Fukushima: LNG to the Rescue
Following the tragedy at the nuclear power plant in Fukushima, Japan, whose grim first anniversary has recently past, the country had to fulfill its power generation needs. It was liquefied natural gas that stepped in to fill the bill. In fact, increased LNG demand from Japan had a fairly dramatic effect upon Europe’s LNG shipments, as discussed at the European Gas Conference in Vienna, Austria.
Ane de Arino Ochoa, Strategic Planning and Control Director at Repsol Gas Natural LNG – STREAM explained: “The Fukushima accident in March was the turning point. The plant’s nuclear power generation suffered a tremendous setback and capacity had to be substituted by alternative forms.
“Our LNG industry proved to be first to react and be flexible, and with immediate effect LNG flowed to the Japanese terminals to alleviate their energy needs. Japan increased LNG import by 8.5 million tons; nearly half of these additional volumes were supplied by Qatar, but a significant portion has been diverted from the Atlantic basin, via the flexibility and the long-term contracts of American and European operators.”
She said it had had a tremendous impact in the shipping market: limiting shipping availability and consequently affecting the spot charter rates. “The markets were basically left with no ships available for short term time charters, and the rates have jumped to levels unseen before, above $130,000/day for as much as a three-year period charter,” she recalled as something never experienced before in the LNG market.
Mr. Shigeki Terada, Senior Manager, Natural Gas & Upstream Development at Mitsubishi Corporation International (Europe) PLC, spoke about some of the connotations for Japan and its energy sector.
“Interestingly, Japan consumed roughly one third of the total global LNG trade in 2010,” Mr. Terada showed.
Before the Fukushima incident, he said Japan was extremely proud of its nuclear power industry.
He spoke about Japan’s national plan for nuclear energy. “Fifty-four units exist and the government’s plan was to implement 15 more units,” he recalled. “They wanted to increase nuclear 26% to approximately 50% by FY2030 - this used to be the strong position of the Japanese government, building more units and increasing efficiency.”
It fit in, he said, with reducing Japan’s emissions of CO2.
But what had happened at the nuclear facility, however, had eroded people’s confidence in the safety of nuclear; Terada noted that in 2007 a similar scale earthquake had taken place without significant damage, in contrast to Fukushima.
Statistically, according to him, there was an 80% probability of another earthquake. Faced with the public’s concerns, would the Japanese government stop pursuing nuclear. “All 54 units may stop their operation by May 2012,” said Mr. Terada.
His slide showed that “TEPCO’s LNG Power Plants are all in Tokyo Bay which had no major damage.”
Additionally, other factors were in play in Japan, like the increasing cost for power generation, arising financial constraints, a downgrade of its credit rating, and nationwide debate on the reform of the power sector, including separation of power generation and transmission, pricing mechanism, and renewable energy.
In terms of LNG, Mr. Terada noted that the latest trend was that spot prices were declining. His diagram showed how additional LNG volumes had made their way to Japan from various global geographies.
“Additional cargoes coming from Qatar, diversion of cargo from the Atlantic market, Indonesia - these demonstrate how LNG contributes to energy security,” he explained.
Still, bridging that gap may only have been a temporary role for LNG, as the Japanese government slowly re-commissions nuclear units following their inspection.
Terada called it a “huge dilemma,” because without nuclear Japan faced potential blackouts but the government “can’t ignore the growing protest to nuclear.”
He spoke of stress tests towards the re-commissioning of Japan’s shut down reactors, that they were a long stringent process.
Discussing the LNG demand outlook for 2012, he said: “There are two different power companies with different appetites.” His diagram showed a swing demand depending on the re-commissioning of reactors.
“80-85 Mm tons/annum is nearly the maximum capacity that Japan can physically import,” he said, adding that there was great uncertainty.
“Demand could reach 92 Mm tons/annum with factors like the decommissioning of Fukushima, lower utilization of all existing nuclear power units and a delay in commissioning of planned additional nuclear units.”
The downside factors he listed were using alternative energy resources, uncertainty of a decrease in power demand and physical constraints like berth/tank/generation capacities.
A new energy policy was to be announced in Japan around summer 2012, according to Terada, who added, “LNG will continue to take a more significant role in the energy sector in the long term perspective.”
What did the situation in Japan regarding its nuclear power assets portend for countries in Europe like Germany who had also signaled its intentions to mothball its nuclear power plants?
“Before the earthquake, Japan’s dependency on nuclear was very very high in comparison to Germany’s. Germany has decided to shut down all its nuclear following Fukushima, but has been pursuing a policy of trying to reduce dependency on nuclear, so that is a big contrast between these countries.
“Japan was positioned to increase nuclear; Germany was to maintain but not increase its use. Perhaps the same decision will be taken in Japan,” he surmised.