im- as it grapples with ways to repair the destruction estimated to ports to avoid high costs while other refiners in Indonesia and be as high as $200 billion. Taiwan sought more supply from within the region and Rus- sia, traders said. But end-users remain out of reach because of damaged infra- structure, even if supplies reach ports. The reduction comes after imports of West African crude oil by Asian refiners and traders hit their highest in more than four "We think recovery in general may not be seen in Japan for years this quarter at 5.4 million bpd, driven by rising economic years as full recovery will require massive coordination across growth and cheap freight, a Reuters survey showed. sectors - power, industry, residential, commercial and public infrastructure," said Erwin Chan, a consultant with FACTS MIDEAST UNCERTAINTY Global Energy. Brent futures jumped more than 10 percent last month after "Restarting operations in some sectors could be done in a mat- the unrest in Libya has almost halted supplies from the ter of days, but it will take time to scale up production to origi- world's 12th-largest producer, raising fears that such protests nal levels." may spread, hurting supplies from the Middle East. Libya nor- mally pumps 1.6 million bpd of mainly light sweet crude. The country will be able to restore oil product output to 3.4 million barrels per day (bpd) by the end of March, a level above Nigerian benchmark crude Qua Iboe differentials rose to their domestic demand, as idled refineries resume operation, but highest since July 2008 as European refiners snapped up car- disruptions in distribution routes remain a major bottleneck, goes to replace Libyan imports, even though Saudi Arabia has Akihiko Tembo, chairman of the Petroleum Association of Ja- offered to cover the shortfall. pan, said.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS The earthquake was the fifth most powerful to hit the world in This fall in industrial activity is also likely to partly mitigate any the past century. It surpassed the Great Kanto quake of Sept. rebuilding led economic recovery, analysts said. 1, 1923, which had a magnitude of 7.9 and killed more than "Although there may be diesel demand for recovery opera- 140,000 people in the Tokyo area. tions, lower consumption as a result of disrupted commercial Global companies from semiconductor makers to shipbuilders activity is forecast to more than offset this," said analysts at face disruptions to operations after the quake destroyed vital energy consultancy Wood Mackenzie in a recent report. infrastructure, damaged ports and knocked out factories sup- The Kobe quake of January 1995 is estimated to have cost plying everything from high-tech components to steel. around $100 billion and while manufacturing production fell by "Undoubtedly, the short term is likely to see some adverse 2.7 percent in January, it climbed 4.4 percent over the follow- demand impact," said Amrita Sen, analyst with Barclays Capi- ing three months. tal. But the level of power disruption from the recent quake and "With the main sources of genuine demand reduction being tsunami is likely to prevent a similar V-shape economic recov- the shutdown of damaged thermal power plants, the loss of ery and keep a lid on energy demand. some petrochemical capacity, and the general reduction in "I think there is potential for demand destruction," said Tony activity caused by dislocations and damage to economic infra- Regan, analyst at Tri-Zen Capital in Singapore, adding that if structure." Japan dips back into recession, it could see lower demand for Banri Kaieda, Japan's trade minister, said the government has LNG and could possibly shed the 7 million tonnes increased asked refiners located in the west to boost run rates to 95 LNG demand it saw in 2010. percent or more to help stabilise demand and supply in the POWER CUTS SLASH GROWTH quake-hit areas of the east. Tokyo Electric Power Co (TEPCO) , the nation's biggest utility DEMAND RECOVERY and operator of the stricken Fukushima nuclear plant, began Even after Japan's energy infrastructure stabilises, damage to rollover blackouts after the quake to curb consumption as it the country's industries and a broader dampening of eco- grappled with loss of supplies. nomic activity could continue to curb energy demand, analysts Japan's nine prefectures affected by the rolling blackouts rep- said. resent 40 percent of the country's gross domestic product Major automakers and electronics manufacturers like Sony (GDP), BNP Paribas said in a report. The blackouts aim to re- and Toyota Motor Co have stopped production at some of its duce power consumption in these areas by an average 25 per- facilities due to damage from the quake. cent, it said.

The Empire State Building, lit in red and white as part of a coordinated effort by several landmark buildings around the world to raise awareness for the disaster in Japan, is pictured in New York April 4, 2011. REUTERS/Lucas Jackson

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS "If this were to continue for a full quarter, GDP growth in 2011 The earthquake that struck the world's third-largest oil con- will be reduced by about 3 percent," BNP Paribas said. sumer caused the loss of around 9,700 megawatts (MW) of "If the power rationing indeed stops in late April, the negative nuclear and 10,831 MW of thermal power generation. impact on growth in 2011 from supply constraints would be CRUDE, NAPHTHA CONSUMPTION FALLS smaller, at about 2 percent. Three Japan-bound naphtha shipping fixtures from the Middle In any event, the economy will face major supply constraints East, totalling 205,000 tonnes, failed after last week's earth- moving forward." Prior to the earthquake, markets had been quake forced the shutdown of several crackers. expecting GDP growth of around 1.7 percent in 2011. The failed fixtures prompted talk that Japanese cracker opera- It has also declared force majeure on some coal vessel deliver- tors were not able to take in cargoes arriving as far ahead as ies due to outages at its coal-fired plants, trade sources said the second half of April, creating a build-up in prompt sup- on Wednesday. plies. To help Japan cope, Royal Dutch Shell Plc Chief Executive Similarly, crude consumption in Japan has declined as more Peter Voser said the company was planning to supply more than 30 percent of the country's refinery capacity, or 1.4 million LNG and low sulphur fuel oil, to help make up for the loss of bpd, has been shut because of the quake even as some get nuclear generation. Countries such as South Korea, Russia ready to restart operations. and Indonesia have already pledged to supply the country This has forced Japan to sell crude oil that it cannot process with extra cargoes of oil, coal and LNG. Yet, a lack of sufficient into refined products, while importing products where it is in handling capacity may mean that these supplies will take a deficit such as diesel and gasoline. while to reach consumers. SK Innovation , which owns South Korea's top oil refiner SK "We need more infrastructure to transport LNG from the Energy, said on Wednesday it would purchase 2 million barrels ports," said Takahide Kiuchi, an economist at Nomura Securi- of crude oil from quake-hit Japan and was also considering ties. "We need a lot of huge pipelines connected to the af- more crude purchases. fected areas, so it could take a long time. Blackouts will likely last until at least the summer." The Korean firm will also supply 260,000 barrels of gasoline to Japan and agreed to supply 10,000 tonnes of fuel for power Sendai City Gas said on Thursday it will likely take more than generation and fuel for fishing ships, the company said. one month to restart its Shinminato LNG facility, which was damaged by the earthquake.

An employee fills a container with petrol at the earthquake-hit Motoyoshi Gas Station in Motoyoshi town, REUTERS/Carlos Barria

