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.
* * *
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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