Japan energy spike could play badly for Middle East

Japan is still counting the toll of the tragedy in terms of
lives and destruction. The cost of the disaster is estimated to top $170bn –
but of greater concern is the partial meltdown of the Fukashima nuclear plant
in the north of the country.

It is still too early to say what the full economic effects
of the catastrophe will be on Japan and the world, but Middle Eastern energy
executives will be watching the unfolding news with interest.

Aside from the already-high cost of oil, the gas price in
many countries such as the UK has already risen by as much as six percent, as
Japan seeks to bring in more supplies to cover its nuclear baseload offering.

While no country will want to benefit from the catastrophe
that has hit Japan, the increased requirements for liquefied natural gas (LNG)
come at an opportune time for Qatar. The Gulf state has spent billions on
building out its LNG infrastructure, reaching its national target of 77 million
tonnes per annum late last year.

However, that achievement has been matched by a relative
lack of global interest in actually buying in Qatar’s most expensive product,
causing a degree of concern in Doha.

As recently as six years ago, there had been plans for 55
new or expanded LNG terminals in North America, but the advent of
home-developed shale gas facilities has put paid to many of those plans, leaving
Qatar to focus on the Asian markets for growth.

Qatari gas officials have recently said that they will be
able to fill Japan’s urgent needs for LNG, as the country strives to bring its
power grid back online.

But while RasGas’ Hamad Rashid Al Mohannadi could see an
unexpected boost from the Japanese situation, the outlook is far less clear for
other, would-be alternative energy suppliers. The UAE is spending $20bn on
importing nuclear technology from South Korea, and the Emirates Nuclear Energy
Corporation (ENEC)’s Mohammed Al Hammadi was forced to quickly clarify that the
UAE’s proposed plants will not fare as badly in the event of a natural disaster
as their ageing Japanese counterparts have done.

So where does that leave oil? Any uncertainty tends to push
the oil price up, but the Japanese catastrophe has not had as much effect on
the spot price as the regional unrest, particularly in Libya. Saudi Aramco CEO
Khalid Al Falih made a significant statement of intent when he said in February
that Saudi Arabia would be able to fill any shortfall in the market left by the
absence of Libyan exports.

More expensive oil and LNG may well be a scrap of good news
for the Gulf states in the short term, but it is potentially disastrous for the
region in the long-term. Higher oil prices help push up inflation, making food
more expensive and forcing the cost of subsidies to skyrocket. Inflationary
concerns have led – in part – to much of the regional unrest this year, and
while the Gulf states may be able to afford to alleviate those costs, the
outlook for other countries in the region is not so rosy.

(Ed Attwood is the deputy editor of Arabian Business. The opinions expressed are his own.)