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Natural Gas Attracts Investors as Nuclear Fears Rise

Natural gas was at a two-week high Monday as Japan's nuclear power shut down put the spotlight on global natural gas supplies, as an alternate fuel for electric power generation.

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As oil has risen, natural gas has been a laggard, due to plentiful supplies in the U.S. and elsewhere. Natural gas Monday was trading at $3.906 per mmBtu, after rising to as high as $4.053 in electronic trading .

Japan was expected to move quickly to import more liquefied natural gas. U.K. spot prices increased based on the idea of higher LNG demand, according to reports.

"Even though we don't export too much, you have to step back and look at the whole natural gas market as a whole," said Michael Fitzpatrick, editor of Energy Overview newsletter.

Partial meltdowns at Japanese nuclear facilities, hit by the dual disasters of a massive earthquake, then tsunami, raised concerns globally about nuclear safety. Germany Monday ordered safety checks on nuclear power plans, and Switzerland suspended approvals on three nuclear plants so safety standards can be reviewed. The Obama Administration said nuclear power will remain in the mix in the U.S.

"The economics have changed so much that natural gas really is going to play a much bigger role." -Chairman, IHS CERA, Daniel Yergin

Daniel Yergin, IHS CERA Chairman, said focus has already begun to shift to an increased reliance on natural gas for electric power generation. He said the CEO of Exelon made that clear at a conference CERA held in Houston last week. "The economics have changed so much that natural gas really is going to play a much bigger role," he said.

"Last year, the focus was on how much shale gas we have. This year, it's now how it's going to change the economics of the whole electric power business ... it will be the default fuel going forward," he said. Yergin said the U.S. has 100 years of supply of natural gas at current rates of consumption. The U.S. has increased its use of natural gas from about 19 percent of electricity generation in 2005 to about 24 percent in 2010.

He said Japan consumes one third of the world's liquefied natural gas, and about 25 percent of its power generation is from LNG. About 30 percent of its electric power is from nuclear plants. "What we saw in 2007 ... several reactors were shut down in Japan because of an earthquake, and the global LNG market diverted gas to Japan," he said.

The same thing should happen again, but the market is now more flexible and more global. Japan will also be importing more fuel oil, which pushed the price of distillates, like heating oil higher on the NYMEX today. Yergin said Japan will find supply for additional LNG in Asia and the Middle East.

Oil continued to move lower Monday because Japan will import less crude temporarily due to outages of much of its refining capacity, but concerns about the Middle East pushed it higher to close up $0.03 on the day. WTI crude oil was supported above $100 by concerns about conflict in Libya and the arrival of foreign troops to stop protests in Bahrain.

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