INTERVIEW: Japan NYK Line Expects Surge In LNG Business; FPSO Also In Focus

TOKYO (Dow Jones)–Japanese shipping company NYK Line expects a surge in liquefied natural gas demand from Japan and worldwide because of rising fears about nuclear power, and is determined to grab as much of the new LNG shipping business as possible.

NYK Line, as Nippon Yusen KK (9101.TO) is known, is one of world’s top two LNG carrier companies. It laid out a modest plan in late March to invest Y260 billion in LNG carriers and FPSO–floating production, storage and offloading vessels–in the six years from April 2011, raising the number of its LNG carriers to 35 from 30 currently.

But Hitoshi Nagasawa, an NYK managing officer responsible for its Bulk and Energy Division, said those numbers could be adjusted if the shift to LNG looks set to continue over the longer term.

If the trend to reduce dependence on nuclear power continues, “there would be demand for 70-80 LNG vessels worldwide over the next decade,” Nagasawa said in an interview with Dow Jones Newswires.

“We’ve been collecting information [preparing] to win as much business as possible,” he said.

The March 11 earthquake and tsunami knocked out 14 reactors and several thermal power plants in northeastern Japan, causing serious power shortages and a search for fossil fuels, mostly LNG, to make up for the lost power capacity.

Then, as the severity of the partial nuclear meltdown at the Fukushima Daiichi site became apparent, more unaffected utilities chose not to restart reactors that were undergoing regular maintenance at the time of accident, so as not to alarm local communities. Reactors that have since been shut for scheduled maintenance face similar obstacles. As a result, 37 of Japan’s 54 reactors are now offline.

Energy industry executives have said Japan’s LNG demand has risen above 80 million metric tons this year. But Nagasawa said it may reach 100 million tons, given the continued public concern.

In the financial year that began April 1, Japan’s LNG demand will rise by roughly 10 million tons, the Institute of Energy Economics of Japan said in a recent report.

On Friday, Kansai Electric Power Co. (9503.TO) said it will call on large customers to cut power use by 15% from last year’s levels during peak periods this summer to avoid power outages, as it has been unable to restart several reactors undergoing regular maintenance.

Japan’s second-largest power utility by capacity said it will need to use additional fossil fuels equivalent to 1.6 million tons of LNG in the June-September period.

Tokyo Electric Power Co. (9501.TO), the operator of the stricken Fukushima Daiichi nuclear power complex, has bought 3 million tons of additional LNG for the use in summer months.

Chubu Electric Power Co. (9502.TO), which shut its Hamaoka nuclear power plant after government requests following the Fukushima disaster, estimates it will have to use 3 million tons more LNG than originally planned this fiscal year.

Nagasawa expects this extra demand to continue for two years. In the long term, there is also a good chance that Japan closes old reactors, cutting the country’s total nuclear power capacity to around half of the current level, he said.

Nevertheless, he doesn’t expect LNG supply shortages, thanks to ample production capacity in Qatar.

In the business plan released in March, NYK said it aims to keep its oiltanker fleet at almost the same size, around 105 vessels.

Nagasawa said oil tankers are no longer lucrative due to Japan’s falling oil demand and intensifying competition, and the company will invest more in FPSO vessels, as oil and gas production moves to deep-sea beds.

-By Mari Iwata, Dow Jones Newswires

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