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japan energy imports to increase with nukes off * If the entire shortfall was filled by LNG, increases would hit 1.1 bcfd, Tudor Pickering Holt figures said in a note. emand for liquefied natural gas and other energy sources in Japan is expected to jump to help cover * Japanese gas demand is expected to rise by 6 percent in 2011, D power demand after an earthquake and tsunami according to French investment bank Societe Generale said on crippled three nuclear reactors. Monday. An estimated 9,700 megawatts (MW) of nuclear, about a fifth COAL of capacity, and 10,831 MW of thermal power generation, have * Barcap estimates the current shut-in capacity at 12,000 MW, been lost. Another 2,670 MW of nuclear power was shut at the total capacity of the three afflicted plants, would imply the time of the earthquake for regular inspection. incremental demand of 7.8 kilo tonnes of coal per day. Analysts have looked back to a 2007 earthquake that knocked * Tudor Pickering Holt analysts said that if all the 12 GW of out some nuclear power supply as a reference for what today's outages were replaced by coal, demand would increase 17 outcome for fuel demand will be. thousand tonnes a day In July 2007, the 8.2 GW Kashiwazaki-Kariwa nuclear plant * Simmons and Co said that coal will likely help make up for was shutdown, leaving the world's third-largest energy con- part of the supply shortfall, but said that in the long term Japa- sumer scrambling for extra fuel supplies. nese coal demand is not set to rise significantly. Japan, the world's largest consumer of LNG, imports around FUEL OIL AND CRUDE 88 billion cubic metres (bcm) a year of the super-cooled natu- ral gas. Demand is expected to rise by around 1 billion cubic * Barcap sees an increase in 143,000 barrels a day of fuel oil feet per day, analysts said, amounting to about an extra cargo and 67,000 bpd of crude. every three days. * Tudor Pickering Holt said that oil use could increase by Increased demand is likely to boost LNG prices, which have 200,000 bpd if all the outages were replaced by oil use. already moved above $10 per million British thermal units * Simmons and Co said crude imports could increase by (mmBtu) since the quake. 200,000 barrels per day. Barclays Capital said the two most affected nuclear plants of * PFC Energy expects depressed Japanese oil consumption in Fukushima Daiichi and Fukushima Daini are unlikely to return March and April (in particular from halted petrochemical op- to service in the next few years, if ever. The Kashiwazaki- erations). Kariwa nuclear plant took two years to come back after shut- ting down in 2007. However, the second half of 2011 will see increased demand from fuel burning and reconstruction efforts, triggering a provi- Following are analysts' predictions regarding increased Japa- sionary upward revision in Japan's annual demand growth nese fuel demand: forecast by 280,000 barrels per day. LNG * After the Kashiwazaki-Kariwa nuclear outage in July 2007, Quake may turn Japan to a diesel importer from increases in LNG imports made for 39 percent of the power exporter supply shortfall, Barclays Capital said. By Yaw Yan Chong * Assuming a similar breakdown following last week's quake, Japan's LNG demand is expected to rise by 0.8 billion cubic SINGAPORE feet per day (bcfd). apan may become a diesel importer from being Asia's sec- * Simmons and Co. analysts see an LNG import increase of 1 ond-biggest exporter of the fuel as the earthquake crip- bcfd. Prichard Capital see an increase of at least 1 bcfd of LNG J pled a quarter of its refining capacity, squeezing supplies imports, assuming LNG makes up 50 percent of the supply with many other plants in the region scheduled to shut for lost through power outages. maintenance. * PFC analysts reckon LNG imports could increase by about The world's third-biggest economy will have a shortfall in out- 0.9 bcfd, going by their analysis of the 2007 outage. Spot put of at least about 100,000 barrels-per-day (bpd). purchases of LNG rose from 0.1 bcfd before the July 2007 That gap may rise as reconstruction work starts for what Prime earthquake to 1.2 bcfd by March 2008, PFC said. Minister Naoto Kan called the biggest crisis the nation has en- * Goldman Sachs sees "significant" increases in Japanese countered in the 65 years since the end of World War Two. LNG imports. Going by 2007 nuclear outages, these increases "Even if they completely stopped exports, the post-quake pro- will remain for the long term, Goldman said. duction volumes will not be sufficient to meet the pre-quake * Deutsche Bank said LNG imports could increase by 1.5 bcfd demand," said Victor Shum, senior principal with Purvin & (981,000 tonnes per month), going by what happened in Gertz in Singapore. 2007. At that time, spot LNG imports spiked from 100,000 to "With their consumption at 820,000 bpd, they would still have 600,000 tonnes per month, the bank said. to import even if they were to stop all exports and keep all their * Morgan Stanley estimates around 40 percent of the lost gas oil production at home." At least a quarter of Japan's 4.52 nuclear generation will be replaced by LNG, with incremental million barrels-per-day (bpd) refining capacity is down follow- demand of 0.7 bcfd, possibly as high as 1.5 bcfd if that 40 ing the massive 9.0-Richter scale earthquake. percent share should rise.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS The refineries were running at utilisation rates of around 90 CRACKS HIGHEST SINCE NOVEMBER 2008 percent prior to the quake, with an average of 30 percent yield Reflecting the keen interest in the ULSD market, the Asia for gas oil, or 1.22 million bpd. After meeting domestic de- swaps market started seeing unusual bids/offers in the price mand, the country exported 189,729 bpd in 2010. spread between 10-ppm gas oil and the benchmark 0.5 per- Based on the amount of refining capacity down, the equiva- cent sulphur grade. lent loss of gas oil production would be about 305,000 bpd, A deal for the spread's April contract, for 50,000 barrels, was leaving a shortfall of about 118,000 bpd, or the equivalent of transacted at $4.00 a barrel in late trade. one Medium-Ranged (MR) cargo every two days, for the dura- tion the refineries are down. Reflecting the stronger diesel market, its April cracks surged to premium of $23.41 a barrel to Dubai crude, up $1.80 from the The shortage could be more severe, propelling gas oil to re- previous session's 25-month high and at its highest level since cord levels seen in 2008, when cracks surged above $40.00 a Sept. 29, 2008. barrel and hit an all-time high of $45.17 a barrel on May 23 that year, if the Japanese supplies do not recover by the global The cracks has been strengthening from below $18.00 a barrel peak demand season during year-end winter months, traders since the end of last month, largely due to expectations of thin- said. ner supplies ahead of Asia's refinery maintenance season. "The market is already strong before the disruption to Japa- Planned shutdowns of crude units, led by China and Japan, will nese supplies, mainly on improving demand and thinning cut 2.12 million barrels of output a day, or 6.8 percent of the supplies due to the usual refinery maintenance season," a region's total, in the April-June quarter, a Reuters survey based Singapore-based Western distillates trader said. on average aggregate capacity taken offline showed. "The refineries don't look like they are going to come back up Gasoil's prompt forward curve structure, from March till July, anytime soon. turned positive, with its March/April and April/may time- spreads firmly backwardated at above 10 cents a barrel and The Japanese would naturally draw cargoes from South Korea with strong buying interests seen. and possibly even India and that would lead to a shortage in the West, which can be particularly severe during the winter." JAPAN STOPS SELLING SPOT BARRELS Japan's distress sale may lower MidEast crude Japan has already stopped selling cargoes to the spot market, premiums particularly the ultra-low sulphur diesel (ULSD) grade, and By Alejandro Barbajosa and Florence Tan are privately discussing with counterparties on halting deliver- ies for some parcels that were sold prior to the earthquake, SINGAPORE traders said. iddle East crude premiums in Asia could fall short- They have also started looking to buy cargoes, from countries term as refinery shutdowns in Japan after the devas- including South Korea, both for local consumption and to M tating earthquake force spot cargoes onto the market, cover commitments to customers outside the country. It but levels should recover for May as undamaged plants step bought at least a 30,000-tonne lot over the last weekend. up fuel oil output to feed power demand. "We just shipped off most of our cargoes and have one left for About a third of Japan's 4.5 million barrels a day (bpd) refining second-half March," a Japanese trader said.At least one capacity was shut down after the quake and even on Friday 30,000-tonne ULSD parcel, for second-half March loading premiums had dropped. from South Korea, has been purchased by a Japanese refiner The premium of Oman crude traded on the Dubai Mercantile at prices that couldn't be immediately confirmed, traders said. Exchange slid to about 80 cents a barrel over Dubai on Friday Oil majors BP and Shell, who are regular buyers of ULSD car- from $1.30 a day earlier for May supplies on the news. The dif- goes from Japan, have also emerged to seek cargoes from the ferential surpassed $2 in mid-February as violence broke out in Singapore spot market, including bidding for cargoes at Libya. strong price levels since Friday. But going forward, premiums are expected to recover as plants On Monday, Shell bid for 150,000 barrels, while BP sought that were not damaged by the quake ramp up output to meet 170,000 barrels, both for prompt March 29-April 4 loading, at fuel demand, as the world's third-largest economy rebuilds premiums of $3.50 and $3.70 a barrel to Singapore spot from what Prime Minister Naoto Kan called the biggest crisis quotes, respectively, on a free-on-board (FOB) basis, up from the nation has encountered in the 65 years since the end of below $3.00 value before the earthquake. World War Two. "It's not just that the two big boys came out to bid for prompt "Crude oil demand may not drop by 1 million bpd all of a sud- cargoes at strong levels but the fact that no one sold to them. den," Victor Shum, senior partner at consultancy Purvin & I think we can safely expect price levels to strengthen from Gertz in Singapore. "There is likely to be some reduction in here on," a Singapore-based Asian gas oil trader said. crude oil demand in the short term." "The Japanese could be short for a long time. No one knows Japan has 28 processing plants which were operating at about when the refineries will start coming back, even at partial lev- 90 percent of capacity when the earthquake struck, traders els. And the shortfall is quite serious. Are there even enough said, which implies spare capacity stood at about 450,000 bpd production from the rest of Asia to meet their shortfall of one before Friday's disaster. MR cargo every two days?"

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Kuwait and Saudi Arabia are the big suppliers of Middle East Traders said Japanese players led the buying in fuel oil's time- crude to Japan, Shum said, adding that cargoes could be di- spreads on Friday, particularly the April/May and May/June verted to other Asian refiners or moved temporarily to storage contracts, which are in steep backwardation of around $5.00 a tanks. Saudi Arabia has tanks in Okinawa, southwest Japan, tonne and had already been on an upward momentum last which could store about 600,000 kilolitres (3.8 million bar- week prior to the earthquake. rels) of crude. "We would not see the disaster as being a source of significant "With so many refineries and ports closed, there will be a lot negative demand, and indeed until the status of nuclear plants of cargo delays," a trader with a Western trading firm said. is confirmed, there is the possibility of a stronger bid in Asia for "Refineries may be cutting runs and a lot of prompt Middle the bottom of the barrel," analysts at Barclays Capital includ- East crude cargoes will be coming out." ing James R. Crandell and Paul Horsnell said in a report. Uncertainty as to how long damaged Japanese refineries will ASIAN NAPHTHA remain offline could buffer the bearish effect of the quake on For naphtha, with at least a third of Japan's cracker capacity prices. Traders and refiners are now focused on the exchange shut, the Asian market is expected to weaken further after its of cargoes to cover requirements in May, when at least part of cracks fell to a week-low level last Friday. Sellers have ap- the interrupted production may have resumed. proached naphtha buyers in South Korea and Taiwan to take in This may generate a two-tiered market, where prompt March prompt cargoes and traders are concerned about the prospect and April crude cargoes that are re-offered onto the spot mar- of losing a key demand outlet for an extended period of time. ket may trade at lower levels than May supplies. "Temporarily naphtha will face some surplus in Asia," said In- The effect on heavy sweet crude values, including Indonesia's jae Lee, a Seoul-based oil analyst at KB Securities, adding that Minas, might even be bullish as Japanese power generators spot premiums may flip into discounts. turn to oil to offset the decline in output from two idled nu- Last year, Japan used 47.38 million kiloliters (816,468 barrels clear plants. per day) of naphtha with imports averaging at around 465,000 "Right now, they just need middle distillates for reconstruc- bpd. tion, so naphtha- and gasoline-rich crudes from the Middle "I think it will take at least two to three months because it's East are going to suffer," said a trader with a European oil different from a typical turnaround as it may need a long trading firm, adding that values of condensates may be par- checklist," he said, adding that infrastructural issues such as ticularly affected because of the closure of Japanese petro- power and road networks will also delay restarts. chemical plants.

