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Euromoney Country Risk

Russia must build on its energy windfall

Growing demand for Russia’s energy exports should not divert the country from diversifying its economy.

Sadly, even the worst human tragedies present opportunities for some. So it is with Japan’s nuclear crisis triggered by last month’s earthquake and tsunami. The crippling of the Fukushima reactors means that Japan’s energy needs will become even more onerous. No country is poised to benefit more than Russia, the world’s biggest energy exporter.

To the Russian government’s credit its initial response to the disaster was compassionate; it diverted to Japan liquefied natural gas cargoes from its Sakhalin II project, even if it meant that contracts with other customers were broken.

Eventually business rationale will take over. About one-third of Japan’s energy needs have been met through nuclear power. The crisis means that its dependence on gas and oil imports will greatly increase. Japan already imports about 70 million tonnes of LNG a year, making it the world’s biggest buyer of the resource. It will probably have to increase that to between 75 million and 80 million tonnes just to replace the lost energy production from Fukushima.

Although it is difficult to tell what the long-term repercussions will be for global energy markets, in the short term natural gas prices surged after the earthquake. In the immediate aftermath the price per therm for summer delivery of LNG to the UK, for example, rose by 6.4%,

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