Power market uncertainties for LNG and oil in Japan

It is now just over two years since the Fukushima Dai-Ichi nuclear power plant disaster in Japan.  The temporary or permanent closing of nuclear power plants in Japan and several other countries has impacted local and global energy markets.

Extra safety requirements have pushed expected cost and challenges of new nuclear power plants into the rather uncomfortable area of IGCC with CCS (“Integrated gasification combined cycle with carbon capture and Storage”).  According to the latest power plant cost database from the US EIA, this is around 6500 USD/kW.

Having taken significant measures to strengthen nuclear safety, Japan is now working to restart several nuclear power plants in the course of the year, perhaps with a total capacity up to 30 GW.  Such plant restarts will quickly be felt in oil and natural gas markets.

In parallel, Japan now sees a strongly incentivized and planned solar boom, with 3.5 GWpv added in the first quarter of 2013.  The official target is 62 GW by year 2030, but at the current installation rate, 30 GWpv is possible already by 2016.

More and more operational experience is coming from markets with significant renewables capacity.  As for example Germany has realized, nuclear and solar work very nicely together, both technically and in the merit order sense.   If nuclear is not available, then – other than in the US – coal is typically next.

The combined effects may be that first oil, then LNG could see a creeping market loss in Japan over the next years.  From Germany’s experience with renewables, changes can happen very quickly. either through market-based responses or administrative decisions.

Any reduction of LNG requirements in Japan will certainly be welcome by other LNG importing countries in the region.  Secondary displacements may also take place, adding to the importance of tracking developments in North-East Asia.

NOTE: Following the release of BP’s updated global energy statistics to 2012, we plan to release our 2013 global energy balances update, with outlook to 2032.  The update will reflect the expanded and increasingly attractive policy options available with renewable energy as integrated into the current fuel mix.