Situation in Japan rebalances Asia Pacific’s energy market

Moody's Investors Service said in a new report that displaced demand from Japan's nuclear shutdown will shift to Asia-Pacific thermal-energy producers such as Australia's upstream Woodside Petroleum (Baa1 negative), Indonesia's thermal-coal miner Adaro (Ba1 stable), Korea's refiner SK Innovation (Baa3 Stable), and Thailand's petrochemical firm PTT Chemical (Baa3 review for upgrade).
"These firms and others in the region can capitalize on near- and longer-term displaced demand as Japan must now rely more on non-nuclear fuel," said Renee Lam, the lead author of the report, adding that global crude prices are also expected to remain high, despite a near-term drop from dislocation in Japan.
"Refinery shutdowns in Japan, accounting for 9% of Asian capacity and 2% of global capacity, have pushed up Asian refining margins. Strong margins benefiting non-Japanese, regional refineries should continue at least in the near term," Lam said. "We expect strongresults for our rated refiners in the first half of this year."
"However, high-oil prices stemming from political instability in the Middle East and North Africa are putting pressure on refining and marketing (R&M) firms' working capital." She added that "Over the longer term, R&M companies' performance still hinges on continuing growth in industrial demand."
"Downstream petrochemical producers in Asia are set to capitalize on displaced sourcing in the region as Japan is a major exporter of petrochemicals to its neighbouring countries."
"Exploration and production (E&P) companies with a lot of natural-gas production stand to benefit from an anticipated increase in Japanese demand for liquefied natural gas (LNG) to replace lost nuclear-power capacity," said Matthew Moore, a contributor to the report. He added, "In that sense, the Australian E&P sector will benefit the most in the medium to long term, with over ten projects representing more than half of current global production planned or under development. However, long-term contracts tying up much of this LNG capacity may limit the near-term benefits."
Another contributor, Simon Wong, added, "Like LNG, substituted demand from crippled Japanese nuclear reactors will keep prices buoyant for Indonesia- and Australia-based producers of thermal coal."