East Asia Energy Advisory

Japan's nuclear dilemma and Asia's LNG hunger.

Japan

The pro-nuclear camp has won the critical 9 February Tokyo gubernatorial elections, and while this is not a straight-out victory for the pro-nuclear forces, it was a decisive election that, had it gone the other way, would have certainly been a defeat for Japanese nuclear energy. Former health and welfare minister Yoichi Masuzoe won the elections, backed by pro-nuclear Prime Minister Shinzo Abe as well as the Japan Trade Union Confederation, of which Tokyo Electric Power Company (TEPCO) is a member.

The issue of whether to scrap nuclear energy entirely in the wake of the Fukushima disaster had threatened to take precedence over other critical socio-economic issues, such as health care, and the 2020 Olympic Games. Masuzoe was the only "pro-nuclear" candidate running in the election-against a powerful "zero-nuclear" force that included gubernatorial candidate Morihiro Hosowaka, a former prime minister himself, backed by former prime minister Junichiro Koizumi.

While Hosokawa and another candidate, Kenji Utsunomiya, called for a permanent moratorium on nuclear power generation, Masuzoe lent his support to a gradual decrease of reliance on nuclear power to eventually be replaced by renewable energy. Together, Hosokawa and Utsunomiya won about 40% of the vote.

This gubernatorial election was critical because Tokyo consumes about 10% of Japan's electricity, and scrapping nuclear power would have a significant effect on the city's economy.

• This will bring major relief to TEPCO, which is hoping to restart some of its reactors taken offline due to the Fukushima disaster. TEPCO owns 17 nuclear reactors, 10 in Fukushima Prefecture and 7 in Niigata Kashiwazaki Kariwa, and the total capacity is 17,308 MW. Nuclear power is considered as a base load energy and it accounts for approximately 40% of TEPCO's total electricity output.
• In mid-January, TEPCO won government approval for a restructuring that will allow it to receive an additional $38 billion in state funding and pave the way for the government to start selling part of its 50.1% stake in the mid-2020s. Part of this plan hinges on restart two reactors outside of Fukushima. This plan has faced a great deal of criticism, but the outcome of the 9 February Tokyo elections may pave the way for this to happen.
• In 2012, Japan created a Nuclear Regulation Authority and set up new safety guidelines in July 2013. Nine nuclear reactors (out of a total of 48 reactors) are currently being vetted for possible restart, but it remains unclear when any of the reactors will be able to go back online, while utilities are dealing with record, untenable expenses to import fossil fuels to keep power plants running. The safety checks are hindered by the fact that the regulatory authority is new and inexperienced.

 
LNG Developments in East Asia

Again, we look at Japan, the largest consumer of LNG, post-Fukushima. Japan's imports of LNG hit another record for 2013, up 0.2% over 2012, reaching 87.49 million tons. Japan paid a record $68.98 billion in 2013 for LNG. This has resulted in Japan posting a record trade gap of $112.06 billion in 2013, close to double the previous year. At the same time, crude oil imports for 2013 fell 0.6% to 3.65 million barrels per day, while coal imports rose 1.3% to a record 109.03 million tons.   

Other developments:

• The Russian Energy Ministry has released its draft energy strategy which indicates a clear shift away from export routes to Europe and aims to at least double its oil and gas flows to Asia over the next 20 years. The plan calls for Russia to increase its gas exports to Asia from 6% to 31% by 2035. Currently, Russia only ships gas to Asia from its Sakhalin-2 LNG plant, which has a total annual capacity of 10 million tons.
• We are closely watching Canadian potential to export LNG to Asia, and specifically paying attention to analyst forecasts that Chinese energy demand from now until 2035 will rise 60%, while Japan's hunger for LNG will continue to grow as long as its nuclear reactors remain offline. While there is presently no Canadian export of LNG to China, China is very keen to make this happen and we believe we will see some more developments to this end in the next 1-2 years.
• The US Department of Energy earlier this week approved another license for LNG exports to Japan via an international consortium that includes Japanese firms such as trading house Mitsui & Co. This is the third such LNG project including Japanese firms to be approved in the US. The project, Cameron, is led by Sempra Energy Inc., and will allow for the export of 12 million tons of LNG annually from a facility in Louisiana. The DOE granted Sempra's request for a 20-year license to export up to 1.7 billion cubic feet of natural gas per day to Japan. This is the 6th LNG export terminal to be approved by the US government.
• Japan earlier this week received its first LNG spot cargo from Peru. The cargo arrived at Japan's Oita LNG terminal, which has a capacity of some 5 million metric tons a year and receives shipments from Indonesia, Russia, Australia and Algeria. Japan does not yet have a long-term supply contract with Peru.
• Japanese utility Tohoku Electric last week signed a 15-year contract to buy LNG from Qatargas 3 beginning in 2016. The LNG will be supplied from Qatargas 3 (Train 6), a joint venture between Qatar Petroleum, ConocoPhillips and Mitsui & Company, which started production in January 2010, and will be delivered on board Q-Flex LNG vessels.