According to a poll conducted by Japanese newspaper Mainichi Shimbun published on August 22, 74% of Japanese people support a gradual cutback on nuclear power plants in Japan. Clearly, Japan's love affair with nuclear energy has turned sour.
On the eve of the crisis at Fukushima, nuclear power contributed around 30% of Japanese energy generation, with coal and gas providing similar proportions. But nuclear was on an upward trajectory. There were plans to increase nuclear’s share to 53% by 2030, according to Deutsche Bank. Of the country’s 54 nuclear reactors, only 11 are now running, meaning nuclear’s contribution is now much lower, according to Yuji Nishiyama, energy analyst at Credit Suisse.
While no country wants power shortages, Japan’s status as a a key manufacturing industrial superpower makes the need for a constant, reliable power source especially important. It has enough energy stored to get it to next summer, with winter electricity demand lower than in summer, said Nishiyama.
During that time it can procure gas in the spot market, which he believes is a sustainable plan in the short term.
Filling the vacuum
A new energy plan is expected next spring, but already analysts have a view.
“There is little prospect of new nuclear plants being built, so nuclear power will gradually decline in Japan over the next ten years, with gas increasing gradually to replace it,” said Nishiyama.
Gas is the most cost-effective alternative to Japan’s existing nuclear infrastructure, alongside coal, which is increasingly untenable from an environmental and emissions perspective. The cost of fuel for generating power from oil is approximately $147 per megawatt (MW) hour, assuming an oil price of $100 per barrel, while the cost of fuel for generating power from natural gas is approximately $94 per MW hour, assuming an oil-indexed natural gas price of $13.6 per thousand British thermal units, according to Deutsche.
Nuclear has long been regarded as the cheapest energy, but this is mistake, said Mark Lewis, head of energy research at Deutsche Bank. “I have always been very sceptical about the cost estimates made around nuclear power,” he said. “Nuclear is cheap when things are going well but the risk is asymmetric. When something goes wrong, it goes very wrong. And the costs associated with that are enormous.”
One estimate puts the cleanup costs for the Fukushima disaster at $220 billion, and that does not attempt to quantify the social cost of the tragedy.
Furthermore, the expense of insuring nuclear projects, or meeting heightened compliance costs, have soared. In that light, the gas — and oil — alternatives look very affordable. “We see LNG [liquid natural gas] rising in proportion over the medium term on increased exports from Australia and elsewhere,” said Ryo Tazaki, of Nomura’s equity research team.
Storage capacity will have to be increased. Tokyo Electric Power (Tepco) is understood to be at full capacity in its gas holdings. The bill will be significant and the time to market long, making the search for investors difficult. Numerous projects are already in place that will bring gas on-stream in Japan between 2015 and 2018, including Gladstone LNG, Gorgon, Pluto, Prelude FLNG, QC LNG and Wheatstone LNG in Australia, and Angola LNG. Japan is therefore an open market for anyone wishing to sell it LNG. That said, an increase in gas supply must be managed so as not to overshoot demand and undermine project profitability.
Meanwhile, Japanese utilities have together signed two deals with Qatar to provide gas: the first secured 4 million tonnes per annum, and the second for 5 mtpa for an unstated duration.
Down, but not out
But there is a cool-headed appreciation of the importance nuclear power has to the economy too. The earlier quoted Mainichi Shimbun survey found that only 11% demanded an immediate halt to nuclear energy, illustrating an appreciation of its importance.
“We think that in a post-nuclear Japan, finding it tough to eke out enough pricey power to meet peak demand, manufacturing industry would find it hard to keep factories operating,” Takashi Miyazaki, an analyst at Cit, said in a report.
It is therefore conceivable that there could be support for nuclear to contribute around 20% of the country’s overall power needs by 2030, says Lewis. A softening of the public stance is likely as its importance to national GDP becomes increasingly clear. The new prime minister, Yoshihiko Noda, stated at his inaugural press conference on September 2 that nuclear power facilities should restart once their safety has been verified.
And while the anti-nuclear message is heard loudest at the moment, gas is not universally admired. Although greenhouse gas emissions from gas are lower than coal and oil, they are higher than for nuclear.
“It will be impossible to meet the 25% emissions reduction target with a reduced contribution from nuclear,” said Nishiyama.
Emissions reductions are already hard to come by in Japan, which is “already one of the most efficient countries in the world in terms of energy use, and by some measures the most efficient,” said Michael Hsueh, research analyst at Deutsche Bank.
However, the global recession will have reduced emissions, offsetting the problem a little.
“There are of course mounting worries over energy security and climate change,” admitted International Energy Agency executive director Nobuo Tanaka at a speech in Montreal in June. “But on a global scale, policies on both these fronts are disjointed and such policy uncertainty favours gas.”
Opposition may also be offset by developments making the use of LNG itself more efficient. Combined cycle power generation and recycling the wasted heat from engines improves overall efficiency, reducing emissions.
The adoption of gasoline engine turbochargers is also increasing, from 4% of vehicles in 2007 to an estimated near 8% this year and a projected 10% by 2013. “It would be possible to enhance fuel efficiency by roughly 20% with smaller engines plus turbochargers,” said Tazaki.
Renewables will also play a role, but for all the attention they will doubtless receive, there is little prospect of them being able to make a contribution on a par with gas. “I don’t think renewables will be making a meaningful contribution to Japanese electricity supply in the near future,” said Nishiyama.