By Osamu Tsukimori

TOKYO, Jan 16 (Reuters) - The world's biggest nuclear power plant, shut down following an earthquake in Japan six months ago, will probably remain closed far longer than expected, hurting profits and increasing oil demand for operator TEPCO.

Tokyo Electric Power Co <9501.T>, Asia's biggest utility, is unlikely to get clearance to reopen its Kashiwazaki-Kariwa plant in northwest Japan before the second quarter of 2009, analysts and market sources now say, long past the mid-2008 target first mooted in the aftermath of the July 16 quake.

The incident followed a series of safety scandals in Japan's nuclear sector over the past five years, heightening local sensitivity to atomic energy, which provides about 30 percent of electricity in the world's third-biggest power consumer.

Some citizens' groups and scholars are calling on TEPCO to decommission Kashiwazaki amid concerns over another major quake in the future, although analysts do not expect it to easily give up on a plant that has the capacity to power half of Tokyo.

"The restart is unlikely in the next business year" that starts in April, said Toshinori Ito, senior analyst at UBS Securities Japan Ltd. "I expect the restart of units to begin sequentially from the 2009/2010 business year."

That will keep a cloud over earnings at TEPCO, which has said it expects to post its first loss in 28 years after firing up generators that consume more costly crude, fuel oil and natural gas to make up for the closure of the 8,210 megawatt facility.

Stronger Japanese demand for alternative power plant fuels will support regional residual fuel prices, which are near record levels above $500 a tonne, and spot liquefied natural gas (LNG) rates, which have risen this winter to as high as $18 per million British thermal units, more than double U.S. spot prices <NGc1>.

Spokesmen for TEPCO and Japan's Ministry of Economy, Trade and Industry (METI), which ordered the plant shut in July, said they were not able to comment on a possible restart date.

TEPCO is due to report quarterly earnings Jan. 30, but is not expected to give any update on the recommissioning timeline until it announces forecast operating rates in April.

The 6.8-magnitude earthquake that struck Niigata prefecture last July was more than twice as powerful as the 6.5-magnitude quake the plant was built to withstand.

The facility leaked small amounts of radioactive material before being shut down, which the company said resulted in minimal harm to the environment.

As a result, analysts expect TEPCO to be forced to upgrade the plant's safety specification to comply with the stricter requirements that nuclear plants must meet before it is allowed to resume operations, a costly endeavour.

In October, it projected a net loss of 95 billion yen ($890 million) for the year to March, weighed down by a special loss of over 160 billion yen for the plant's inspection, repairs, geological survey and other costs.

OIL DEMAND

Since it shut Kashiwazaki, which accounts for 13 percent of its power capacity, TEPCO has been forced to more than double the amount of oil it burns to generate power to 176,000 barrels per day (bpd) in the July-December period, versus about 67,000 bpd a year before, TEPCO data released on Wednesday showed.

It nearly doubled its demand forecast for the full fiscal year to March to 10.2 million kilolitres (175,000 barrels per day), its highest oil usage since the year ended March 1995. About two-thirds of that total is low-sulphur residual fuel.

It expects to consume a record-high 20 million tonnes of LNG, topping the previous peak of over 19 million tonnes in the year ended March 2004, a year in which it had been forced to shut its entire nationwide nuclear fleet briefly due to a safety scandal.

Market sources say TEPCO's forecasts for fiscal 2008 are likely to be even higher, reflecting Kashiwazaki's closure for the entire 12-month period. That plan is likely to be finalised toward the end of this month, one source said.

"The nuclear run rate in Japan overall is likely to be down this year, which is a supportive factor for low-sulphur fuel oil and Asia-Pacific crude," said Akira Kamiyama, a derivatives trader at Mitsui & Co in Tokyo.

BOTTOM LINE

Industry and government sources say the plant's newest No. 7 reactor with 1,356-megawatt capacity may be the first unit to be allowed to restart because seismic shaking and confirmed damage to the facility were light compared with other units.

In contrast, the oldest No.1 reactor, with 1,100 megawatt capacity, may be one of the last to resume since the unit recorded stronger seismic motions, said the sources.

TEPCO said it will prepare a report on the No. 7 reactor's status by end-June, with reinforcements and repair work expected to follow. It must still win approval from the local government and people as well as METI before it can resume operations.

That may be more difficult in the wake of TEPCO's admission last month that a 2003 study had found the existence of a possible undersea fault about 18.5 km (11.5 miles) off the Kashiwazaki plant, which could cause a magnitude 7 quake.

It disclosed the discovery to the central government but not the local government and population. This is yet another blow to Tokyo's moves to raise the share of nuclear power in its energy mix to up to 40 percent by 2030, helping it meet its Kyoto Protocol obligation to curb greenhouse gases and reduce its dependence on imported energy.

"We would have wanted TEPCO to disclose the finding in one form or another, and local residents also pointed out lax judgment," said Teruhiko Matsuoka, manager of Niigata Prefecture's nuclear power safety division.

In the meantime, the debate over atomic energy goes on.

"It's not only a matter of Kashiwazaki," said Mitsui's Kamiyama. "As the nation is in the midst of touting nuclear power in its electricity policy, how much can TEPCO work toward gaining recognition that nuclear is safe? Only when that comes to be recognised can Kashiwazaki be allowed to restart." (Editing by Jonathan Leff and Ramthan Hussain)

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