January 24, 2014

Japan's Growing Fossil Fuel Burden

From Platt's Energy Economist, a tally of the sharply growing costs of Japan's fossil fuel imports, a consequence of the near-total shutdown of the nuclear industry after the accident at Fukushima in 2011. For a time in 2012, no nuclear plant was operating in Japan; since then, a few (of the some fifty reactors) have been restarted. The consequences for Japan have proven quite serious.   

It is no surprise that less than three years after Fukushima, the Japanese government is seeking to rehabilitate the nuclear industry’s role in the country’s generation mix as indicated by comments made by Trade and Industry Minister Toshimitsu Motegi in December. Returning the country’s reactors to operation would have a significant impact on the trade balance, Japan’s over-dependence on imported energy commodities, and power prices.

It is a paradox that nuclear power can be described as both cheap and expensive. The cost of new nuclear power has risen over time and new reactor construction is significantly more expensive than in the past. Combined with the high capital cost and other risks involved it is hard to make the case that it is competitive with fossil fuels. But where the capital cost was sunk decades ago and paid down or written off, the ongoing low fuel costs of nuclear mean existing nuclear fleets do provide low cost and low carbon electricity.
Japan is the world’s largest importer of LNG, the second biggest importer of coal and the third largest importer of oil. Having minimal production of any of these three key energy commodities, nuclear power has been essential to offsetting the security and economic implications of such a high degree of import dependency. As a result of much reduced nuclear generation, in 2012, Japan spent $289 billion on net imports of fossil fuels, more than any other country in the world, including China and the United States, according to the Institute for Energy Economics Japan. . . .
Fukushima was a disaster not just in human terms, for the nuclear industry or the finances of the Tokyo Electric Power Company, but for the country and economy as a whole. The increase in fossil fuel imports and the money paid to secure them has outweighed economic growth and gains in income. The situation has been exacerbated by depreciation of the Yen, which has made energy commodity price imports, all priced in US dollars, more expensive in local currency terms.
 Spending on net imports of fossil fuels as a ratio of nominal GDP for Japan is thought to have reached 5.3% in 2013, compared with 3.1% for China and 1.5% in the US. According to the IEEJ’s senior economist Akira Yanagisawa, China’s ratio fell because GDP grew more strongly than the increase in net fossil fuel imports, meaning no additional burden on the economy. But for Japan the opposite was the case, while currency depreciation added one percentage point to the increased burden.
 Bringing the country’s reactors back on line is proving a slow and uncertain process, owing to the new regulatory safeguards put in place in the aftermath of Fukushima. But for commodity markets, the impact will fall entirely on oil rather than LNG or coal.
 According to the IEEJ’s medium-case scenario — 16 reactors back in operation for an average of eight months in the year — oil consumption would fall from a projected 241.8 GL in fiscal 2013 to 220.4 GL in fiscal 2014, a drop of 8.6%. In contrast, natural gas use is expected to continue to rise to a record 91.1 mt in fiscal 2014, while coal consumption will increase to 191.1 mt. Even with final energy consumption falling by 0.4%, Japan’s natural gas and coal usage are expected to breach new historic highs. As such, Japan has little choice but to revert to nuclear energy.

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Ross McCracken, “The burden that Japan is facing in its higher energy costs,” Platt’s Energy Economist, January 24, 2014. Via Barrel Blog.

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