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Japanese energy dims but still burns after Fukushima

What does Japan’s energy picture look like in the aftermath of the earthquake and tsunami?

Japan's post-earthquake energy market is a chaotic and evolving story. Two threads runs through it: what is the future for Japan’s nuclear power plants; and how much natural gas will it need to make up for lost generating capacity?

On 11 March, the largest earthquake yet to hit Japan struck off the coast of Sendai and as massive tsunami waves smashed into the Fukushima-Daiichi nuclear power plant, Japan’s energy landscape changed forever. The wall of rushing water damaged some nuclear reactors, safety triggers shut others during the quake and a few were already shut and undergoing periodic maintenance.

Capacity shutdown

French investment bank Société Générale (SocGen) estimates 8.6 gigawatts (GW) of nuclear generating capacity shut down because of the earthquake and tsunami, with another 2.7 GW already shut for inspection before the disaster. None has returned to service. “This capacity is unlikely to come back on stream at least until the end of 2013,” said Thierry Bros, liquefied natural gas (LNG) analyst at SocGen.

In a desperate attempt to stop Fukushima-Daiichi from overheating, plant operator Tokyo Electric Power (Tepco) initially doused the fuel rods with seawater, polluting the pristine conditions needed inside a reactor core for operations. Weeks after the accident, Tepco admitted one reactor, unit 1, had gone into meltdown. On 24 May, it confirmed what many had long suspected: that units 2 and 3 had suffered the same fate.

Meanwhile, the 4.4 GW Fukushima Daini and Tohoku Electric Power’s 2.2 GW Onagawa nuclear plants – which shut automatically during the quake – are also expected to remain offline for the next few years, perhaps longer. “It has been officially decided that Fukushima-Daiichi units 1-4 will be dismantled. It is reasonable to believe that six more units (Fukushima-Daiichi 5-6 and Fukushima-Daini 1-4) will be out of circulation indefinitely,” said Fereidun Fesharaki, chairman at consultancy Facts Global Energy.

SocGen’s Bros also claimed local opposition could stop the reopening of the Fukushima-Daini and Onagawa plants. Protests erupted when the Kashiwazaki-Kariwa nuclear plant was restarted in 2009, also after an earthquake.

Nearly two months after the earthquake, and quite out of the blue, prime minister Naoto Kan requested that, “in the interest of safety and security”, Chubu Electric Power shut its 3.5 GW Hamaoka nuclear power plant – 200 km southwest of Tokyo, on the Shizuoka coast – until it builds new earthquake and tsunami defences. The government estimates an 87% chance that a large earthquake will hit the region in the next 30 years – the typical lifetime of a nuclear power plant.

Chubu agreed with Kan’s request. It shut units 4 and 5, which were running, and delayed the restart of unit 3, which was shut for routine inspection. It was also due to build another 1.4 GW reactor by 2016, which may be delayed while the company builds quake protection around the Hamaoka plant. The defences could take two to three years to complete.

In search of LNG

In the weekend after Kan’s request and before shutting Hamaoka, Chubu chairman Toshio Mita flew to Qatar to meet Qatargas chief executive officer Khalid bin Kahlifa al-Thani to discuss buying more LNG to make up for nuclear capacity losses. This marks the second strand in the post-quake energy story.

Analysts have conjured up a range of forecasts to show how much additional LNG Japan will need in its power sector to compensate for the nuclear outages. Figures range from an extra 6 million to 12 million tonnes a year (t/y). Japan imported 70 million tonnes of LNG last year.

Chubu said it would need an additional 3.2 million tonnes of LNG and 8 million barrels of oil in 2011-12 to make up for the loss of Hamaoka. In April, Qatargas, the world’s largest LNG producer, agreed to supply an additional 4 million tonnes, or 60 conventional sized cargoes, to Japan over the next twelve months.

After the Kashiwazaki-Kariwa nuclear plant outage in 2007, LNG spot prices spiked to $20/million British thermal units (Btu). But the market has not reacted in the same way this time. LNG traders say that Japanese buyers have bought cargoes within long-term contract agreements and not on the spot market. Although prices rose after the quake, to around $12-13/m Btu from around $10-11/m Btu, the market response has been more muted than expected.

Into the spot market

But Japan is certainly buying more LNG. Spot buying made up most of the additional April imports, which rose by 23.1% to 6.65 million tonnes compared with April last year, according to Waterborne Energy, an LNG consultancy. “Most incremental volumes were supplied through spot purchases from Qatar and Russia [whose exports to Japan were up by 571,000 and 272,000 tonnes respectively] and time swaps with Korea Gas (Kogas),” said Waterborne contributing editor Andy Flower.

Japan has bought from South America for the first time, with a cargo arriving from Peru LNG under the Kogas time-swap. Time swaps involve exchanging a cargo for delivery now for one to be delivered later.

But some traders believe the inevitable price spike has simply been delayed, rather than capped, with Taiwan and China expected to enter the spot market this summer. China is commissioning a number of new LNG import terminals, including the 2.6 million tonne Rudong facility and a doubling of Fujian’s capacity to 5.2 million t/y. Meanwhile, Vietnam and Thailand are also expected to buy spot cargoes as they commission new terminals.

One last factor in Japan’s shifting energy story is electricity demand. Rolling power cuts imposed after the quake have ceased, but high-demand season is approaching as air conditioners kick in for summer.

Tepco forecast summer demand to reach 55 GW in northwest Japan, surpassing generating capacity of 46.5 GW. But calls by the government to reduce electricity demand have been heeded, with peak consumption dropping by around 20% compared with spring last year.

Many homes and businesses were destroyed and supply chains affected by the earthquake and tsunami. With towns reduced to rubble and factories idle through lack of supplies, this has also contributed to a cut in power demand.

Recovery

Japan’s GDP shrank by 0.9% during the first quarter of the year, more than the expected 0.5% contraction. Although second-quarter GDP is also projected to shrink as a result of manufacturing bottlenecks, the government expects the economy to recover in the second half of the year, as construction also picks up.

“The economy has the strength to bounce back,” finance minister Kaoru Yosano said. The same could be said for the country’s power sector and the Japanese people.

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