|Issue Number: 106||March 2014|
Nuclear Strikes Back?
But the tsunami which hit north-east Japan almost exactly three years ago caused a dramatic shift in attitudes towards nuclear energy. In October 2011, the Japanese government issued a White Paper proposing that 'Japan's dependency on nuclear energy will be reduced as much as possible in the medium-range and long-range future' . And a declaration in 2012 by Naoto Kan (former Prime Minister of Japan) affirmed this by saying that Japan was to 'escape from nuclear' .
Impact of the curb of nuclear
Japan made sudden changes in how it generated electricity following Fukushima. The Japanese Cabinet approved an energy white paper in October 2011 and said 'public confidence in safety of nuclear power was greatly damaged' by the Fukushima disaster and 'regrets its past energy policy'. The government 'will review it with no sacred cows' . The Fukushima accident set off a chain reaction across Japan and it led to the closure of all of its reactors - the last one to close was Unit 4 Oi reactor in September 2013.
A decline in Japan's indigenous energy production led to a dramatic increase in its imports. Japan currently needs to import about 84% of its energy requirements, which mostly takes the form of fossil fuels. Japan imported 187 million tonnes of crude oil in 2012 (the third largest importer in the world) as well as importing 117mtoe (million tonnes of oil equivalent) of coal .
But the largest growth was in its liquified natural gas (LNG) imports. LNG imports increased from 93.48mtpa (million tonnes per annum) in 2010 to 107mtpa in 2011, representing a 14.5% increase. The rise in LNG imports continued in 2012 and went up by a further 11.8mtpa (11% increase from 2011) . The weakening of the Yen has led meant that imports are more expensive, thus intensifying Japan's trade deficit and its monthly trade deficit was recorded as $27.4bn in January, the highest recorded figure in history .
Tide of Change?
In light of Japan's growing debt and reliance on expensive energy imports, is this high-LNG and no-nuclear energy mix likely to continue? It was expected that Japan would return to nuclear energy at some point in the medium-term future, but there are signs that things could change sooner than expected.
The government of Shinzo Abe has recently given support to
nuclear power and, in the draft of a Basic Energy Plan,
nuclear has been described as an 'important baseload of
electricity source' . But there has also been a dissenting
voice in Japan's government. The minister for trade and
industry, Toshimtsu Motegi, has tried to play down Shinzo
Abe's recent statements and told reporters that Japan was
still committed to 'reducing its reliance on nuclear power.'
Despite this, Japan's Nuclear Regulatory Authority (NRA)
is currently reviewing applications from 7 utilities to
restart 16 nuclear reactors . But even with regulatory
approval, local opposition could still block or delay
Figure 1: protesters against nuclear in Tokyo. .
Public opposition should not be underestimated, and there has been huge opposition in parts of Japan, with approximately 60,000 protesting against nuclear energy in Tokyo in June 2013 . However, some people who live in a town where there is a reactor are keen for it to restart because it will mean more jobs. Another sign of public opinion shifting has been recently seen in an election for the governor in western Yamaguchi prefecture on 22nd February. Tsugumasa Muraoka (a former interior ministry bureaucrat supported by Mr Abe's Liberal Democratic party) defeated a pair of anti-nuclear candidates who had campaigned against plans to construct a nuclear power plant in the town of Kaminoseki . Whilst the construction plans for the Kaminoseki reactor have been on hold since Fukushima, Mr Abe's current positive attitude towards nuclear might point to a relaxation of restrictions in the near-future.
What could a revival of nuclear energy mean for the global LNG market?
Whilst the future of nuclear is uncertain in Japan, it is revealing that only three years after the Fukushima disaster, the government is rethinking nuclear, albeit with vague plans. It is reasonable to suggest that in a few more years, there is a stronger chance of nuclear striking back. But if this happened, what might this mean for the LNG market? Japan currently plays a strong role in the LNG market. In 2012, Japan imported 118.8mtpa, representing 36% of total global exports and 52% of the market in Asia Pacific . According to DNV GL's LNG blog , the restart of all of Japan's 50 nuclear reactors could mean it could displace about 51mtpa of imported LNG .
This is about one fifth of global LNG trade and if this demand disappeared, it is likely to lead to a significant drop in the Japanese Korea Marker (JKM), the price index for spot LNG in Asia-Pacific. The impact of this would mean that the spread between the landing price of LNG in Asia and the wellhead prices of gas in the place of extraction (such as Australia or Malaysia) would shrink. The arbitrage would decrease; it would be 'arbitraged away'.
The result might mean that it would not make financial sense to send LNG to Japan because the profits would be smaller. Small LNG projects would struggle and find it harder to be competitive. Even the bigger projects in the US are not invulnerable to Japan. Although the US Energy Department has recently approved of exports of LNG to Japan , this is not the same as the signing of a contract of supply. LNG projects in America are at risk because they involve some of the highest costs in the production of LNG. That being said, current forward prices for JKM for 2015 is $15.8/MMBtu, compared to $18/MMBtu for this winter, so most projects should be a little less profitable at that level, whilst some of the high-cost projects might be challenged.
Also susceptible to the possibility of nuclear growth in Japan would be fledging LNG projects such as the Sunrise and Arrow LNG projects Australia. Shell has recently confirmed that Arrow LNG is on hold because of the 'economic and inflation risks' inherent in the project . Countries with future LNG promise such as Tanzania, Mozambique and Iran might also be affected by Japan's potential pro-nuclear policy.
Nuclear energy is viewed with suspicion by many in Japan. But recent changes in the government's attitude towards nuclear is indicative of a quicker change in nuclear policy envisioned by many energy analysts. The rising trade deficit is most likely a strong incentive to Japan's government to back cheaper sources of energy. The implications of a switch back to nuclear - which could happen very suddenly as 50 nuclear power plants are lying in wait - could be significant for some LNG producing countries. However, it is still uncertain whether the Japanese government will switch the nuclear power plants back on sooner than many have predicted. Only time will tell.
Researched and written by MJMEnergy Analyst, Nico Cottrell,
 BP Statistical Review of World Energy, 2013.
 BP Statistical Review of World Energy 2012 and BP Statistical Review of World Energy 2011.
 BP Statistical Review, 2012.
 Det Norske Veritas (DNV) is an international consultancy firm.
 Det Norske Veritas (DNV) is an international consultancy firm.