DEMAND FOR POWER On Monday, a hydrogen explosion rocked the earthquake- stricken nuclear plant in Japan where authorities have been working desperately to avert a meltdown, but the core con- tainer was reported to be intact. Barclays Capital estimates that Japan will require the equiva- lent of 204,000 barrels of oil per day (or about 30,000 ton- nes), similar to a Very Large Crude Carrier (VLCC)-load of low- sulphur cargoes every eight days, to replace the lost power- generation capacity. "The scrupulous safety checks needed for restart make it likely that these nuclear power sources will be out for a long time," analysts at J.P. Morgan led by Lawrence Eagles wrote in a report. Assuming a 66 percent utilisation rate, then around 240,000 barrels per day of oil equivalent power needs to be replaced, the J.P. Morgan report said. Fuel oil's prompt cracks and timespreads spiked in the imme- diate aftermath of the earthquake on Friday, lifted by buying led by Japanese oil companies, but the gains were limited, traders said. Its April crack to Dubai crude closed at a three-week high dis- count of $8.95 a barrel, up $1.61, while March/April rose to a backwardation of $5.00 a tonne, up $1.38, by Friday's close. The crack edged up another 8 cents to near one-month high of$8.87 on Monday, while the March/April slipped back to $4.25 a tonne as liqudity in the contract thinned ahead of its expiry on Wednesday. The more actively traded April/May contract was steady at $5.25 a tonne by 0430 GMT, holding on to last Friday's 50-cent rise. An employee of the Tokyo Stock Exchange (TSE) works at the bourse in Tokyo March 14, 2011. The Nikkei share average was down 5 percent soon after Tokyo's financial markets opened on Monday, as the market gauged the effects of last week's earthquake and tsunami. REUTERS/Issei Kato

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS JX Holding's JX Nippon Oil & Energy Corp, Japan's top refiner, "The Japanese will have to look at other alternatives and per- said it was working to shut all units at a 404,000 tonnes per haps maybe even lower their very stringent sulphur require- year naphtha cracker at Kawasaki while Mitsubishi Chemical ments if the situation becomes desperate." has halted operations of two naphtha crackers at Kashima WHAT ARE THE ALTERNATIVE POWER-GENERATION after a power outage.Mitsubishi's units have a total capacity of FUELS? 826,000 tonnes per year of ethylene. Traders said the first option, outside of Duri and LSWR, would Maruzen Petrochemical shut a 480,000-tpy unit in Chiba be to look at other, more expensive sweet Indonesian crudes, while its Keiyo Ethylene unit shut a 690,000-tpy cracker."The such as Minas and Cinta. However, both also have limited pro- market was slightly on the bullish side before the earthquake duction volumes, of about 120,000-150,000 bpd, and are due to thinning Middle East inflows resulting from mainte- mostly in the hands of term allocation holders. nance. The moment the quake hit, the market dumped and is still dumping," a Singapore-based naphtha trader said. There is also limited LSWR production from regional refineries in Malaysia and Thailand, but either the volumes are tiny or "There's concern over whether the crackers will force majeure specifications do not meet Japanese standards. on the supplies and if they do, there's nowhere for them to go and the market will have a sudden glut. And that's not count- "At the end of the day, it might not be enough, even if the ing the cargoes that have yet to be sold." The product's physi- Japanese suck up all the 0.3-percent sulphur fuels, because cal crack spread to Brent crude slid $12.23 to $137.25 a tonne the volumes are so limited," another Singapore-based fuel oil by Friday's Asian close while its front-month swap dropped 97 trader said. cents to a discount of $5.06 a barrel, and fell another 15 cents "Any other alternative would be really expensive, that is to by the London close. make low-sulphur fuel oil that meets Japanese specs by blend- ing, if it is at all possible." Q+A-Japan to seek low-sulphur oil as The Asian LSFO market currently is small in supply volumes, totalling about 200,000 tonnes a month, and higher in sul- replacement utility fuel phur content compared to Japanese requirements. By Yaw Yan Chong Taiwan's CPC buys about 100,000 tonnes a month of the 0.5 SINGAPORE percent sulphur grade, while the marine fuels market accounts for about 50,000 tonnes of the below 1.0-percent sulphur apan is likely to turn to oil -- mainly low-sulphur fuel oil grade. (LSFO) or low-sulphur crudes such as Indonesia's Duri -- J as replacement power-generation fuel in the wake of a Most of these cargoes are supplied by Brazil's Petrobras, massive earthquake that closed two of its nuclear plants. whose plants yield LSFO as residues, and blenders such as Vitol, Trafigura and Westport. Barclays Capital estimates that replacing the lost power- generation capacity will require the equivalent of 204,000 WHAT WILL BE THE IMPACT ON THE ASIAN FUEL OIL MAR- barrels of oil per day (or about 30,000 tonnes), similar to a KET? Very Large Crude Carrier (VLCC)-load of low-sulphur cargoes Fuel oil's prompt cracks and timespreads spiked in the imme- every eight days. diate aftermath of the earthquake on Friday, lifted by buying While Japan would also turn to other power-generation fuels led by Japanese oil companies, but the gains were limited, such as coal or liquefied natural gas (LNG), fossil fuel has traders said. been the most common substitute in the past, when outages Its April crack to Dubai crude closed at a three-week high dis- occur at its nuclear plants. count of $8.95 a barrel, up $1.61, while March/April rose to a "Right now, it's not clear how much fuel oil they are going to backwardation of $5.00 a tonne, up $1.38, by last Friday's buy, but it is quite certain that they will, and in large volumes. close. As of now, they have not come out to look for any low-sulphur Traders said Japanese players led the buying in fuel oil's time- fuel as yet," said a Singapore-based Japanese trader. spreads on Friday, particularly the April/May and May/June WILL THE ASIAN MARKET BE ABLE TO MEET JAPAN'S contracts, which are in steep backwardation of around $5.00 a NEEDS? tonne and already been on an upward momentum prior to the earthquake since the start of last week. Japan's utilities need a very specific type of fossil fuel, of 0.3 percent sulphur content, and most of its regular demand is "That's sentiment for you, even though the LSFO market is met by Indonesia's low-sulphur crudes, mainly Duri, and low- quite separate and distinct from the main high-sulphur fuel oil sulphur waxy residues (LSWR). market," the second fuel oil trader said. However, the availability of both types of fuels is limited -- it "And if the demand spikes come as they are expected to, the exports 5-6 LSWR cargoes of 200,000 barrels each for this market would probably get stronger. Especially if supplies have year, down from 6-7 parcels last year, and another 4-6 car- to be pulled from the mainstream market to make expensive goes of the heavy-sweet Duri of 40,000-50,000 tonnes each. Japanese-grade LSFO." "That's not very much and most of these cargoes are already Traders said in the immediate term, they would expect cash going into Japan. There certainly will not be enough to meet premiums for Indonesian LSWR and Duri to rise from current the extra requirements, especially at 30,000 tonnes a day," a levels. crude trader said.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS COLUMN-Japan quake mildly bearish for oil, risk liquidity and thus avert a contraction. The Bank of Japan and assets: John Kemp other central banks can offset the negative impact of the earthquake in a way that was not possible in 1907. -- John Kemp is a Reuters market analyst. The views expressed are his own -- But in other respects there are useful parallels. Insurers will have to liquidate a proportion of their financial assets to meet LONDON claims, which is one reason equity markets have reacted nega- he devastating earthquake off Japan's northeast coast tively. March 11 is probably mildly bearish for oil prices and Japanese and other insurers will have to liquidate a proportion T other higher-risk financial assets such as equities. of their asset holdings outside Japan and repatriate funds to Direct financial effects from the earthquake should be rela- meet claims, explaining why the yen has rallied strongly in the tively modest, however, unless it triggers a much wider flight aftermath, after falling initially . from risk. Japan is already awash with liquidity and the government can Economists are divided about whether natural disasters have offer help with rebuilding costs, blunting the impact of the dis- positive or negative impacts on output growth and asset aster. But with monetary and fiscal policy already highly ac- prices. commodative in Japan and across the rest of the world, more accommodation may have only a limited effect. The earth- Rebuilding in the aftermath of a disaster can provide a power- quake is likely to have a mildly depressive effect on the coun- ful stimulus in sectors such as construction and raw materials. try's growth in the short-term. It is sometimes portrayed as equivalent to Keynesian fiscal stimulus. The main impact however will be felt via asset markets, where portfolio liquidations will be needed by insurers in the short In Japan's case, automatic shutdowns at some of the country's and medium term to meet heavy losses. nuclear plants, and the declaration of a nuclear emergency to trigger relief measures, could lead to at least a temporary Financial losses could have been far worse if the earthquake increase in demand for imported LNG as well as middle distil- had been closer to the massive Tokyo-Yokohama conurbation. lates and residual fuel oil, but no serious damage has been Even so damage will force asset liquidations that are bearish reported so far. for equities and likely to have modest, negative spill-overs for ICE gasoil prices initially rose in anticipation of increased dis- other risk assets, including oil and other commodities. tillate and LNG consumption by Japan's power producers, though the market has since reversed course. But prices for both Brent crude and U.S. light sweet oil are down and equity markets have softened, pulling down prod- ucts as well, as investors conclude the earthquake will weigh on growth and lead to a broad sell off in risk assets. The initial market reaction is probably the right one. Natural disasters do not always lead to construction-led improve- ments in demand. Often they can depress both economic activity and asset prices in the near term. The powerful earthquake which struck Christchurch is forecast to reduce New Zealand's GDP growth in the remainder of the year. Perhaps more important, the earthquake which devastated San Francisco in April 1906 has been blamed for initiating the chain of events which contributed to the stock market crash eighteen months later in October 1907. In the aftermath of the 1906 earthquake, insurers across the United States and Europe were forced to liquidate some of their portfolios of equities and bonds to meet claims, produc- ing an immediate depressive effect on financial markets. Payments to the west coast of the United States led to a drain in gold supplies in New York and London and tightening credit conditions. It resulted in " a deep sense of foreboding among the nation's money men" at the start of 1907, accord- ing to Robert Bruner and Sean Carr in their thoughtful study of "The Panic of 1907: Lessons Learned from the Market's Per- fect Storm". There are crucial differences between 1907 and 2011. As a di- rect consequence of the crash, the inflexible pre-1913 gold standard, which contributed to the credit crunch, has been gradually replaced with a more "elastic" currency system ena- A gas station attendant pulls a gas pump nozzle to fill up a car in Tokyo July 4, 2008. Japanese Econom- ics Minister Hiroko Ota said on Friday that the surge in crude oil prices together with the slowing U.S. bling central banks to meet increased demand for credit and economy is directly affecting Japan's economy. REUTERS/Kim Kyung-Hoon

