What Japan's Fukushima crisis means for gas
Fukushima's setback for nuclear power creates new opportunities for natural gas – now and in the future
For the nuclear industry, the images broadcast around the world from the stricken Fukushima-Daiichi plant and the accompanying headlines warning of meltdown were the realisation of a recurring nightmare. Over the past decade, concerns about climate change have prompted a shift in attitude towards nuclear power, especially as it can help reduce electricity generation's carbon intensity.
The industry's big fear throughout this nuclear renaissance, however, was the possibility of an accident on the scale of Three Mile Island, or even Chernobyl. Fukushima may not be another Chernobyl, but the broad consensus is that the incident is far more serious than the partial-meltdown at Three Mile Island in 1979.
Around the world, the political response to the
Fukushima disaster was immediate, ill-considered, and dramatic.
Germany announced temporary closure of seven old nuclear power stations and a review of a 2010 decision to prolong the life of its reactors by 12 years. The UK, Europe's leader in the nuclear renaissance, launched a safety review. Most telling of all, China – which has the world's largest nuclear expansion programme by far – suspended approvals for new nuclear projects. It added that safety checks would be carried out at operational plants and those under construction.
Some argue that renewed fears over nuclear power will quickly fade, just as last year's Macondo oil spill in the Gulf of Mexico is no longer at the front of people's minds. But the prospect of a nuclear meltdown 150 miles north of Tokyo is a whole different order of disaster. Radioactivity, invisible and pernicious, invokes primal fears.
Even if the reactors are brought under control and the situation stabilises, nuclear's prospects have suffered a blow. It seems fair to assume that the Fukushima accident will lead to a global slow-down of nuclear expansion plans, and perhaps widespread closures of ageing nuclear power stations.
Any scaling back in the nuclear sector will have an impact on other energy sources. In the past decade, Japan has twice had to shut in large chunks of its nuclear generating capacity for extended periods. Each time, there has been a rise in demand for other power-generation fuels, especially gas, which Japan imports exclusively in the form of liquefied natural gas (LNG).
This led to an LNG price spike in the spot and short-term markets. This, in turn, firmed natural gas prices not just in Asia-Pacific, but also in other regional markets – especially traded markets such as the US and the UK – as LNG intended for those destinations was instead diverted to Japan.
The effects may be more muted this time because gas supply is less constrained, because of damage to non-nuclear power stations in Japan, and because Japanese demand will drop following the damage to industry and homes inflicted by the tsunami.
Over the long term, the loss of significant nuclear-power potential creates an unexpected headache for policymakers hoping to mitigate climate change. Despite the failure of the international community to agree an international post-Kyoto climate-change treaty at Copenhagen in 2009 and Cancun in 2010 (
), many governments around the world are grappling with this issue. PE 2/11 p22
For the most part, they have been pinning their hopes on renewables, such as wind and solar power, a new generation of nuclear plants and commercial development of carbon capture and storage (CCS) technology so that coal and gas can be burnt cleanly (
). PE 11/10 p19
The natural gas industry has watched with frustration. It has argued that a switch from coal to gas for electricity generation makes more sense in the medium term than throwing billions of dollars in subsidies at nuclear and renewables. But its message has largely fallen on deaf ears. Renewables and CCS each have major drawbacks in the short- to medium-term.
Renewables such as wind and solar power are by nature intermittent, so they need back-up from flexible electricity-generation technologies. In countries where renewables have made a large impact, such as Spain, this back-up is often provided by combined-cycle gas-turbine power stations.
There are signs that policymakers in some regions, notably Europe, are waking up to this reality. But there remains the problem of how this back-up flexibility should be remunerated so that investors in gas-fired power stations secure a fair return – and are encouraged to build them.
As for CCS, progress has been much slower than some had hoped. There is an increasing realisation that the time-scales involved in its widespread commercial development need to be measured in decades not years. In short, for the foreseeable future, CCS could turn out to be a green herring – absorbing effort, resources and investment that could be more effectively deployed elsewhere.
The big attraction of nuclear power is not just that it's low-carbon, but that it runs most happily at baseload without the intermittency that plagues most renewable energy sources. The loss or reduction of its contribution to the overall electricity-generation fuel mix is not easily replaced, except by increasing the proportion of fossil fuels, such as coal and gas. (Oil plays only a small part in electricity generation today.)
Reasons to go with gas
When it comes to a choice between coal and gas, a number of factors come into play. First, because of basic chemistry, gas leads to between 50% and 70% lower carbon emissions per unit of electricity generated than coal. A molecule of methane contains hydrogen as well as carbon. This hydrogen when burnt forms harmless water vapour.
On top of that, arguments that gas was uneconomic and/or insecure have been turned on their head by the rise of unconventional gas and the rapid growth of destination-flexible LNG. As the supermajors like to proclaim, gas is now "abundant, affordable and available".
And gas-fired power stations are relatively cheap and quick to build, and do not require subsidies from the tax-payer to be economic.
The natural gas industry has been trying to persuade policymakers of these advantages for years. As Japan rebuilds and the world reconsiders nuclear power generation's role, it may be that natural gas will step into the spotlight.
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