Japanese Demand for Natural Gas will Benefit Anadarko

Anadarko Petroleum Corporation ( APC ) is among the largest independent oil and gas exploration and production companies in the world with about 3 billion barrels of oil equivalent (BOE) of proven reserves. The company explores and produces natural gas, crude oil, condensate and natural gas liquids (NGLs). Its major operations are located onshore in the United States and in the Gulf of Mexico. Anadarko also has operations in Algeria, Brazil, China, Ghana, Indonesia, Mozambique, Sierra Leone and other countries, and the company mainly competes ExxonMobil ( XOM ), BP ( BP ), ConocoPhillips ( COP ) and Chevron ( CVX ).

We have a price estimate of $69.34 for Anadarko's stock, roughly 17% below market price. The company derives about 40% of its value from production and sales of natural gas.

Japan imports a large share of the liquid natural gas and accounted for almost 35% of global trade in natural gas in 2009. Japan relies on imports for its natural gas needs and has little or no domestic production. Japan consumed an average of 9.3 billion cubic feet per day of natural gas last year.

The recent earthquake in Japan has caused disruptions in Japanese nuclear power plants. Eleven reactors have been shut in Japan to prevent further damage to at risk reactors. About 30% of the Japan's electricity comes from the nuclear power plants and so demand for natural gas in Japan may rise to compensate for the loss of nuclear power. Also the regulatory and safety concerns about the nuclear power make natural gas an attractive alternative which is a cleaner alternative to coal than other sources of energy.

Disruptions in Japanese nuclear power plants could support natural gas prices. According to a senior analyst at Societe Generale, Japanese demand for natural gas to produce electricity may increase by 5 billion cubic meters in 2011 as a result of the earthquake.

The increase in Japanese demand for natural gas could sustain for at least a year as the reactors will be assessed for quake damage and repaired accordingly. This will ease some pressure on the U.S. natural gas inventories which totaled 1.67 trillion cubic feet on March 4, 2011.

We estimate the average realized natural gas sale price for Anadarko in 2011 at about $5.20 per thousand cubic feet but that could easily touch $6 per thousand cubic feet after the earthquakes in Japan. This would result in a 5% upside to our $69.34 price estimate for Anadarko.

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