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS GAS plants and a number of thermal power stations. Japan disaster to boost Australia's LNG build - Australia's LNG industry was likely to see the bulk of this year's WoodMac merger and acquisition activity in Asian energy, Flowers said, with Japanese and Chinese energy companies among leading By Simon Webb prospective buyers of equity stakes in projects in return for long SINGAPORE -term gas supplies. ncreased long-term demand from Japan for liquefied natu- Such acquisitions could total anything between $5 billion and ral gas (LNG) to compensate for damaged nuclear power $15 billion this year, he said, based on previous M&A activities. I capacity will give more impetus to Australia's LNG devel- "Those projects have a total of around 50 million tonnes of gas opment boom, a Wood Mackenzie consultant said on Friday. output per annum potential that still needs to find a home - Australia is in the midst of a massive LNG capacity build that more than twice Australia's current output," said Flowers. "So if could see it eclipse top exporter Qatar. Japan is seeking to import more LNG then Australia will be one of the natural places it goes to." With eyes on rapidly rising demand in Asia led by China, en- ergy firms are developing or have proposed projects that Agreeing long-term supply deals is a requisite for energy com- would take Australia's LNG capacity to around 160 million panies before they take investment decisions on building LNG tonnes per year, nearly eight times more than existing capac- projects. The deals give them guaranteed future income to ity. underpin finance for construction. Not all of those projects will be developed, analysts say, but Australia's LNG capacity would reach around 66 mtpa in 2020, increased demand from Japan means more of them will make Wood Mackenize estimates, up from around 21 mtpa now. But it off the drawing board, said Simon Flowers, Wood the consultancy's upside scenarios see supply reaching as Mackenzie's head of upstream corporate analysis. much as 80 mtpa to 100 mtpa, Flowers said. "The prospects for those projects that are currently further SHALE GAS THREAT away from getting development approval have improved- just Among the factors that could contribute to Australia reaching because of what has happened," Flowers said. the upside scenarios is how China and other countries in the "We certainly believe there is going to be slower development region fare this decade in efforts to develop shale gas, Flowers of nuclear going forward and gas is going to be the medium- said. term beneficiary, so undeveloped LNG projects with uncon- "For shale gas in countries in the region, the issues are technol- tracted gas in Australia and elsewhere now appear to have ogy and the supply chain support to develop the resource," better prospects of development over the next few years." Flowers said. Japan's Tokyo Electric Power Co (TEPCO) has already ramped "Another is the access to the land- to be able to drill it. If those up LNG consumption, buying a record volume in March, after issues are resolved and the geology is OK then shale gas will the massive March 11 quake knocked out two of its nuclear eventually compete with LNG in some markets.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS But if development of shale takes longer, then there will be opportunities for Australian LNG to continue to build market share." China has yet to start producing shale gas but has begun work to exploit its poten- tially huge reserves. The U.S. Energy In- formation Admini- stration has esti- mated that China's shale gas reserves may surpass those of top energy consumer the United States. In the U.S., the de- velopment of tech- nology allowing large-scale exploita- tion of shale gas has had a far-reaching impact on the gas market. Domestic gas sup- plies have replaced much imported gas and changed the forecasts for future U.S. import needs that underpinned many This is nearly unchanged from tanker flows seen on March 3, international LNG projects. before the quake. After rising nearly 15 percent following the earthquake, UK gas prices for next month have fallen more than 5 percent from a Japan fails to divert LNG away from Europe high of around 65.80 pence per therm on March 16. By Daniel Fineren and Edward McAllister Shortly before March 11, European imports rose to similar levels LONDON/NEW YORK to that of top LNG importer Japan for the first time. ears that Japan's nuclear crisis might quickly cut And Europe still looks set to receive more super-cooled gas Europe's liquefied natural gas supply seem unfounded, over the next few weeks than Japan. F with twice as many LNG tankers heading for Europe as "We believe the market has overstated Libyan unrest and the for Japan, shipping data has shown. Japanese disaster in the short to medium term," analysts at British gas prices surged on the worry that supply of the French investment bank Societe Generale said in a note. shipped gas would be immediately diverted to top importer It expects Japan will need to import just 5 billion cubic meters Japan after an earthquake on March 11 knocked out 11 giga- (bcm) of extra gas this year, equal to about 1 percent of watts of power supply. Europe's annual gas demand. But, ample supply in the LNG market has so far dampened Britain alone has at least nine LNG tankers due to arrive in the the impact, as Asian suppliers quench Japan's increased im- next two weeks , while another 10 are either in the Mediterra- port needs. Russia, Australia, Brunei, Malaysia and Indonesia nean or heading from Middle East producing countries -- have all said they can raise exports. Some already have. mainly global export leader Qatar -- towards as yet undefined "There is so much South East Asian supply at the moment markets in Europe. that can meet Japan's needs," said Steve Johnson, president There are five or six tankers heading for undefined destinations of Waterborne LNG analysts in Houston, Texas. "We do not in Asia, global shipping hub Singapore, or somewhere in the expect to see many cargoes drawn from the Atlantic Basin Pacific Basin -- some of which may ultimately head for Japan. and maybe a few from the Middle East."

Of 196 LNG tankers whose destinations have been logged by the AIS Live ship tracking system since Tuesday, only 16 were showing their destination as Japan, while 23 vessels have Europe as their next port of call.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS EYES ON QATAR But in the longer term, the likelihood Japan's nuclear power Traders and analysts are closely watching what top exporter crisis will keep 11 GW of its nuclear capacity shut for years, per- Qatar will do following the Japan quake. The UK's main LNG haps forever, may mean less LNG for Europe and a return to supplier, whose export capacity has increased massively in overdependence on dearer oil-indexed Russian pipeline gas. recent years, said it can offer extra cargoes to Japan if needed. Soc Gen estimates that Japan's incremental demand for gas "What the Qataris do will be very important. Qatar is in a posi- will double to 10 bcm in 2012 as the country's economy recov- tion where it could solve the (Japan) problem single handedly. ers from the demand-slashing destruction caused by the They have more flexibility than any other supplier," said Frank quake and tsunami but the affected reactors remain closed. Harris, LNG analyst at Wood Mackenzie in Edinburgh. "With the LNG market tightening further on the back of Japan's About five tankers have left Qatar for Japan since March 11, power crisis and continuing unrest in the Middle East, we see but so far there has been no marked increase in deliveries. spot gas prices pushing higher," BofA Merrill Lynch said in a Analysts said it could take time as needs are assessed and research note. deals are discussed. "Some of the additional LNG volumes for Japan will come out There could be a shift in supplies to Asia in the coming of the Atlantic Basin, so Europe's dependence on Russian gas months as demand there increases more than in Europe. could rise again." A lack of shipping availability will make it difficult for Atlantic Basin producers to make many long voyages east, meaning Hot air: Can geothermal help Japan in crisis? Middle Eastern and Asian suppliers may do most of the heavy lifting later this year. By Leonora Walet and Tessa Dunlop LONG TERM ASIA DEMAND HONG KONG In the short term, plentiful global supply of gas, thanks largely apan is sitting on enough untapped geothermal power to to a boom in unconventional gas production in North America, replace all its planned nuclear stations over the next dec- lasting economic lethargy in parts of Europe and Qatar's huge J ade. increase in production over the last few months, should en- But, battling to control its crippled Fukushima nuclear com- sure Europe still gets plenty of LNG in 2011. plex, and planning to build 13 more nuclear power stations, BofA Merrill Lynch Global Research estimates the global LNG Japan has no plans to harness its estimated 23.5 gigawatts market could remain oversupplied by about 29 billion cubic (GW) in geothermal potential -- other than to develop hot meters this year. springs.

A member of a Philippine solidarity group waves Japanese paper cranes while welcoming the arrival of the SS Oceanic cruise ship from Japan at the port of Manila April 13, 2011. The ship, owned and operated by Peace Boat, a Japanese non-governmental human rights group, arrived for an event organized in the wake of Japan's devastating earthquake and tsunami. REUTERS/Cheryl Ravelo

