LNG as an Alternative Energy Replacing Nuclear Power – The Japan Disaster

Osaka - Saturday, May 14, 2011




Nikkei, Japan’s leading newspaper specialized in business and economy, reported on May 12 that electricity and trading companies have managed to obtain additional LNG (Liquefied Natural Gas) of 5 million ton to overcome the anticipated electricity shortage in summer when the electricity use is at the peak because of termination of nuclear plant operation (Fukushima and Hamaoka) since the Japan disaster.



It is estimated that total of additional 10 million ton of LNG would be necessary and therefore the companies are making upmost efforts to do so.



This means increase in thermal power plant in mid and long term; therefore, companies of heavy industries are planning to increase their production capacities of large gas turbines.



1. What is the background of electricity and trading companies obtaining additional LNG as an alternative energy of nuclear power?



With Fukushima nuclear plant issue triggered by the earthquake and tsunami that occurred on March 11, Fukushima nuclear plant has stopped operating. This made Tokyo Electric Power Co., Inc unable to sufficiently supply electricity to its responsibility area including key cities of economy such as Tokyo.



Taking this incident into account, the Japanese government recently decided to terminate operation of Hamaoka nuclear plant as well that supplies electricity to Chubu including key area of Aichi where Toyota is located. This is because experts estimate that earthquake of magnitude 8 or larger is to occur in Tokai area where Hamaoka nuclear plant is located within 30 years with possibility of 87%.



Under such a situation, it is almost impossible to open new nuclear plants or re-start nuclear plant operation and therefore replacement to alternative energy is urgent.



Currently LNG is the optimum alternative energy because the cost is stable due to technology innovation meaning stable supply of energy, and also CO2 emission is lower than other energy such as coal and oil.



2. How have the constituents of energy supply been and how are they to change?



Thermal power including LNG has been the primary source of energy supply constituting 64%, followed by nuclear power constituting 29%. Other forms of energy supply includes hydraulic power that constitutes 6% and others including new energy that constitutes 1% or less.



Nuclear power supply is to decrease from current 288.2 billion kW to 200 billion kW if operation of total of 6 nuclear plants including Fukushima Daiichi and Hamaoka are to remain terminated. It could even decrease to as low as 100 billion kW if operation of other nuclear plants that are currently under regular inspection cannot re-started.



This means the nuclear power supply would drop from 29% to 10 - 20%, and the decrease in nuclear power supply is planned to be replaced by LNG that currently constitutes 30%.



3. How much additional LNG needs to be obtained?



To replace the energy which had been generated by Fukushima and other north eastern nuclear plant, Tokyo Electric Power Co., Inc and Tohoku Electric Power Co., Inc need to additionally obtain LNG of 6.2 – 8.6 million ton.



To replace the energy which had been generated by Hamaoka nuclear plant, Chubu Electric Power Co., Inc need to additionally obtain LNG of 3.2 million ton.



This means that when Japan has been the largest LNG importer in the world importing LNG of 70 million ton a year, the country needs to additionally import 10 million ton, i.e. 14% of its current import.



The Japanese government has requested companies in Tokyo Electric Power area to cut electricity use by 15% in upcoming summer when it is at the peak. Even if the 15% reduction target is achieved, it is estimated that 55 million kW will be short.



4. What actions have been taken by companies to make up for the estimated electricity shortage?






1) Obtain additional LNG



According to related parties, Tokyo Electric Power is said to have obtained additional LNG of 2 – 3 million ton required to supply 55 million kW.



Tohoku Electric Power, which managed to gain word of “provide maximum support to supply LNG” from Katar, is said to have obtained additional LNG of 1 million ton.



Other electricity companies are said to have obtained 5 million in total.



However, additional 5 million ton would be necessary as risk management; i.e. in case electricity shortage should occur despite such efforts of electricity companies and of electricity use cut of 15%, and to be prepared to the next peak of electricity use in winter.



For this reason, trading companies such as Mitsubishi Corporation and Mitsui ＆Co., Ltd are planning to additionally obtain from such countries as Malaysia, Indonesia, Russia and Katar (and even Nigeria and UAE if necessary) by one-time trading. They plan to do so by leveraging the project they belong through investment.



2) Establish and increase operation rate of thermal electric power plant by gas




Additional electricity supply by LNG requires additional establishment and increase in operation rate of thermal electric power plant by gas.



This kind of investment is rationale even if fuel cost (total cost of oil and LNG) would increase by 1.15 trillion yen at maximum if all energy supply is to be replaced by thermal power by gas because unit cost of power generation by LNG thermal power is lower that that of oil thus stable energy supply can be expected.



3) Increase production capacity of gas turbines



Mitsubishi Heavy Industries is to increase production capacity of gas turbine plant in Takasago, Hyogo from 20/year to 36/year within 2011. The additional gas turbines produced are mainly to be supplied to electricity companies mainly in Japan such as Tokyo Electric Power and Tohoku Electric Power. Their new plant in the U.S. is to start operating in 2012. As a result, more than 50/year in total can be produced and supplied from plants in Japan and the U.S.



IHI is to increase the production capacity in Hiroshima from 10/year to 20/year. The company is also to shorten the lead time that is currently approximately 1 year by reviewing processes.



Such investments are rationale because cost and time required to produce new gas turbines are far lower and shorter than producing new nuclear plant equipments. It requires as much as 400 billion yen and 7 years to produce one new nuclear plant equipment when it requires less than 100 billion yen and 1 year to produce one new gas turbine equipment.