When the GOJ began pushing for a nuclear restart in late 2012/early 2013, Japan's energy options looked fairly bleak. A real glass half empty situation.
Imported oil and gas had pushed Japan into its first trade deficit in many years. Anticipated summer/winter peak electricity demand could only be met with "command and control" efforts to shift factory production, combined with the restart old oil-fired generation online, deferral of maintenance on other plants, and a significant boost in consumer electricity rates (again). The renewables feed-in-tariff was resulting in lots of applications for "expensive, unreliable" (according to the powers that be) solar PV, but almost no baseload geothermal or biomass on the horizon.
Now, one cannot help but feel better about the situation. Let me again highlight one (of many) areas.
The main bright spot is LNG. New LNG sources have come online, and will continue to come online.
The Exxon-led Papua New Guinea (or "PNG") project's first LNG train started producing this Spring, almost a half year ahead of schedule, and pushed down prices in the (relatively thin) spot market dramatically. There are plans to ship LNG from Russia part of the year via the Arctic Ocean within the next 3-4 years. U.S. LNG exports will begin in 2017 or 2018, and the amount of exported LNG -- even if most of it ends up going into the Atlantic rather than Pacific basin -- should have a big impact on pricing. Japan's total annual LNG imports run at around 90 million tonnes. US export permits have been approved for something in the range of 70 million tonnes annually. The price moderating impact is especially large since the U.S. "lower 48" gas and LNG businesses are less vertically integrated than elsewhere, so we will see gas cargo destinations shifting based upon price and demand factors.
Now, this week, some focus on another exciting potential source. Alaska! That's right, Alaska has a huge, cheaply accessible gas resource in the same Prudhoe Bay area as the oil reservoir that has fed the oil pipeline over the past 30-35 years. This does not require building in a wilderness reserve such as ANWR. Rather, it just involves taking gas out of the existing area where oil is being extracted, instead of re-inserting the gas. And a new gas pipeline would be built adjacent to the existing oil pipeline along much of its route, to minimize environmental impact.
The project has been on the drawing board in one form or another since the 1990s, and was making good progress toward being realized (in a different form--primarily for distribution via pipeline into the Lower 48 states via Canada) when the shale gas boom set it back. Indeed, in 2004, just before the shale gas boom, Congress had established a special coordinating agency to ease the permitting process for the project. Now the project is back and making real progress.
|Map of the potential pipeline route, from website of the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects|
The State of Alaska and companies involved -- 3 oil "majors" and a pipeline company (Exxon, BP, Conoco-Phillips and Trans-Canada) signed an MOU in July to do the front-end engineering and other preparatory work on this project. Earlier this month they filed FERC applications (and according to press reports FERC will "fast track" the project given its limited impact on domestic U.S. gas markets). JBIC is studying the project for potential financing. And this week METI's Energy and Natural Resources Agency signed an MOU with Alaska's Department of Natural Resources to cooperate in various preliminary activities -- information exchange, potential financing and subsidy arrangements for participation by Japanese entities, etc. Not coincidentally, BP arranged a trip to Japan and Korea this week together with State of Alaska officials to meet with potential LNG buyers.
The project, which would take more than a decade to realize, could supply over 20% of Japan's current LNG requirements, provide a huge economic boost to Alaska, diversify Japanese LNG supply with LNG from a political ally and stable source -- thus dramatically increase Japan's economic security. This LNG could help fuel new, extremely efficient gas-driven generation methods (including fuel cell generation such as Bloom Energy's current/future products and GE's potential "hybrid fuel cell" generator) and ease Japan in its transition from imported fossil fuels to a future driven by renewable energy and a "hydrogen-based economy".
A description by the project sponsors can be found here.
So even if the legacy participants in Japan's electric power industry face a relatively bleak future -- with trillions of yen of stranded assets, decades of decommissioning costs and a clean up at Fukushima that will take the rest of my lifetime and beyond, it is difficult not to be optimistic about the energy transformation that can and should occur over the next decade or two.