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Geothermal energy, which in Asia struggles under limited In Japan, which ranks third behind the United States and Indo- government and funding support, is likely to attract interest nesia in geothermal potential, according to a Citigroup report, as investors rethink the outlook for nuclear power following the resource represents just a fraction of the country's energy the crisis at Fukushima. mix. Straddled along the Pacific Ring of Fire, an arc of seismic ac- BIG INVESTMENT, BIG RISK tivity, Asia's geothermal reservoirs are among the world's larg- Heat within 10,000 metres of the earth's crust contains 50,000 est. times more energy than all the oil and natural gas resources in Indonesia alone holds 40 percent of the world's total re- the world. serves, but less than 4 percent is being developed, leaving the That heat, once you tap into it, is free. But harnessing it is sector wide open for growth. costly. A geothermal project is like an oil or mining project. Asia's leading, fast-growth economies have relied on nuclear The size of a resource is unknown until a series of drilling activ- power to feed their insatiable energy demands. ity takes place. The upfront cost of developing geothermal en- About 112 nuclear power reactors run in six countries in Asia, ergy can be high. A 20 MW geothermal power plant requires and more than 264 are planned for construction, according to an initial $7 million to assess, and then another $20-$40 mil- the London-headquartered World Nuclear Association. lion to drill. As public scrutiny of the nuclear industry intensifies, Asian Until the resource is proven, the risk of losing that investment governments will come under pressure to reduce nuclear is high. One megawatt of geothermal energy requires an in- power's share in the energy mix, and allow for safer sources of vestment of about $3.5 million, versus $1.2 million for coal en- clean energy to fill the gap. ergy. The 5-7 year gestation period from discovery to commer- cial operation presents another hurdle. "The Japanese will be reviewing their nuclear capacity and (so will) many other places in the world," said Jeffrey Higgs, man- Few funds are drawn to geothermal projects because of that aging director at Hong Kong-based asset management firm long payback period. By comparison, a wind or solar farm can Environmental Investment Services Asia. be up and running from scratch in 12-18 months. "This will refocus attention on alternative energy. Others will "You don't know it's there until you actually have developed it," begin to look at geothermal as an alternative; the safest, said Mike Crosetti, managing director at Castle Rock Consult- cleanest of all energy sources," Higgs said. ing, which conducted geothermal pricing studies for the Indo- nesian government. "And the world is full of cases where geo- And that could benefit Japanese manufacturers more than thermal fields have been assessed, developed and then found most. out that: 'Uh-oh, we can't sustain that kind of production out of Mitsubishi Corp , Toshiba Corp and Fuji Electric are leaders in that field." the geothermal equipment industry, supplying nearly 70 per- Higgs, at Environmental Investment, said: "(Geothermal) will cent of all steam turbines and power gear at geothermal need a clear government policy put in place, allowing for a plants worldwide. clear understanding that (companies) can manufacture, build Other companies that could see a pick-up in business include and operate in a country 10 years hence." Philippines' Energy Development Corp , a geothermal steamfield op- erator, and Australia's Panax Geo- thermal . New Zealand's Contact Energy , Australia's Origin Energy and Ja- pan's Idemitsu Kosan own assets in the sector. Geothermal energy, which feeds on heat from the earth's core to release steam from underground reservoirs, could be a viable replacement for some of the world's nuclear power, experts said. It's a steady source of power and, unlike solar or wind, is unaffected by unpredictable weather patterns. The long-term cost of geothermal power, depending on geological conditions, could be less than coal. Once reserves are confirmed and a power plant built, the steam that fuels turbines at the plant is virtu- ally free. Cars and airplanes swept by a tsunami are pictured among debris at Sendai Airport, northeastern Japan March 11, 2011. A massive 8.9 magnitude quake hit northeast Japan on Friday, causing many injuries, fires and a ten-metre (33-ft) tsunami along parts of the country's coastline. REUTERS/ KYODO

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Shell sees LNG price rise as diverts fuel to Japan Asset sales proceeds exceeded $30 billion in the last five years and were expected to be up to $5 billion in 2011. But the CFO, By Daniel Fineren and Alex Lawler Henry, said share buybacks were not on Shell's radar, given LONDON demands other demands on its income. oyal Dutch Shell will divert as much liquefied natural Buybacks are not the top of the priority at this particular point gas (LNG) as possible to Japan to make up for energy in the cycle with high investment and with high gearing," Henry R lost from the country's nuclear plants. told analysts on a conference call. Shell's own refining facilities had not been hit by the severe Separately, Shell disclosed that Voser's own overall remunera- earthquake and ensuing tsunami which struck parts of Japan, tion rose by nearly 70 percent to 5.361 million euros in 2010, although damage to its retail and distribution businesses was according to the company's annual report. unclear, Shell Chief Executive Peter Voser said. U.S. oil group Chevron Corp said on Monday it was investing "I am pleased to say we are also helping the Japanese govern- 20 percent more this year, at $26 billion, and shrinking its re- ment at the moment to supply additional LNG and low sul- fining and marketing arm, where it expects margins to stay soft phur fuel oil," Voser said. this year. Spot LNG prices in Europe were likely to rise as LNG was di- Last week the world's largest publicly traded oil company, verted to Japan to meet the country's energy needs, Shell Exxon Mobil Corp , said it planned to add 1.4 million boe of Chief Financial Officer Simon Henry added. production per day by 2016. Its annual budget will range from $33 billion to $37 billion. Shell owns 30 percent of a large new LNG production facility in Qatar that started loading its first tankers of super cooled In February, BP , still reeling from the financial fallout of the gas last month and also has LNG export projects in Australia. Gulf of Mexico oil spill, said it would increase significantly its investment in exploration and would seek new partnership But in delivering Shell's strategy update on Tuesday, Voser opportunities. emphasised that unrest in the Middle East and the crippling of Japan's economy, while contributing to market volatility in the short-term did not detract from the macro-economic trends that are driving growth in Shell's business.

"I look much more beyond the Middle East, and for that mat- ter Japan, to the developments across the world, with a very strong rise in population and average living standards which normally demands more energy," Voser told Reuters Insider. Shell said that it aims to produce 12 percent more oil by 2014 than it did last year, one of the highest growth rates in the industry, and will cut more costs at its refining business. The Anglo-Dutch group said it will be producing 3.7 million barrels of oil equivalent (boe) per day in 2014 after spending over $100 billion in net capital investment in 2011-14, despite the current volatility in oil prices. The group has already invested more than $100 billion on exploration and production in the past five years and aims to increase exploration spending this year, Voser said. Shell's share price was down 1.5 percent at 2,088.5 pence in London at 1241 GMT, when the Stoxx 600 Europe oil and gas sector index was down 3.4 percent. The company said it had development studies underway cov- ering over 10 billion boe of resources, a rise of 2 billion boe from 2009 levels, and was assessing over 30 new projects with production potential of over 1 million boe per day. IMPROVING CASH FLOW In its troubled downstream arm Shell set a new target for a further $1 billion in cost reductions in the next two years, hav- ing already cut more than $2.5 billion in 2009 and 2010. But the company said downstream remained an important part of its business and the bulk of its 2010-12 downstream asset sales programme had been completed. Shell said it was on track to deliver its strategic targets by 2012 which call for a 50 to 80 percent increase in cash flow from operations between 2009 and 2012, based on a $60 to A woman watches screens at an earthquake monitoring room in Jakarta, in this picture taken April 1, $80 a barrel oil price and an improved environment for down- 2011. In 2004 a tsunami as high as 30 metres swept away 160,000 lives in the Sumatran province of Aceh alone, plus more than 60,000 from Thailand to Africa. TSUNAMI-INDONESIA/ REUTERS/ stream and natural gas. Beawiharta

