One Country’s Disaster, Another’s Boon

The Japanese earthquake, tsunami and resulting nuclear accident at the Fukushima power plant spawned a disaster that will be hard to remedy or forget. As usual the events have had a number of dimensions, mostly unfortunate for that country no matter how developed and prosperous it has been, no matter how stoic and expectant the population may have grown from past experiences in natural or even man-made calamities.

Japan’s misery becomes Australia’s opportunity of the century, staring the country in the face with a sense of urgency. Australian natural gas is the obvious energy source to be marshaled by Japan in both the immediate and the long-term future.

The Japanese reactor meltdown brought about an even bigger meltdown in public perception of nuclear power, which was barely showing some signs of life after decades following the accidents at Three Mile Island and Chernobyl. There has not been a new nuclear power plant in the United States in thirty years. Now, Germany and other European countries, planning gingerly new nuclear reactors have either scrapped the plans or want to “study” them more. China and many other countries have announced their intentions to rethink nuclear power.

For Japan the situation is even starker and it will create a new reality in the entire Australasian region, affecting natural gas trade and natural gas production.

Of more than 1000 billion kW-h of electricity generated in Japan per year, 27 percent would come from nuclear power plants, with a total of 51 GW of installed capacity. The four Fukushima reactors (two more were planned, now clearly scrapped) with a total capacity of 4.4 GW would have contributed about 2.2 percent of Japanese electric power production.

Natural gas on the other hand also provides about 27 percent of Japanese electric power generation. While before the accident the Japanese, ever mindful of emissions, were talking about increasing nuclear’s contribution to 37 percent before the end of the decade, the recent events according to our estimations will create an incremental need of natural gas of at least 12 percent of projected electricity needs. This considers the shortfall from the Fukushima plant.

Japan now uses about 3.5 Tcf of natural gas of which 3.3 is imported in the form of liquid natural gas. The overwhelming portion of this gas is used in power generation. Our current estimate is that the LNG imports must now escalate to over 4.8 Tcf to meet the new power market share from natural gas, which we expect to climb to 39 percent.

The incremental 1.5 Tcf of gas translates to an increase in LNG imports of 27 additional million metric tons per annum (MTPA) of LNG trains. That is about 44 percent of current Qatar LNG capacity, 1.35 times the current Australian capacity of a little over 20 MTPA, with plans calling for increasing the capacity to 50 by 2017.

And yet the Japanese opportunity for Australian gas, born in the recent misfortune pales by the Chinese prospects.

The Chinese use today right about 3.3 Tcf of natural gas, of which more than 95 percent is produced domestically. This amount of gas accounts for less than 4 percent of total energy demand, with coal providing more than 70 percent. This kind of energy mix, with all the resulting horrible environmental malaise, has not been seen in the developed world since the nineteenth century. The Chinese government has already decreed that by 2020 the natural gas share of their energy mix should climb to 10 percent. Depending on whose estimate of total Chinese energy demand by 2020 this would translate to 10.6 Tcf up to 12 Tcf of natural gas.

Such an ambitious plan while acknowledged by the Energy Information Administration of the US Department of Energy in their July 2010 International Energy Outlook is considered just that, an ambition. Their estimate of Chinese natural gas consumption by 2020 is a more modest 6.3 Tcf.

Of course no matter which of these estimates materializes it will amount to a huge elevation in the demand from international supply, anywhere from 3 to 9 Tcf of incremental natural gas. Other than sketchy shale gas, China does not come close to having any large domestic resources. The Chinese needs would dwarf any Japanese demand. For a good measure, the larger figure is about 8 times the current Australian LNG production, not counting the expected Japanese demand.

How much of this can Australia actually deliver? Does the Australian government act as if it understands the magnitude of this challenge? These are clearly critical questions, unlike any other country’s because there is no other nation that has enough resources to actually compete credibly in this massive venture and at the same time maintain its environmentalist and regulatory sensibilities. To find a compromise will be the defining Australian socioeconomic and political issue of the next several decades.

Energy Tribune