Japan’s Resource Security: Options Post-Fukushima

 Francisco A. Laguna & Jennie Linder Cunningham

 This week, we conclude our series on Japan’s energy sector, focusing on options for Japan’s resource security post-Fukushima.

Kawasaki Natural Gas Power Plant Photo Credit: Jkr2255 via Wikimedia Commons

Kawasaki Natural Gas Power Plant
Photo Credit: Jkr2255 via Wikimedia Commons

 Liquified Natural Gas Imports: At last year’s U.S.-Japan Summit, Prime Minister Abe said that Japan’s most pressing challenge for Japan was to reduce increasing fuel costs post-Fukushima.  Not surprisingly, the prime minister strongly urged President Obama to greenlight the exportation of liquified natural gas (LNG) from the U.S., presumably the option that offers the most appealing political ramifications, as well as the potential to cut down on the current high costs of importing LNG from Southeast Asia, the Middle East and Australia. Japan and the U.S already have a decades-old security alliance and share similar interests in maintaining a strong presence in the Southeast Asian region. However, the U.S. and Japan have never actually concluded a free trade agreement, making the path to LNG exportation less smooth, and longer, than anticipated.

Japan currently is the world’s biggest importer of LNG – holding that ranking even prior to the earthquake and subsequent suspension of all nuclear energy activity. However, Japan’s overall imports increased by 24% as a result of the earthquake, a 50% increase since 2000. It now consumes almost one-third of the world output of LNG. The power sector relies heavily on LNG, consuming 64% of total imports (4.4 Tcf in 2012). Opposition on the U.S. side came from concern over the environmental risks and from those who say it will push up the domestic price of gas, although the U.S. is undergoing an unprecedented boom in shale gas due to newly implemented technologies like fracking and horizontal drilling. Any deal also needs to be approved by the Energy Department. The previous prime minister began querying about LNG exports very soon after the earthquake, but the beginnings of a deal were only approved in May of 2013.

The 2013 deal greenlights a project called Freeport LNG, which will turn a natural gas import terminal in Quintana Island, Texas, into an export facility in order to transport natural gas to Japan (and other countries). An export facility in Sabine, Louisiana has also been authorized to export to non-free-trade agreement countries by the Department of Energy. However, Freeport is not expected to begin exporting until 2017, although it has signed preliminary contracts for almost all of its capacity to two Japanese companies (Chubu Electric Power and Osaka Gas) and to BP.

Yokkaichi Fired Power Plant Photo Credit: Miyuki Meinaka via Wikimedia Commons

Yokkaichi Fired Power Plant
Photo Credit: Miyuki Meinaka via Wikimedia Commons

Sabine does expect to begin exporting sooner, possibly by 2015. Japan currently imports approximately one third of its LNG from regional suppliers in Southeast Asia, such as Malaysia and Indonesia, and has signed agreements with Qatargas, Qatar being the second largest supplier to Japan. Although importing LNG has risen in cost over the past several years, it still remains a cheaper (and somewhat cleaner) energy source than fossil fuels, particularly coal and its derivatives.

A Return to Nuclear: Japan turned to nuclear power in the 1960s, as technology developed and it became a viable means of powering the country, a natural decision for a country poor in resources and wary of relying on potentially expensive and volatile sources of petroleum resources from abroad. Before the Great East Japan Earthquake and Fukushima crisis, Japan was the world’s third largest user of nuclear energy.  In the months following the earthquake, all 50 reactors went offline, the last by May 2012, and currently remain inactive. Popular opposition to returning to nuclear power remains strong, and the government must approve any resumption of nuclear power generation.

Shin Nagoya Thermal Power Plant Photo Credit: KAMUI via Wikimedia Commons

Shin Nagoya Thermal Power Plant
Photo Credit: KAMUI via Wikimedia Commons

An Energy and Environment Council was established in July 2011 to evaluate and make recommendations for Japan’s energy policy for the next 40 years. The Japanese government released a white paper on nuclear promotion 7 months after the Fukushima disaster, in October 2011; the white paper included a call to reduce reliance on, or even abandon, atomic power, although the government also acknowledged a plan to bring some of the reactors back online pending stringent safety inspections and the approval of local governments in the regions where these would be located. The paper proposed that Japan’s dependence on nuclear energy will be reduced as much as possible in the medium and long-term future and went so far as to say that the government regretted its past energy policy and would review it fully.

The government’s reaction to the disaster, as illustrated in the white paper, and its views on the future of nuclear power in the country, reflect several conflicting ideas: a desire to lessen (seemingly to a significant extent) Japan’s reliance on nuclear power in the future; a desire to avoid becoming reliant on fossil fuels and a complimentary commitment to clean energy sources and reduction of emissions; and the acknowledgement that at least some nuclear power plants will return online even if popular opposition continues. The degree to which Japan does return to nuclear power will likely depend upon the contracts with LNG companies, particularly in the U.S., the cost associated with these LNG contracts, and the speed with which it can begin importing LNG to a level that it replaces the fossil fuels on which it currently relies. The evidence indicates that there is a good chance that we will see at least a partially nuclear Japan within the next few years, although it is highly doubtful that it would return to pre-Fukushima levels, as, unfortunately, the likelihood of a similar event occurring certainly exists. Further improvements of safety protocols and infrastructure will need to accompany the return to nuclear power.

TransLegal assists clients with all business and environmental issues in Japan.  Call us with your questions concerning the Japanese market.

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