Japanese officials have confirmed 4,340 dead and 9,083 still missing as a result of the earthquake and tsunami that hit the country a week ago, according to London’s Daily Mail newspaper.  Those numbers could be very low, as one city has now estimated that 10,000 of its citizens are  missing. As we continue trying to assess the impact of the disaster on the global economy, the human tragedy should never be out of our minds.

As Japanese crews work to contain the damage at the four nuclear power plants at the Fukushima Daiichi site, the country tries to prepare for life without at least some nuclear-power-generated electricity. Rolling blackouts have begun, and in the area around Tokyo power is turned off for about three hours a day.

To make up for the loss of nuclear generation, Japan is expected to rely on increased supplies of coal, oil, and natural gas imported in its liquefied form, LNG. We still see a likely breakdown in future energy supplies.  As always, some companies are better positioned to take advantage of the shifting of demand to Japan for more hydrocarbon-based energy supplies.

US coal companies exported about 80 million tons of coal in 2010. Estimates of total imports in Japan range between about 101-107 million tons. Much of Japan’s imports consist of metallurgical coal used in steel making, not thermal coal used for power generation.

Of US coal companies, Peabody Energy Corp. (NYSE: BTU) could see a boost in prices as demand for coal in Japan increases. Peabody shipped more than 15 million tons of thermal coal from its Australian mines in 2010, more than 10% of Japan’s total imports for the year of about 107 million tons. Additional shipments are constrained by loading facilities, particularly along the west coast of the US.

Arch Coal Inc. (NYSE: ACI) realized export revenue of $471.5 million in 2010, about 15% of its total revenue for the year. The company owns a 38% stake in loading facility near the mouth of the Columbia River that is being expanded to handle 5 million tons of coal annually.

Alpha Natural Resources, Inc. (NYSE: ANR) export 9.6 million tons of coal in 2010, all of it metallurgical coal used in steel making. Japan is a large producer of steel, and a lot of steel will be needed to rebuild the country although that demand is not likely to come for at least a few months yet.

Consol Energy Inc. (NYSE: CNX) sold about 13 million tons of coal to export markets in 2010, all of it metallurgical coal.

Of these four coal miners, only Peabody has a substantial market for its thermal coal in Japan, and the reason for that is that the coal comes from Peabody’s Australian mines. The other US companies either don’t have the shipping facilities they need on the west coast or they export almost exclusively metallurgical coal.

Natural gas supply is essentially parallel. The big integrated oil & gas producers such as  Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), and ConocoPhillips Corp. (NYSE: COP) that have natural gas/LNG production in the Middle East, Asia, and Australia are very likely to see more demand from Japan for LNG to fill the need for natural gas to replace the downed nuclear plants.

Exxon is probably best positioned, with its partnerships in Qatar’s Ras Laffan project. Some 71% of Exxon’s upstream capex in 2010 was directed at this project. In its annual report for 2010, Exxon noted that it “participated” in annual production capacity of nearly 62 million metric tons. Exxon also has an ownership position in the Gorgon LNG project offshore of Australia that is operated by Chevron. That project aims to produce about 15 million metric tons annually. Exxon’s purchase of the natural gas assets of XTO Energy have absolutely no impact on the company’s ability to supply LNG to Japan.

Besides its stake in the Gorgon project, Chevron also owns a non-operating stake in the Northwest Shelf venture in offshore Australia’s Browse Basin. LNG from the project is almost all sold to Japanese utility companies.

Conoco plans to mothball its jointly owned Kenai, Alaska  LNG plant, which now ships just 17 billion cubic feet of gas to two Japanese customers. Conoco may hold off on mothballing the plant, depending on both its supply and the demand from its Japanese customers. The company also supplies a LNG plant in Australia that shipped 147 billion cubic feet of gas to Japan in 2010. Conoco also has a share in a project in Qatar that shipped 8 cargoes of LNG in 2010.

US coal companies could benefit from an overall price rise for thermal coal if Japanese demand grows substantially, but only Peabody has any significant presence in the Japanese market. US oil & gas companies will sell more natural gas, and maybe a little more oil, to Japanese utility companies. They are better positioned to take advantage of price moves than are domestic gas producers like Chesapeake Energy Corp. (NYSE: CHK) and others that have no way to export their product.

Paul Ausick

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