As Japan observed the anniversary of last year’s earthquake and tsunami disaster in March, the country was yet to fully recover from the widespread destruction and the emotional trauma over losing so many lives. True to the Japanese ethos, the country and its people have stoically worked hard to put their lives back in order. Efforts to rebuild the damaged factories and physical infrastructure have progressed and production in most industries has now rebounded to pre-disaster levels. But the recovery in economic activity has been somewhat slow paced, as domestic consumer demand has not advanced as fast as expected while exports have been restricted by the relatively stronger yen. Though it now appears likely that some of these challenges will ease this year, Japan is yet to secure alternate energy sources to replace the stoppage of nearly all nuclear power plants. If left unaddressed, power shortages may be a significant roadblock that could derail the Japanese economy in the future.
Despite being the only country to have suffered a nuclear bomb attack, Japan has been one of the biggest proponents of nuclear energy generation over the last several decades. Before the tsunami that crippled the Fukushima nuclear plant, Japan had 54 nuclear power plants generating nearly 30% of the country’s electricity. In terms of aggregate nuclear power generation capacity, the country was third in the world behind the U.S. and France. Even after a 2007 earthquake partly damaged one of the world’s largest nuclear reactors in western Japan, nuclear energy was considered to be cleaner and more reliable than other sources. Accordingly, Japan had ambitious plans to increase the share of nuclear energy in total electricity generation to as high as 50% over the next two decades.
Surely, such lofty ambitions have been shelved after Fukushima. Only two reactors are operational now, but they too will be shut down later this year. Unlike his predecessor who wanted the country to plan for a nuclear-free future, Prime Minister Yoshihiko Noda has talked about restarting the nuclear plants after ensuring their safety. However, most Japanese remain skeptical. Last year, the government set up a panel of business leaders and other officials to come up with a long term energy policy. The Wall Street Journal reported that almost half of the panel members are not in favor of nuclear power.
Replacing the source of 30% of a country’s electricity supply is a Herculean task, even for an industrious nation like Japan. To make it even more difficult, Japan is very resource poor and is heavily dependent on fuel imports. While renewable energy sources such as wind and solar power have some potential, it will take several decades before capacities are built on a large scale. That leaves increasing the share of conventional fossil fuels such as coal and natural gas as the only option for Japan. Recognizing that the country needs to secure its long-term energy supplies, the Japanese government and the country’s corporations are now aggressively stepping up their investments in developing energy fields abroad.
One of the biggest initiatives in the Japanese quest to secure its energy future is unfolding in Darwin, Western Australia. A Japanese corporation is the majority owner of a massive $34 billion project to build a processing plant to convert natural gas from the offshore Ichthys oil & gas field into liquid form. The Liquefied Natural Gas (LNG) can then be easily transported on giant ships to Japan and other major markets, where it will be converted back into gas before being fed into electric generators. When the project goes on stream in 2016, it is expected to produce nearly 10% of Japan’s natural gas requirements.
Equally significant projects are on the drawing board in farther regions across the globe. A leading Japanese trading company is a member of a consortium that is developing the deepwater Rovuma natural gas field, off the coast of Mozambique in southeast Africa. The field is estimated to have at least 30 trillion cubic feet of natural gas reserves in place, and half of it is recoverable. Nearly half of the project’s output in the first phase will likely be shipped to Japan. To increase potential opportunities for energy investments, the Japanese government has recently signed an agreement with the government of Mozambique for cooperation in the area of natural resources.
North America, where there is an ongoing boom in natural gas production from shale deposits, is also on the radar screen of Japanese firms looking for investments. The sharp increase in supplies and the relatively slower demand growth have pulled down natural gas prices in Canada and the U.S. Prices in Japan are on an average seven times higher, making it commercially viable to convert the gas into LNG and ship it to Japan. The Cordova Embayment shale gas project, in the Canadian state of British Colombia, which has estimated reserves of 8 trillion cubic feet, is now half-owned by a consortium of Japanese electric utilities. Government-owned Japan Bank of International Cooperation and other Japanese lenders are financing this project. Japanese companies have also invested in other shale gas projects in Canada, as well as in Texas. Further, it has been reported that Japanese utilities may invest in a natural gas liquefaction plant near the Russian port city of Vladivostok.
During last summer when Japan was facing a severe decline in electricity generation, consumers readily answered to the government’s call to reduce consumption. However, Japanese policymakers have quickly and correctly realized that such noble responses from a strongly patriotic people are not the answer to the energy challenges facing the county. Now, the new long-term energy roadmap being drawn up in Tokyo will go a long way to help Japan lighten the gloom that engulfed the country when those giant waves came ashore last year.
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