Natural Gas, Crude Prices Diverge on Japan Crisis

Natural gas and crude oil prices were moving in opposite directions Monday as the markets factors in the possibility of an economic slowdown in Japan.

Author:: Andrea Tse
Publish date:: Mar 14, 2011 1:30 PM EDT

NEW YORK (TheStreet) -- Natural gas and crude oil prices were moving in opposite directions Monday as the markets factored in the possibility of an economic slowdown in Japan -- coupled with the country's pressing need for power in the wake of earthquake-related nuclear plant explosions.

Eleven nuclear reactors were shutdown in Japan after the 9.0 magnitude earthquake shook the country on Friday and set off explosions at the Fukushima Dai-ichi nuclear power plant.

While crude oil futures tumbled, natural gas futures for April delivery were popping 3.3% to $4.02 per million British thermal units as damaged nuclear power reactors in Japan fuelled speculation that liquefied natural gas cargoes would be diverted away from the U.S. and other countries to Japan.

Japan's need for alternative power resources is pressing in the face of the nuclear shutdowns. About 30% of the county's electricity comes from nuclear power plants.

Electricity was cut off from about 1.3 million people after Japan was hit by its biggest earthquake.

The anticipated surge in natural gas demand from Japan comes amid rising natural gas substitution by U.S. utilities as coal prices soar.

Meanwhile, crude oil (West Texas Intermediate) for April delivery was falling 1.1% to $100.10 a barrel over worries that the Japanese economy will experience a major setback.

NYMEX unleaded gasoline for April delivery was down 1.5% to $2.94 a gallon.

Alan Zafran, partner at Luminous Capital, agrees that Japan will suffer an economic setback -- but not a long-term setback.

"Whatever economic slowdown will be felt in the short-run will be compensated by subsequent growth in Japan's economy to rebuild and repair the economic damage," he said in a report.

Natural gas plays were popping in early afternoon trading.

Chesapeake Energy

(CHK) - Get Report

was rising 2.5% to $33.62,

Southwestern Energy

(SWN) - Get Report

was gaining 3.2% to $38.08 and

Range Resources

(RRC) - Get Report

was adding 3% to $49.97.

Oil stocks were falling.

Chevron

(CVX) - Get Report

was down 0.4% to $99.49 and

(BP) - Get Report

was lower by 2% to $44.84.

Coal stocks were higher on anticipation that the spike in natural gas demand will push up prices and lead to more demand for coal as a substitute at utilities.

Peabody Energy

(BTU) - Get Report

was up 2.3% to $64.60 and

Massey Energy

(MEE)

was up 0.5% to $59.92.

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