Japan’s big embrace of LNG
Nuclear free: Post- Fukushima, nation turns to fossil fuels to replace power generation lost
The energy reality in Japan today tends to smack you in the face as soon as you get there — or, more accurately, drip down your face.
Tokyo can be surprisingly warm in late September — highs during my recent visit reached 27 C .
In most Asian cities, this would warrant a full- scale air- conditioning assault. In Hong Kong, for example, citizens respond with a barrage of air conditioning in offices and malls that creates indoor temperatures close to that of a meat cooler .
This is no longer the case in Tokyo. Walking the halls of the central government offices — filled with thousands of bureaucrats — air conditioning is mostly absent. Working in these buildings has become a sweaty endeavour.
The change reflects the country’s shifting energy use attitudes. It has been three years since the largetsunami struck Japan’s main island of Honshu, triggering the Fukushima nuclear disaster.
Since then, Japan has been stuck with a constant problem: How does one of the most heavily industrialized and advanced countries in the world, one with few natural energy resources — power its economy?
Before Fukushima, nuclear was a large part of the answer. Much cheaper than other sources and without carbon emissions, nuclear power provided nearly a third of Japan’s electricity generation in 2010, one year before Fukushima .
And now it’s gone. After Fukushima, Japan suspended operations of all of its nuclear plants.
“After the 2011 earthquake, there has been a big change in terms of the power generation mix in Japan,” said Prof. Ken Koyama, managing director and chief economist for Tokyo- based Institute of Energy Economics. “Nuclear accounted for a third of our total power generation, and it’s not there any more. There’s a need to fill that gap.”
That takes time, so officials have tried to rein in energy use domestically. Setsuden — or “saving electricity” in Japanese — was adopted as an official policy in the summer of 2011 to reduce consumption. Although usage restrictions have been eased, energy saving has been indelibly ingrained in the public consciousness.
It goes beyond shutting off air conditioning. Some office hallways are surprisingly dark, utilizing motion sensors to turn on the lights only when people walk past. In new projects like Mori’s 256- metre Toranomon Hills office tower and Mitsui’s Kashiwa- no- ha Smart City suburban subdivision, monitors abound, detailing power use and showing educational tips on how to save electricity. Toranomon Hills and the Smart City both utilize a state- of- the art energy system that maximizes efficiency while minimizing their carbon footprint.
But the fact is, in a value- added, export- driven economy with countless factories, saving energy is not enough. Japan needs more energy.
In recent months, government officials, industry officials and academics have repeatedly talked about the need for a new power generation plan, lest the country’s burgeoning economic revitalization become derailed.
This, Tokyo says, is where British Columbia’s natural gas could come into the picture. In terms of an export market for B. C.’ s liquefied natural gas, one would be hard- pressed to find a country as eager to buy as Japan, already the world’s largest importer of the commodity.
This is not the first time Japan has seen its energy mix drastically change, said Shinichi Kihara, international affairs director with Japan’s Agency for Natural Resources and Energy, part of the Ministry of Economy, Trade and Industry.
Before the oil shock in the 1970s, he said, Japan depended on fossil fuels for more than 90 per cent of its power. As the oil price soared, Tokyo began an aggressive nuclear power program.
Before Fukushima, Japan reached what Kihara described as a fairly optimum mix of energy sources: about 29 per cent nuclear, 25 per cent coal, 29 per cent natural gas, eight per cent oil and 10 per cent renewables.
The loss of nuclear, however, has pushed Japan back into over- reliance on fossil fuels.
“Today, about 90 per cent of our electricity generation comes from fossil fuels, all of which had to be imported,” Kihara said. “So it’s not very sustainable. There are no other developed countries with similar dependence on imported energy.”
The energy source of choice, in lieu of nuclear power, has been natural gas. As of 2012, LNG has been the source of almost half ( 48 per cent) of Japan’s power generation, a jump of 20 percentage points in just two years.
Koyama said Japan relies on LNG because it is best suited to assume the role of base load power generation that nuclear used to occupy. Base load supply, the power capacity required full- time, needs to be affordable and reliable because it supports the bulk of energy use year- round. The peak load driven by daytime spikes and weather changes can be more flexible.
“When nuclear power went away, we needed new sources of base load supply,” Koyama said. “Coal power is much cheaper than other fossil fuels, but as an existing source of base load supply, the domestic capacity is already fully filled. It cannot be ( easily) expanded. So the next question becomes, what’s left? And what’s cheapest? Oil is the most expensive and better suited for peak supplies, so producers logically chose LNG as the new base load supply.”
While LNG is cheaper than oil, it is still much more expensive than nuclear. And the fact that Tokyo currently pays roughly $ 16 a unit for LNG from existing suppliers ( spot prices are less than a third of that figure in North America) means domestic power consumers have been hit with higher energy prices than ever.
Industry groups like the Keidanren ( the Japanese Business Federation representing some of the country’s biggest corporate conglomerates) estimate electricity rates have jumped 30 per cent in the three years since Fukushima, putting an added burden onto an industry working to pull Japan’s economic engine back on track.
“The impact has been huge,” said Masami Hasegawa, senior manager of Keidanren’s Environmental Policy Bureau. “It’s partly because of the loss of nuclear power, and partly because of the yen depreciation. We don’t know how much each factor is contributing ( to the power rate hike), but it’s clear that, if the nuclear power shutdown continues, utility companies would have to increase the electricity rate … and everyday consumers will end up paying a lot of that cost.”
Hasegawa said higher energy costs could increase the price of Japanese- made products, hurting domestic consumers and putting pressure to Japan exports already facing competition on the global market. Japan’s decades- long trade surplus ended with a trade deficit of more than 10 trillion yen ($ 103 billion) in 2013, with energy costs as the key culprit.
Koyama said Japan has been fortunate to avoid widespread blackouts because Tokyo was able to get additional LNG supplies from Qatar. Today, Australia and Qatar are Japan’s largest LNG suppliers under long- term contracts that index LNG to oil prices. Translation: Japan urgently needs new suppliers of LNG, and they need these suppliers to be more flexible in the contracts they offer.
“Japan needs to secure LNG sources that not only guarantee supply, but also the price,” he said. “This is the major challenge faced by Japanese energy officials, and that’s why the government is very keen to promote a competitive price environmen t.”