Late last week, the governor of Japan’s Kagoshima prefecture gave what represents a formal and final approval for the restart of Kyushu Electric’s Sendai nuclear power plant, which will operate under revised safety regulations.

With these plants, each with an 890 megawatt capacity, expected to come back online next year, the road back to nuclear power generation appears to have been paved.

Before the Fukushima nuclear power plant disaster, Japan depended on nuclear energy for 30% of its electricity production.

However, now with its entire fleet of 48 reactors offline, the country has had to rely on other sources of energy. While the solar industry got a huge boost with as much as 7 gigawatts of capacity installed in the last two years, LNG and coal imports to feed its power plants have increased exponentially.

However, with ballooning trade deficit due to high fuel imports hitting the economy, Japan has been looking for ways to snap LNG pricing from oil-linked prices.

While benchmark natural gas Henry Hub price have been hovering around $US4 per MMBtu, Asian-delivered prices until recently have been in the high teens.

At oil prices over $US100/bbl, importing oil-linked LNG into Japan was still cheaper, but the recent downward spiral in oil prices have altered the economics, eroding profit margins for imported LNG from the US.

Yet paradoxically, the slide in crude markets also offers the precise opportunity to de-link gas prices from oil.

While 90% of Japan’s LNG imports are done on oil-linked prices, Japanese importers have become more active in the nascent LNG spot market, and have been instrumental in making that market much more liquid.

In fact, recent deals are getting an increased share indexed to Asian spot prices. For instance Japan’s Chubu Electric is set to buy 20 cargoes of LNG from GDF Suez on Asia spot-linked prices on a two-year term starting next year.

For the Japanese companies invested in US LNG space, the almost 25% decline in oil prices also presents portfolio diversifying opportunities that were limited previously.

Japan has deals in place to import 16.9 million tons of LNG per year from the three top US LNG export projects. If all of this were to land in Japan, it would constitute almost 19% of its current total imports.

But with new contracts increasingly offering destination flexibility, Japanese buyers will be able to sell contracted volumes to markets outside of Japan if there is a lull in demand.

The restart of the two nuclear power plants assumes significance within this context and potentially offers a way for more LNG pricing power.