Energy and Nuclear Power after Fukushima
Obviously, the combined earthquake-tsunami-nuclear “event” has been the major human interest and energy story of the last month. And, while both social and business interests have focused on the desperate efforts to stabilize the reactor complex in Fukushima, the half-million displaced citizens, along with the substantially understated death toll, seems to have slipped, unfairly, to ‘page 6.’ Much of the investment newsflow has involved energy dislocations, generally focusing on the role of increased LNG and coal in the nearterm Japanese power mix, and implication for nuclear power in that country (and globally).
It is, of course, very difficult to shift the energy mix of a large, and energy efficient, country, in a short time. Infrastructure development is a multi-decade process, and the Japanese plight includes riddled import, generation, and transmission systems in that part of the country, along with well documented supply chain disruptions with implications throughout the global economy. There seems to have been an aggressive demand response (time shifting demand, conservation, etc) to the power shortfall, although an even greater shortage is in store during the summer months. And, although government officials state that nuclear power must be part of Japan’s energy future, it will certainly take more time and angst to absorb the real and psychological effects of this disaster. It is also likely that nuclear power, whose full cycle economics are good, but not as superior as many expect (particularly in the US, with permit risks and low natural gas prices), will get more expensive as improved safety/management costs work their way into ongoing and new plant economics (call for details).
That said, and with nuclear-related equities substantially off their pre-disaster levels, I would argue that nuclear power is not going away. Everyone knows that the affected plants were nearly 40 years old, probably inappropriately sited by today’s standards, and apparently poorly managed by an operator with a weak track record. As a low carbon, baseload source, the technology offers significant benefits, particularly to energy intensive and hydrocarbons short economies. Currently about 14% of global electricity capacity, projects under construction or in advanced planning will add 175 GW (roughly 200 plants) by 2020. Over 70% of those projects are planned in China, Korea, and India. While designs and contingency plans will certainly delay some projects, and the re-licensing of older plants (particularly US and Europe) is certainly a lower probability event, what are the other options for combined low carbon, economic, energy solutions?
The easy answer is natural gas, which is probably in greater supply than anyone knows. It is only in the last fifteen years or so, as reasonable LNG economics have emerged to face regional energy needs, that operators even emphasized Pacific gas discovery and development. The additional technological breakthroughs which have made shale gas a North American reality are yet to reach Europe and Asia in any scale. So, certainly, natural gas (and probably coal and some renewables) may benefit, at least through mix adjustment, from any hesitancy to proceed on the nuclear front. However, I think that the three most active nuclear power proponents will need all the energy they can muster (as will the Middle East, surprisingly), so my view is that observers, and investors, should look thorough what could be a long political valley, but a shorter term set of signposts, as Chinese projects resume (?). European planners, faced with even more (gas) supply exposure to North Africa and Russia, have a more difficult choice, and are likely to work to incorporate yet more renewables, somehow, into their mix. The appropriate saw might be “watch what we do, not what we say,” with the first signposts in Asia, where demand trends cannot afford much time to consider a change in electricity supply policy. I’m still looking for distributed (off grid) power concepts to emerge in areas without economic transmission options.