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japan can't count on Atlantic Basin LNG relief "It looks unlikely that cargoes will be diverted from the Atlan- tic. The shipping market is so tight that it would require quite a By Edward McAllister bit of stretching on everyone's portfolio to be able to move car- NEW YORK goes around," one European LNG trader said. tlantic Basin liquefied natural gas producers that Increasing tanker rates will also make deliveries across the rushed fuel to Japan after a powerful earthquake in globe increasingly expensive. One LNG broker said charter A 2007 may be unable to provide rescue this time as a rates, which were at $65,000 per day before Friday's quake, shipping shortage makes long voyages inviable. are likely soon to rise to about $70,000 on tighter shipping. Last summer, rates were as low as $30,000. Suppliers in the Middle East and Asia Pacific will instead carry the weight of a potential extra 1 billion cubic feet of gas per PACIFIC SUPPLY INCREASE day needed in Japan after a devastating quake knocked out 9 Instead, Pacific Basin suppliers will be left to do the heavy lift- gigawatts of domestic power supply. ing. The power outages are greater than in 2007, but a lack of They have promised increased supply to Japan as the world's available ships will make it hard to send significantly higher third-largest energy consumer scrambles to find alternative volumes to the world's top importer from the Atlantic Basin. fuel supplies. "A tight shipping market will make things difficult (from the Suppliers in Russia, Australia and Indonesia, as well as top Atlantic). Without available ships, it will be hard to make exporter Qatar, have said they will supply extra cargoes to Ja- deals," said Charles Martin, director of research at Waterborne pan. Number-two importer South Korea is looking for ways to LNG analysts in Houston. get extra volumes to Japan via swap deals, one source said. In July 2007, an earthquake shut the 8.2 GW Kashiwazaki- "There is a lot of sympathy, a lot of people have lost their lives, Kariwa nuclear plant. In 2006, supply from the Atlantic was whereas the previous earthquake did not have as much of an about 300,000 tonnes per quarter, according to independent impact on the people. The producers are rallying round," Andy LNG analyst Andy Flower. Flower said. Deliveries rocketed to 1.8 million tonnes by the first quarter of "They will not need to move as much LNG from the Atlantic 2008, the equivalent of about 30 cargoes. Basin this time," he said. Since then, increased global production and more chartering It is as yet unclear how much extra LNG will be required, or of tankers by major players have left little flexibility for pro- whether other importers from Pacific Basin and Middle East ducers in Nigeria, Trinidad and Norway to make many jour- suppliers, such as Taiwan, South Korea and Spain, will have neys from the Atlantic to the Pacific, the round trip for which is their own deliveries disrupted. at least 40 days.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS UK gas prices have risen this week on the expectation that its But Qatar has been gobbling up Russia's market in Europe, number-one LNG supplier, Qatar, will send more LNG to Ja- and if Qatar sends tankers east, Russian gas export monopoly pan in the coming weeks. Gazprom could claw back some sales in Europe, its biggest Any change in Qatar supply will affect gas markets across the market. globe. Qatari volumes have arrived in markets as far afield as Two huge Qatari LNG production lines, which have opened Canada and Argentina in recent months, which could fall if since late 2010, are capable of producing 7.8 million tonnes a Qatar decides it needs to send LNG elsewhere. year, or nearly 10 bcm a year of gas each -- four times SocGen's However, new production units in Qatar alone will help keep estimate for Japan's incremental demand this year. Some of the market amply supplied, analysts have said. Two new, that extra output is likely to land in Europe. huge Qatari trains are ramping up to full production and if In 2007 an earthquake shut down Japan's biggest nuclear needed could be able to meet much of the increased demand power plant with a capacity nearly as large as that shut by the alone. latest disaster. The resulting rise in Japanese gas demand caused an LNG spot price surge above $20 per million British thermal units (mmBtu). Global gas glut to stay even with more Japan But a boom in U.S. shale gas production over the past two demand years has changed the global market from one of tight supply By Daniel Fineren and sky-high prices to plentiful supply and relatively cheap gas. LONDON Current prices for spot LNG have moved up to around $10-11 he world's biggest gas exporters will benefit from Ja- per mmBtu from under $10 before the quake. pan's increased need for liquefied natural gas (LNG), T but the global gas glut that has weighed them down But Japan's bigger nuclear problems in 2011 should not be a over recent years is unlikely to shrink significantly. problem for global supply, unless it prompts Japan to shut down its other nuclear power plants and turn to alternative Japan's worst recorded earthquake and tsunami shut four sources. nuclear power plants and threatens to keep at least one closed forever, driving up LNG demand for years to come. "Encouragingly, Qatar LNG capacity has risen since then, and South Korea and Russia have offered to provide LNG cargoes Russia, the world's biggest gas exporter, and Qatar, the in the near term," Deutsche Bank's chief energy economist world's biggest LNG exporter, are ready and able to supply Adam Sieminski said in a research note. Japan with more LNG. Since the quake hit, shares in British LNG giant BG Group , which just days before finalised a 20- Resource-rich Australia has also become an important new year supply deal with Tokyo Gas starting in 2015, have force in global LNG supply, with new production lines possibly jumped over 7 percent while the FTSE-100 has fallen. helping meet Japan's increased demand from the second half of 2011. French bank Societe Generale estimates extra Japanese de- mand at 5 billion cubic metres (bcm) this year and remaining But until then, Japan may rely on Qatar and exporters in the at 2 bcm above pre-quake levels of around 88 bcm for years Atlantic such as Trinidad and Nigeria for extra gas. to come. But that increase will make little difference to a "Australia can supply some spot cargoes, but most of their global gas market that the International Energy Agency has supplies are contracted, in particular to Japan," said Graeme said could be oversupplied by 200 bcm. Bethune, chief executive of Adelaide-based energy consultancy If SocGen's prediction that about half of Japan's loss in nu- EnergyQuest. clear capacity from Friday's quake will be replaced by gas is correct, it would need delivery of about one extra tanker carry- ing 145,000 cubic metres of LNG a week to meet it. Japan to scramble for LNG, fuel oil to fill nuclear gap "These are very small volumes compared to the supply that is available at the moment. So it will have a slight impact, but it By Chikako Mogi and Osamu Tsukimori will not put pressure on the market," said Carlos Torres, a TOKYO senior gas analyst at Point Carbon, a Thomson Reuters com- pany. "Qatar would definitely have the capacity to supply apan will move quickly to import more liquefied natural these volumes without any problem. Due to the geographic gas (LNG) and low-sulphur fuels to generate power at proximity of Malaysia, Russia and Australia, these could be J thermal plants and replace nuclear electricity supplies put logical supply sources also." out of action following the nation's worst earthquake in re- corded history. RUSSIA VS QATAR Significant power supplies in Japan, which ranks third in terms Russia said on Monday it could offer only about 200,000 ton- of oil imports and size of its economy, were crippled by the 8.9- nes more LNG, equal to about 0.25 bcm of gas, from its magnitude earthquake that, causing the loss of an estimated nearby Sakhalin export plant to Japan. 9,700 megawatts (MW) of nuclear, about a fifth of capacity, "I do not think that in current circumstances Russia has ca- and 10,831 MW of thermal power generation. pacity to increase in the near term supplies of LNG from its Another 2,670 MW of nuclear power was shut at the time of Sakhalin-2 project," said Valery Nesterov, an oil and gas ana- the earthquake for regular inspection. lyst Troika Dialog in Moscow.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Japan's Tokyo Electric Power Co. (TEPCO), , Asia's biggest Refining facilities were also hit, including a fire at the 220,000 utility, will be forced to buy power from other utilities and bpd Cosmo Oil's Chiba refinery and 145,000 bpd at JX Nippon search for a mix of LNG and low-sulphur fuel oil along with Oil & Energy's plant in the Sendai region, meaning Japan has other producers as they did in 2007 when the 8,000 MW Ka- shut down a total of 774,000 bpd of refining capacity since the shiwazaki-Kariwa nuclear plant was shut for two years after a earthquake, Eurasia Group said. 2007 earthquake. LONG-TERM NUCLEAR SHUTDOWN SEEN As well, utilities will have to cast afield for more of other fuels On Sunday, TEPCO said radiation levels around the shut Fuku- like low-sulphur waxy residue and Duri crude from Indonesia shima Daiichi plant had risen above the safety limit but it did to ramp up spare thermal power generators. not mean an "immediate threat" to human health. "Given its flexibility, an oil fired power plant is the most suit- Analysts said a full restoration of nuclear power operations able in replacing the shortfall of electricity generation, which may take a much longer time to come back online, if at all, means heavy crude will see an increase in use in the near than the Kashiwazaki-Kariwa plant in 2007. term," said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo. "Considering that it took over two years for the project to be- come fully operational after its shutdown, it is possible or even But a trader in Singapore warned that low-sulphur fuel oil likely that the lost 12,370 MW of capacity at impacted sites will (LSFO) supplies are tight. "LSFO supply and demand in Asia be offline for at least that long," Eurasia Group said in a report. is quite balanced at the moment, so anything to tip that bal- ance is likely to impact on prices," the trader said. Eurasia Group estimated that the 9,700 MW loss of power generation capacity translates into 7.3 billion cubic metres of Asian fuel oil strengthened for a fourth session on Friday, with new annual gas demand for Japan, or 5.6 million tonnes per low-sulphur fuel oil for April/May, which becomes prompt on annum of LNG. Wednesday, traded at $5.25-$5.75 and $4.75 a tonne respec- tively. Global supply of LNG is expected to top 360 million tonnes by 2015, according to Tri-Zen International, with Japan's post The top five Japanese utilities rely most on LNG for power quake additional requirements equivalent to 1.5 percent of generation, far surpassing the use of fuel oil and coal, but world output. some smaller utilities use more coal than LNG or fuel oils. "If solely fuel oil was used instead of natural gas, we estimate that the incremental boost to consumption would be about 238,000 barrels a day (b/d)," Barclays Capital said in an en- ergy flash research note on March 11. Japan's total power demand was forecast to rise 5.5 percent in the business year ending this month to 1,056.5 billion kilo- watt hours. But that estimate is likely to change as the economy is roiled by the earthquake and the government asks industry and households to cut power use and face rolling blackouts as it attempt to bring power plants back online. TEPCO on Sunday said it had resumed generating electricity from the oil-fired 350-MW No.3 unit at its Oi power station in Tokyo, though the No. 2 unit remains closed. LNG IMPORTS TO SPIKE History shows that any shutdown in Japanese nuclear plants, which supply 30 percent cent of the country's total power generation capacity, drastically boosts demand for LNG as well. A shutdown of 17 of Japan's 54 reactors in August 2002, for safety inspections, led to an 11-percent increase in Japan's LNG demand in the year that followed. while the three-year closure of the country's biggest nuclear plant, Kashiwazaki- Kariwa power station, from 2007 drove up LNG spot market prices sharply around the world. Russia has already offered to increase LNG supplies to Japan from the Sakhalin-2 project if requested. "We note that 1,000 MW equates roughly to 150-180 (million metric cubic feet per day) of gas demand if the units were run- ning as base load, around the clock, as nuclear plants typi- cally do," Barclays Capital said. Evacuees from Fukushima sit around a heater at an evacuation centre in Yonezawa, northern Japan, 98 km (61 miles) from the Fukushima nuclear plant, March 26, 2011. The situation at the earthquake- stricken nuclear power plant in northern Japan is not getting worse but vigilance is needed, Chief "Thus, these outages would translate to 1.0-1.2 (billion cubic Cabinet Secretary Yukio Edano said on Saturday. REUTERS/Kim Kyung-Hoon feet per day) of gas demand if replaced solely by natural gas."

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS A permanent shutdown of the plant would slash Japan's long The long-term impact for coal may be bullish, not only due to -term nuclear energy capacity by 4.7 GW (4,700 MW). additional Japanese demand once reconstruction starts, but "We estimate that Japanese demand for gas required to pro- also due to "the possible wider scale, far-reaching effects of duce electricity could increase by 5 bcm in 2011 and 2 bcm per such a nuclear accident on the role of thermal coal in the annum from 2012." world's energy mix going forward," SocGen said. * Using historical data from the 2007 shuttering of the 8.2 * Japan usually imports around 125 million tonnes of thermal GW Kashiwazaki-Kariwa nuclear plant, Morgan Stanley esti- coal per year. "Japanese thermal coal demand could pick up mated around 40 percent of lost nuclear generation will be very modestly by 1 to 2 million tonnes in 2011," Merrill Lynch replaced by LNG. said. Analysts calculated incremental Japanese LNG demand of 0.7 * "Given the current challenges in nuclear power production billion cubic feet a day (bcf/d), or 6 to 7 additional LNG car- and the likelihood that certain facilities could remain down for goes per month. Morgan Stanley said demand could be sig- an extended period to satisfy safety concerns, we anticipate nificantly higher, increasing by 1.5 bcf/d, if Japan decided to that after an initial drop-off (corresponding to low initial power make up all of the shortfall with LNG. demand following the tragedy) a larger-than-normal increase in thermal coal imports could be experienced," Deutsche Bank * Goldman Sachs estimated Japanese LNG imports would rise said. UBS said about 15 million tonnes per annum of thermal by 17 million cubic metres a day (mcm/d) and said in a note: coal is at risk due to damage at five coal-fired plants in Japan. "We expect Japan to prioritize more cost-efficient, gas-fired "If operations are restored within two to three months, then generation over oil to help compensate for the lost nuclear probably less than 5 million tonnes of thermal trade will be capacity, similar to what happened after the 2007 earth- lost in 2011. Also, it is possible that damaged stockpiles will quake." require re-building, further mitigating 2011's potential trade JP Morgan said LNG imports stood to increase significantly losses," UBS said in a note. due to the nuclear power capacity taken offline by the Japa- nese quake. "We currently envision as much as 1.0 bcf/d of additional LNG demand. This level would represent nearly a doubling of LNG imports by Japan, a country that normally consumes about 9.6 billion cubic feet per day of gas overall. * Macquarie said LNG and oil would fill the nuclear power gap: "In this worst case scenario, an equivalent of 6.2 billion cubic feet day (of LNG) would be required to offset the loss of Japanese nuclear power generation." * Based on the current information at hand, Japan will require between 4-6 mmtpa of additional volumes of contracted LNG to make up for lost power capacity, according to Facts Global Energy. Higher Japanese demand is likely to boost LNG spot prices, which have already moved up to around $10-11 per million British thermal units (mmBtu) from under $10 before the quake. OIL PRODUCTS * "Demand for low sulphur fuels for power generation should temporarily increase by at least 140,000 bpd," said Merrill Lynch. "But demand for naphtha may remain somewhat de- pressed as a number of petrochemical units are still offline." * Barclays sees an extra 143,000 bpd of demand for fuel oil as a result of Japan. JP Morgan said, "From the power perspec- tive, we would foresee perhaps 150,000 barrels per day of additional fuel oil demand for power generation after the situation stabilizes." COAL * In the medium term, 11.2 GW of nuclear plant capacity cur- rently off-line will remain closed until end-2011, if only for in- spection and security reasons, according to a note from So- ciete Generale on Monday.

