Aussie LNG an energy lifeline — for now

by Eric Johnston

Staff Writer

With its nuclear power plants mostly idled since the March 2011 Great East Japan Earthquake, Japan continues its quest to increase imports of liquefied natural gas, especially from Australia.

By volume, Australia was Japan’s largest LNG supplier in fiscal 2012, exporting 17.06 million tons, or 19.6 percent of Japan’s total import volume. But with the rise of cheaper shale gas in the United States, how long Japan will remain Australia’s best LNG customer is uncertain as tension over pricing grows and competition elsewhere in Asia means more potential suppliers for Japan and customers for Australia.

During a recent seminar on the Australia-Japan energy relationship in Brisbane hosted by Griffith University’s Asia Institute, energy experts from both countries noted there were several challenges to their domestic energy situations and the bilateral energy relationship, which besides LNG includes Australian exports of coal — and uranium.

The first challenge is Japan’s current energy situation, and the uncertain future of nuclear power. Prior to 3/11, about 30 percent of Japan’s uranium used in power plants came from Australia, where, ironically, it is illegal to develop or use nuclear power.

Tatsujiro Suzuki, vice chairman of the Japan Atomic Energy Commission, cited a poll conducted in March by Tokyo Woman’s Christian University professor Hirotada Hirose and presented to the commission in July. It showed that of some 1,200 people surveyed, 30 percent favored an immediate shutdown of nuclear power, well above the 13 percent who said they favored an immediate shutdown in June 2011.

Meanwhile, 54 percent wanted a gradual phaseout, down from 66 percent in June 2011.

While the poll indicates that the public is increasingly leaning toward phasing out nuclear power, Suzuki said there are major issues that have to be resolved regardless of the energy’s future in Japan, “including the storage of spent fuel at the reactor sites, the Rokkasho reprocessing plant, and what do about the Mutsu interim storage site” in Aomori Prefecture.

Indeed, as of September, 17,335 tons of spent nuclear fuel was being stored in Japan, including 14,340 tons at 17 reactor sites hosting a total of 55 reactors. Another 2,945 tons is at the Rokkasho reprocessing plant in Aomori.

Overall, the 17 reactor sites are now 70 percent full. However, even if all 50 commercial reactors were to be restarted tomorrow and operate at capacity, an estimated 33 reactors would see their spent fuel pools be completely full within six years. Spent fuel pools at another 14 reactors would be completely full within a dozen years.

The original plan was for the utilities to send spent fuel to Rokkasho for reprocessing. But as Suzuki pointed out, there is already 2,945 tons of spent fuel sitting there — and the storage capacity is only 3,000 tons.

Finally, there is the Mutsu interim storage facility, which can hold 5,000 tons of spent fuel but has yet to go into operation. Even when it does, it is likely to be only a short-term solution to the problem of nuclear waste.

If nuclear’s future is uncertain, there are also major issues with switching to renewable energy, experts pointed out.

“Japan’s electricity system is comprised of 10 grids with very poor interconnections. Renewable energy potential is not sufficiently high on the grids in regions that have high (electricity) demand,” said Hiroshi Hamasaki of Fujitsu Research Institute’s Economic Research Center.

He said Japan should integrate all of its electricity transmission lines and create a single grid. Doing so, Hamasaki said, would mean maximizing the use of cheaper renewable energy sources and increase their overall usage efficiency.

“But how many nuclear power stations are restarted will have a huge impact on renewables,” he said.

The future of Japan’s nuclear and renewable energy sectors, in turn, will have an impact on how much LNG that Japan needs to import in the coming years.

Currently, Australia’s production is about 24.3 million tons of LNG a year. Seven new projects, scheduled for startup between 2014 and 2017, are expected to produce an additional 61.8 million tons per annum.

“Based on long term contracts with Japanese buyers that are in place now, Japan will purchase 31 million tons per annum of Australian LNG by fiscal 2017,” said Carolyn Barton, resources and industry counselor at the Australian Embassy in Tokyo.

However, with the United States now ramping up shale gas production, Australia finds itself in competition for the Japanese energy market at a time when all predictions are that its own LNG prices will continue to rise due to a number of factors.

“The spiraling costs of LNG projects will most likely slow the momentum in further expansion of Australia’s LNG export capacity. The (Australian) Prime Minister’s Manufacturing Task Force in 2012 said natural gas prices had already risen by 70 percent, and were likely to go higher because of the export market,” said Tina Hunter, director of the University of Queensland’s Center for International Minerals and Energy Law.

Japan wants to diversify its energy suppliers. Given the close U.S.-Japan relationship and the current low price of U.S. shale gas, even the longer shipping distances and the tolls to take U.S. East Coast or Gulf of Mexico gas through the Panama Canal still makes it cheaper than Australian LNG, at least for now.

Nevertheless, most experts predict Australia’s stable political climate, proximity to Japan and established LNG relationship will mean further joint projects in the years ahead, as long as the costs don’t spiral out of control and create higher electricity bills, especially during winter. To secure long-term stability in costs, Japanese energy firms are expected to increase development of new LNG projects rather than just import the finished product.

“Japanese petroleum companies are likely to enter into joint ventures in Australia to develop gas resources, and thereby secure production of gas, rather than just supply of produced gas,” Hunter said.