Japan disaster may be 'death knell' for nuclear power

Sam Fletcher
OGJ Senior Writer

HOUSTON, Mar. 15 -- Dangerous radiation leaks from four stricken reactors after a tsunami hit Japan’s Fukushima Daiichi nuclear plant last week may be “the death knell” for a pending “nuclear renaissance,” increasing demand for natural gas, residual oil, and coal to fuel electric power generation, said several industry analysts.

“It took just 3 days after the Japanese earthquake and tsunami disaster for the antinuclear political backlash to begin in other countries,” said analysts in the Houston office of Raymond James & Associates Inc. On Mar. 14, the German government instituted a 3-month moratorium on the operating life extension of the country's seven reactors that were built before 1980.

“As part of the safety review, all seven reactors will be temporarily shut down, and the government has made it clear that there will be no restart until each reactor's safety is fully proven. Chancellor Angela Merkel's government has historically been pronuclear, but under intense popular pressure it is clearly backtracking. Will other countries follow suit? We are inclined to think so, especially in Europe,” they said.

‘Opportunism under way’
“Policy opportunism is already well under way,” said Frank Maisano, a Washington, DC-based energy and political analyst. Rep. Ed Markey (D-Mass.) “shockingly” fired off a letter to the Nuclear Regulatory Commission raising issues about nuclear plants in the US, “and antinuclear groups are sending releases saying, ‘I told you so,’” Maisano reported. “What they aren’t telling you is that most experts are saying the quake caused little of the damage, whereas the tsunami was the real factor that has placed the Japanese plants at risk.”

He said, “Just like last year’s Macondo spill should not have slowed or stopped drilling, this tragic event should not slow our interest in nuclear power.”

Raymond James analysts noted, “The post-earthquake emergency at the Fukushima I nuclear power plant, which appears to be in the midst of a partial meltdown, comes almost exactly 25 years after the Chernobyl disaster in 1986. It is clear that some if not all of Fukushima I will be permanently shut down. The more far-reaching question is whether this crisis will have the same damaging effect on public attitudes towards nuclear plant construction as Chernobyl (and, earlier, Three Mile Island).”

There was a third explosion at the Fukushima Daiichi plant early Mar. 15. In Zug, Switzerland, Olivier Jakob at Petromatrix said, “With the situation at the Daiichi nuclear plant seemingly spinning out of control, we have to consider that there is for this week a greater probability of a nuclear implosion in Japan than a social implosion in Saudi Arabia” after a proposed “Day of Rage” fizzled in the kingdom last week.

Citing media reports, officials at UBS Securities LLC, New York, said Mar. 14, “Japan’s tsunami flooded both primary and secondary diesel generators that are used to cool the nuclear reactors. Thus far, none of the core reactors themselves have been compromised by the earthquake. However, we believe public confidence in nuclear buildout is at risk. Safety concerns will likely lead to increased regulatory oversight at both existing and proposed facilities.”

Natural gas to benefit
Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “The long-term impact of the Japanese nuclear meltdown could be far-reaching. This is not only Japan's Three Mile Island; it will also cause alarm globally about the safety of nuclear power plants. In the US, nuclear power already needs government loan guarantees to justify economics, and the potential incremental costs and regulatory delays associated with additional safety scrutiny could nip most of the newbuild proposals in the bud. This should benefit the natural gas industry and LNG markets in the long run as it would make the usage of natural gas as a power generation fuel even more attractive.”

Over the medium term, however, Sharma said, “LNG and coal should benefit as much of the shutdown nuclear capacity will take months for partial restart and years for a full resumption. In fact some of the capacity might be permanently shut. The resulting increase in the Japanese LNG demand and higher Asian LNG prices would attract more LNG cargos to Asia. Japan is the biggest LNG user in the world and already consumes over one third of global LNG supply.