"Such a scenario would lead to the additional demand for Buddhist monks and faithful attend a ceremony for the survivors and victims of the recent Japan earth- imports to be 7 million tonnes to 8 million tonnes before end- quake and tsunami at Duoc Thuoc pagoda outside Hanoi. REUTERS/Kham 2011 and a permanent 3 million tonnes from 2012 onwards," analysts said.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS FACTBOX-Japan's disaster in figures HOUSEHOLDS WITHOUT ELECTRICITY he following lists the impact of the earthquake and tsu- * As a result of the March 11 quake and tsunami, followed by nami that hit northeast Japan on March 11 and the sub- strong aftershocks on April 7 and 11, a total of 154,965 house- T sequent crisis at a nuclear power plant. Asterisk indi- holds in the north were still without electricity as of Thursday, cates a new or updated entry. Tohoku Electric Power Co said. DEATH TOLL HOUSEHOLDS WITHOUT WATER * A total of 13,498 people were confirmed dead by Japan's * At least 220,000 households in 8 prefectures were without National Police Agency as of 7 p.m. (1000 GMT) on Thursday, running water as of early on Thursday, the Health Ministry while 14,734 were missing. said. NUMBER OF PEOPLE EVACUATED NUMBER OF BUILDINGS DAMAGED * About 139,100 people were in shelters around the country as * At least 72,554 buildings have been fully destroyed, washed of Thursday following evacuation, the National Police Agency away or burnt down, the National Police Agency of Japan said said. as of 1000 GMT on Wednesday. The government has set up an evacuation area around Tokyo IMPACT ON ECONOMY Electric Power Co's quake-stricken nuclear plant in Fuku- The government estimates the material damage from the shima 240 km (150 miles) north of Tokyo, with a 20-km (12- quake and tsunami alone could top $300 billion, making it by mile) radius. far the world's costliest natural disaster. The top estimate More than 70,000 people lived in the largely rural area within would make it the world's costliest natural disaster. the 20 km zone. It is unclear how many of them have been The estimate covers damage to roads, homes, factories and evacuated, but most are believed to have left. other infrastructure, but excludes lost economic activity from Another 136,000 people were within a zone extending a fur- power outages and costs arising from damage to the Fuku- ther 10 km, which has been advised to stay indoors. shima nuclear power plant, as well as the impact of swings in financial markets and business sentiment. The government said on April 11 that because of accumulated radiation contamination, it would encourage people to leave The yen initially spiked to a record high against the dollar after certain areas beyond its 20 km exclusion zone around the the quake, prompting the first joint intervention by the Group plant and that children, pregnant women, and hospitalised of Seven rich nations in 11 years to help shield Japan's export- patients should stay out of some areas 20-30 km from the reliant economy. nuclear complex. Japan's reconstruction spending will almost certainly exceed that of the 1995 quake in Kobe, when the government needed extra budgets of more than 3 trillion yen.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS

The government is set to compile an extra budget worth Hachinohe (Aomori) No. 3 250 resumed ops oil about 4 trillion yen, focusing on removing debris, building Noshiro (Akita) No. 1, 2 1,200 resumed ops coal temporary housing and restoring infrastructure such as Akita (Akita) No. 2-4 1,300 resumed ops oil schools. Japan plans to allocate 1 trillion yen to stem job Sendai (Miyagi) No. 4 446 shut natural gas losses and help the unemployed, the Nikkei business daily Shinsendai (Miyagi)No. 1 350 shut for maintenance oil reported on Tuesday. No. 2 600 halted LNG This is likely to be the first of several spending packages, but Haramachi (Fukushima)No.1-2 2,000 halted coal cabinet ministers, including the finance minister, have said Tohoku's total thermal capacity 10,850 that Japan, which has a huge public debt already twice the Down capacity 3,396 size of its $5 trillion economy, should avoid new bond issu- 31.30% ance. TOTAL THERMAL CAPACITY SHUT 10,796 NUMBER OF COUNTRIES OFFERING AID Tohoku's nuclear capacity 3,274 Affected nuclear capacity 2,174 According to the Foreign Ministry, 135 countries and 39 inter- 66.40% national organisations have offered assistance. Tohoku's hydroelectric power 9 of total 210 plants damaged All 9 in northeastern Japan 2,420 (Tohoku's hydroelectric power capacity) 16,550 FACTBOX-Details of Japan refinery, utilities and Tohoku's total capacity 18.50% smelter shutdowns Other thermal units shut after quake The following is a status list of nuclear plants, thermal power Soma Kyodo Power (TEPCO-Tohoku Electric joint venture) stations, oil refineries, ports and metal-related industries shut in Japan following a massive earthquake and tsunami that Shinchi (Fukushima) No.1 1,000 shut for maintenance (coal) struck in March. No.2 1,000 halted (coal) NUCLEAR (Megawatts) Company Capacity Status Joban Kyodo Electric Power (TEPCO, Tohoku hold 49 pct Fukushima-Daiichi (1) TEPCO 460 shut stake each) Fukushima-Daiichi (2) TEPCO 784 shut Nakoso (Ibaraki) No.7 (coal) 250 shut Fukushima-Daiichi (3) TEPCO 784 shut No.8 (coal) 600 shut for maintenance Fukushima-Daini (1) TEPCO 1,100 shut Fukushima-Daini (2) TEPCO 1,100 shut No.9 (coal, fuel oil) 600 shut Fukushima-Daini (3) TEPCO 1,100 shut LNG Fukushima-Daini (4) TEPCO 1,100 shut Shinminato terminal Sendai Gas shut for 1 month

Onagawa (1) Tohoku Electric Power 524 shut TEPCO thermal operations which were restarted after the quake: Onagawa (2) Tohoku Electric Power 825 shut 1) restarted after safety checks Chiba 2-1 LNG unit 360 megawatts (MW) Onagawa (3) Tohoku Electric Power 825 shut Yokohama 8-4 unit of oil and LNG 350 MW Japan Atomic Power Goi No.4 LNG unit 265 MW Tokai Daini Co 1,100 shut Oi No.3 crude oil unit 350 MW TOTAL AFFECTED 9,702 shut Oi No.2 crude oil unit 350 MW

TOTAL JAPAN NUCLEAR POWER Total 1,675 MW CAPACITY 48,847 2)planned maintenance moved forward: TOTAL JAPAN POWER CAPAC- Futtsu 1-3 LNG unit 165 MW ITY 241,470 Oi No.1 crude oil unit 350 MW NOTE: Capacity figures from TEPCO, Tohoku Electric and Futtsu 2-7 LNG unit 165 MW Central Electric Power Council. Another 2,670 MW of nuclear Yokohama No.6 unit of oil and LNG 350 MW power was shut before the earthquake for inspection. Goi No. 2 LNG Unit 265 MW Total 1,295 MW THERMAL POWER (Megawatts) Haramachi coal-fired (Plant I, II) To force majeure on near-term thermal hoku (MW) coal shipments (fuel type) TEPCO's thermal power plants now (fuel oil, crude) plans to resume end- OIL REFINERIES 000/bpd shut Kashima (Ibaraki) No.06 1,000 July TEP Sendai (Unit 1) JX Nippon Oil & Energy 145 shut, to be Hirono (Fukushima) No.2,No.4 CO 600 (fuel oil, crude) restarted by summer of 2012 1,000 (fuel oil, crude) Negishi (Units 1 & 4) JX Nippon Oil & Energy full output by Apr TEP Kashima Oil (1) 189 shut, aims to restart production by sum- Hitachinaka (Ibaraki) No.1 CO 1,000 (coal) plans to resume end July 38,69 mer . TEPCO'S total thermal capacity 6 Kashima Aromatics 63.5 shut, to restart by summer Shut capacity 3,600 Kawasaki (1, 2, 3) TonenGeneral Sekiyu 335 restarted Chiba Kyokuto Petroleum 175 restarted NOTE - Earlier estimates had 10,831 MW of thermal power generation shut after the quake.