At KBC Energy Economics, a division of KBC Advanced Technologies PLC, analysts said early reports indicated 9.7 Gw, or 30% of Japan’s total nuclear power generation capacity and 7% of its total power generation capacity, were taken offline by the tsunami.

As a result, they said, “The mix of Japan’s electricity generation source will need to be rebalanced. Japan relies on nuclear power for about one-quarter of its total electricity generation, while conventional thermal power accounts for 65% of total generation capacity. Of the 65%, coal, LNG, and oil make up approximately 25%, 30% and 10% respectively. Due to high oil prices over the past few years, oil-fired power plants in Japan are used primarily as extra capacity to meet peak demand,” said KBC analysts.

They added, “With explosions in some nuclear plants and the subsequent radioactive scares, it’s very likely that a significant amount of nuclear power generation capacity will remain shut for a long time. Given the existing mix, the supply shortfall from nuclear will have to be filled by coal, LNG, and fuel oil. The rebalance should be supportive to these substitutive energy sources. That said, there is likely to be some short-term demand drop due to general slow-down of economic activities and as short-term imports dip due to damaged infrastructure.”

Sharma said, “Much of this shut-down [nuclear] capacity will be substituted by natural gas (LNG) fired power generation. Even if only 50% of the shut-down nuclear capacity gets substituted by natural gas, this could result in over 1 bcfd of additional LNG demand.”

He said, “Asian LNG prices are likely to strengthen on expectations of higher demand, which in turn will also provide support to UK National Balancing Point [a virtual trading location for sale, purchase, and exchange of UK natural gas] prices. Since the domestic natural gas market is more localized and the LNG imports at only 1 bcfd currently have become less of a factor in supply-demand dynamics in the US, the Japanese earthquake might not immediately have much impact on the US natural gas markets.”

Raymond James analysts reported, “There are currently 443 operating nuclear reactors globally (including 104 in the US)—essentially flat vs. 2002.” The World Nuclear Association (WNA) previously forecast the world’s stock of nuclear reactors could more than double in the next 15 years. India and China and other “energy-ravenous” countries say they will continue using existing nuclear power plants and building new ones, despite problems in Japan.

Analysts at Raymond James said, “While 62 reactors are under construction (only 1 in the US), the WNA projects that 143 will close by 2030, which means many more new projects are needed just to offset the ‘depletion rate.’ If the Fukushima crisis leads to nuclear plants being shelved, the likely beneficiaries will be other low-carbon power sources: natural gas (including LNG), renewables, and longer-term, clean coal.”

US President Barack Obama’s energy plan depends strongly on nuclear power to reduce carbon dioxide emissions and reduce oil imports. To that end, he proposed tripling federal loan guarantees in the 2012 budget to $54.5 billion to help build reactors. But the energy resource he embraced in lieu of fossil fuels is now the latest policy in peril.

Nonetheless, Sec. of Energy Steven Chu—the most vocal advocate for nuclear power within the Obama administration—told a House panel, “The American people should have full confidence that the US has rigorous safety regulations in place to ensure that our nuclear power is generated safely and responsibly.” He said the administration “is committed to learning from Japan's experience.” He told panel members US reactors in the US are designed beyond the specifications necessary to withstand a worst-case earthquake and tsunami.

Meanwhile, KBC analysts anticipate the shut-down of several Japanese refineries will affect refining margins, product cracks, and Japan’s oil import-export balance, especially since fire damage may keep Cosmo Oil’s 220,000 b/d refinery at Chiba “out of operation for a long time.” The refinery shutdowns likely will “cause more imports of gasoline and fuel oil and less export of middle distillates,” they said.

In other news, KBC reported at least six Japanese ports were damaged by the earthquake and tsunami, including four severely damaged. Rebuilding is likely to take months, “or much longer in the case of Sendai,” the port nearest to the epicenter of the earthquake, which was been virtually destroyed. It is estimated that the ports affected handle 7% of Japan’s industrial output.

Contact Sam Fletcher at samf@ogjonline.com.

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