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Volume in '000 Date of Exporting METALS (TONNES) Vessel Name tonnes Cargo loading Country/Region Charterer Utsunomiya plant Tokyo Steel shut for checks, power cuts DIRTY TANK- Kamaishi steel mill Nippon Steel 720,000 halted, no major ERS damage Stavanger Bell 80 20-Apr Sudan Mercuria Kashima stainless sheet Nippon Steel & Sumikin Stainless Tsugaru 265 Crude 19-Apr Middle East G ulf NGT resumed partial operations, plant Steel Corp shipments D. Champ 100 Crude 12-Apr Russia Gazprom Hachinohe nickel plant Pacific Metals Co 44,000 plans to Pacific Condor 130 Crude 9-Apr Saudi Arabia Petrobras restart ops mid-June Green Warrior 80 Crude 7-Apr Russia Clearlake Onahama copper smelter Mitsubishi Materials 300,000 aims to partially resume ops in mid-July declared force ma- Stavanger Bay 80 5-Apr jeure on March 14 on copper ore shipments to Onahama and Yohtesian 265 Crude 5-Apr Middle East Gulf Taiyo Naoshima smelter in West Japan. K-Line 100 Crude Early April Russia Exxon Hitachi copper refinery Pan Pacific Copper 136,000 aims to - 80 Crude 28-Mar Shell resume operations in April Hachinohe Zinc smelter Mitsui Stx Ace I 30 Fuel Oi l March 26 Singapore Mining 108,000 plans to resume ops by early June CLEAN TANKERS Akita zinc smelter Dowa Holdings 200,000 resumes ops Ocean Ex- Kosaka copper smelter Dowa Holdings 8,000 resumed ops plorer 75 Naphtha 2-May India early April Annaka zinc smelter Toho Zinc 110,000 plans to *Raysut 75 Naphtha Early May Middle East Gulf Marubeni *Torm resume ops in June Mathilde 75 Naphtha 30-Apr Middle East Gulf Total PORTS SKS Douro 75 Naphtha 26-Apr Middle East Gulf Chiba Main Cosmo Oil terminal Vessel cargo operations SKS Darent 75 Naphtha 26-Apr Middle East Gulf Vitol working partly . Hachinohe Grain, lumber, oil Hattaro wharfs *Adv Victoria 55 Naphtha 25-Apr Middle East Gulf A, C-H, J, L-P open .Sendai/ Hitachi Containers, vehicles, cargo Berths B and D open . Arctic Galaxy 75 Naphtha 25-Apr Red Sea Hitachinaka Containers, vehicles, cargo Berths A-C and H Song Lin Wan 75 Naphtha 25-Apr Middle East Gulf open. Ishinomaki Coal, lumber, steel, grain Hiyori wharf 6-7, Vermilion Expr 75 Naphtha 24-Apr Middle East Gulf Marubeni Nakajima 1-3, Ohte 1-3 open. Sea Legend 80 Naphtha 22-Apr Middle East Gulf Total Kamaishi Coal, wood, steel, cars, grain Suga wharfs open. River Eternity 75 Naphtha 20-Apr Middle East Gulf Litasco Ratna Kashima Dry bulk ports Wharfs C-G open. Shradha 75 Naphtha 20-Apr Middle East Gulf Chinaoil Kashima Kashima Denkai oil terminal Closed, facility under Chao Hu 55 20-Apr Middle East Gulf Shell inspection. Ambrosia 75 Naphtha 19-Apr Middle East Gulf YNCC Kashima Kashima Kyobi oil terminal Resumed vessel cargo Corossol 75 Naphtha 18-Apr Middle East Gulf Vitol operations. Horizon Diana 55 Naphtha 18-Apr Middle East Gulf Kashima Kashima Oil terminal Partly resumed shipments Horizon Dimi- Kashima Mitsubishi Chem terminal Closed, several months tra 55 Naphtha 16-Apr Middle East Gulf expected to resume ops Margarita 55 Naphtha 15-Apr Red Sea Chinaoil Falcon Ex- Kashima Shin-Etsu Chem terminal Closed, facility under press 75 Naphtha 15-Apr Middle East Gulf Mercuria inspection. Tamar 55 Naphtha 14-Apr Middle East Gulf Kashima Sumitomo Metal Industries coal, iron ore terminals Torm Sara 55 Naphtha 14-Apr Middle East Gulf Operating partially. Kesennuma Fishery port Open. Usma 35 Naphtha 14-Apr Red Sea CSSA Miyako Lumber, fertilizer Fujiwara wharf 1-2 open. Serengeti 55 Naphtha 13-Apr Suez CSSA DL Iris 75 Naphtha 13-Apr Middle East Gulf Ofunato Coal, lumber, cement Nonoda wharf open Challenge Onahama Oil, coal, lumber Berths 1, 2 open for emergency aid Prem 35 Naphtha 12-Apr India Onahama Onahama Petroleum terminal Closed, unknown Stresa 75 Naphtha 12-Apr Middle East Gulf Vitol when to resume operation. Sendai Dry bulk terminals Raijin Belaia 35 Naphtha 12-Apr India wharfs 1-2, Nakano wharfs 2-7, Takamatsu wharf are open Jag Aabha 55 Naphtha 12-Apr Middle East Gulf Sendai JX NOE Closed, unknown when to resume operation Torm Kansas 35 Naphtha 10-Apr India Vitol Shiogama Oil, containers, vehicles, general cargo, lumber Swarna Kamal 75 Naphtha 10-Apr UK Koch Berths 2-4 open. Po Yang Hu 55 Naphtha 10-Apr Middle East Gulf Soma Coal, lumber Piers 1, 3-4 open for emergency aid. River Eternity 75 Naphtha 10-Apr Middle East Gulf Vitol Torm Thyra 35 9-Apr India Gaso- MOL 30 line 9-Apr South Korea Sunny Ex- FACTBOX-Oil tanker, dry bulk fixtures to Japan press 35 Naphtha 1-Apr India since quake Torm Sofia 55 Naphtha 1-Apr Middle East Gulf ST Ship Here are the tanker and dry bulk fixtures reported to Japan SKS Delta 80 Naphtha 1-Apr Middle East Gulf Samsung since last month's earthquake and tsunami, according to ship- Pioneer Sun- Gaso- brokers. Some of the listed fixtures are not yet confirmed, so shin e 35 line April 1 India could be revised or fail to be completed. Four Sky 90 End Mar Mediterranean Vitol (*-denotes new addition or revision)

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JAPAN EARTHQUAKE: IMPACT ON COMMODITIES AND ENERGY SECTORS Carina 30 Naphtha 29-Mar Thailand Pioneer 75 Naphtha 9-Apr Middle East Gulf Lukoil Oriental Em- Gaso- Gaso- eral d 30 line 28-Mar South Korea SKE BW Rhine 60 line 9-Apr India Cargill Freight Margie 55 Naphtha 27-Mar Middle East Gulf Statoil C. H. Zhen Gaso- 35 Naphtha 8-Apr Suez Conoco Zhu 30 line 26-Mar South Korea Pac Marichon- ess 35 Naphtha 7-Apr India Koch DL Rose 35 Naphtha 26-Mar Middle East Gulf Vitol onden- Formosa 16 35 Naphtha 6-Apr India Idemitsu Ashley Lady 80 C sate 25-Mar Middle East Gulf Vitol Chall. Para- Gaso- CSC Friend- Gaso- gon 30 line 6-Apr South Korea ship 35 line 25-Mar Middle East Gulf Reginamar 55 Naphtha 25-Mar Middle East Gulf Morning Glory 55 Naphtha 6-Apr Middle East Gulf Vitol Gaso- Pacific Duch- Kero- Tai Hu 55 line 23-Mar Mediterranean ess 40 sene 5-Apr South Korea Idemitsu Atlantic Innova t 35 Naphtha 22-Mar India Ocean Moon- Sunflower 35 Naphtha 5-Apr India Vitol beam 35 22-Mar Mumbai Cargill Ocean Cos- Siena 75 Naphtha 5-Apr Middle East Gulf MCC mos 35 Naphtha 19-Mar India Cargill Future Pros- Eagle Ma- Gaso- per 30 Naphtha 5-Apr Singapore tsuyama 30 line 18-Mar Malacca Trafigura Energy Cen- taur 55 Naphtha 5-Apr India Chevron Maribel 55 Naphtha 18-Mar Middle East Gulf ulf Morning Ex- ulf Constantinos 65 Jetfuel 4-Apr Middle East Gulf BP press 75 Middle East Gulf Honam DRY BULK Maistros 55 Naphtha 4-Apr Middle East Gulf CSSA *Brave Star 74 13-Apr GMI Dong Ting Hu 55 Naphtha 4-Apr Middle East Gulf Itochu TMS Maria 52 10-Apr North Pacific Oldendorff Conden- Medi Taipei 77 10-Apr New Zealand NS United New Advance 80 sate 3-Apr Australia Alitis 53 8-Apr China WBC Tai Hu 55 Naphtha 3-Apr Mediterranean Coronado 76 5-Apr North Pacific Oldendorff Torm Saltholm 84 5-Apr U.S. Noble Bellflower 75 Naphtha 3-Apr Middle East Gulf Shell Oldendorff 47 31-Mar India Lihai Gaso- Calm Seas 74 31-Mar Mosk 30 line 2-Apr South Korea JX Energy Double For- MOL 30 2-Apr South Korea JX Energy tune 96 30-Mar Australia BHP UK Integrity 35 Naphtha 2-Apr India Shell Louis Danann Island 76 30-Mar North Pacific Dreyfus Freja Atlantic 35 Naphtha 1-Apr Middle East Gulf Cape Provi- dence 170 28-Mar Gaso- 35 line 31-Mar Suez Conoco Kambanos 87 27-Mar Australia Norden Carol 76 Grain 26-Mar Australia Toepfer MOL 30 30-Mar South Korea JX Energy Brave Wind 71 Grain 25-Mar North Pacific Galway Spirit 75 Naphtha 30-Mar Statoil Red Gardenia 76 24-Mar Aurora 56 23-Mar North Pacific Cargill Elegant Victori a 55 30-Mar India Ocean Ex- plorer 75 Naphtha 30-Mar Middle East Gulf YM Virtue 76 20-Mar North Pacific Aquavita

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