06
Feb
2024

Shaken, not stirred: Noto earthquake leaves Japan’s nuclear revival unscathed

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  • Japan’s nuclear power segment emerges unaffected from major earthquake and ensuing tsunami on 1 January
  • Strong central government backing for nuclear reactor restarts but local-level stance remains less welcoming
  • Japanese LNG demand set for a long goodbye but challenging energy transition could offer it meaningful role
  • Interest in synthetic methane grows as Tokyo looks to extend lifetime of extensive gas and LNG infrastructure

Japan’s nuclear power revival remains on track despite January’s earthquake in the north-western Noto Peninsula, leaving the downward outlook for the country’s LNG consumption unchanged. Last year saw Japan’s LNG imports fall to their lowest level since 2009, meaning it relinquished its spot as the world’s top LNG buyer to China for the second time. Although LNG has embarked on a long goodbye in Japan, energy transition challenges could make it stay in the country’s energy mix longer than expected, with synthetic methane one of its potential successors.

Earthquake impact

Tokyo’s longstanding efforts to restart nuclear reactors that were taken offline in the wake of the Fukushima meltdown in 2011 had been gaining momentum when a 7.6-magnitude earthquake hit Japan’s Noto Peninsula on New Year’s Day. Spot power prices on the Japan Electric Power Exchange (JEPX) jumped by 15% the next day as local utilities took nearby coal- and gas-fired power capacity offline, but there has been little impact on overall electricity generation since then.

“The Noto earthquake has had no significant impacts on nuclear restarts. The Shika nuclear plant that was most affected was offline with no plans to restart in the near future, while the delayed restart of Tohoku Electric’s Onagawa 2 [in Miyagi Prefecture] is not related to the earthquake,” Mariko O’Neil, carbon analyst at research firm BloombergNEF, tells LNG Business Review.

Japan’s Nuclear Regulation Authority (NRA) confirmed no abnormalities were reported at nuclear power plants after the earthquake. “This proves that Japan’s enhanced post-Fukushima nuclear safety protocols largely held up and passed the test from a technical and regulatory perspective,” Jingxiao Du, senior consultant at Wood Mackenzie, says.

Japan has to date restarted 12 nuclear reactors with a combined generation capacity of 11.6 GW out of the 33 operable units that have total capacity of 33.2 GW. This included two reactor restarts totalling 1.65 GW at the Takahama plants in Fukui Prefecture last year.

Japan operated 54 reactors in 2011 before the Fukushima disaster shut down its entire nuclear power industry. Nuclear typically plays the role of baseload generation in the Japanese power mix, with ~1 GW of nuclear power capacity displacing ~1 mtpa of LNG. In 2022, the share of nuclear in Japan’s electricity generation stood at 5%, compared with 25% in 2010, Energy Institute (EI) data shows.

Restarting a reactor requires approval from the NRA and the local government’s consent. Up to the end of last year, two more units received approval from the NRA and the local government, three had passed the NRA’s review but not yet secured local consent, 10 reactors were under review, and the rest have not applied to the NRA.

LNG trends down

While Japan continues to rehabilitate its nuclear fleet, its LNG imports are trending downwards. Having received its first LNG cargo in 1969, it has been central in establishing the LNG industry as a major source of global energy supply over the past six decades, but its imports have been falling since peaking at 88.57 mt in 2014.

In 2023, they stood at 66.15 mt, their lowest level since 2009, marking a year-on-year drop of 8% – much steeper than the 3% decrease in 2022, according to preliminary data from Japan’s finance ministry. As a result, it was overtaken by China as the world’s top LNG importer for the second time since 2021.

Du says Wood Mackenzie’s forecast for Japan’s LNG imports shows them plateauing at ~65 mtpa for the rest of this decade. For its part, Rystad Energy puts them in the range of 60-66 mtpa, subject to seasonality and changes in nuclear restarts, Masanori Odaka, senior analyst at Rystad Energy, tells LNG Business Review.

The quarterly gas market report released last month by the International Energy Agency (IEA) noted that Japan’s nuclear power output increased by 50% year on year in 2023, which together with higher renewable power generation reduced the demand for gas demand in the power sector. Overall gas demand fell by 8% year on year in the first 10 months of 2023.

Since the election of Fumio Kishida, Japan’s prime minister, in October 2021, pro-nuclear sentiment has strengthened, although there remains fierce opposition from local communities that live closest to atomic energy facilities. The improvement in overall confidence is down to recent power crunches and rising energy prices, both of which Japan’s nuclear fleet can mitigate.

READ Japan sees rising imports of Russian LNG towards end of 2023

“We believe the latest earthquake will not shake the national government’s determination to accelerate nuclear restarts,” highlights Du. “Top priorities of the national government are energy security, carbon reduction and reducing generation costs. Nuclear will remain an important source of energy to maintain those aspects.”

Nuclear divide

The government has been actively pursuing accelerated restarts and lifetime extensions and, for the first time since the Fukushima disaster, is considering building new nuclear units. In May last year, Japan’s parliament passed legislation allowing nuclear reactors to extend their lifetime beyond 60 years.

The actual restart progress has been slow and delayed by strict technical regulations, low public trust, the need for local political support and ongoing legal battles, says Du. At the Shika plant in Ishikawa – operated by Hokuriku Electric Power Company and idle since 2011 – some damage to electrical equipment, such as transformers and cables, was found following the New Year’s Day earthquake, but key foundations and structures such as reactor containment vessels were undamaged.

Tokyo Electric Power Company’s Kashiwazaki-Kariwa plant, the largest in the world, was also relatively close to the epicenter but has not reported any major problems after the earthquake. The NRA lifted an operational ban on the facility days before the tremor and the absence of any issues means units six and seven should continue to progress towards a restart in 2026-27 pending local government consent.

“This lack of serious damage or concern may have even improved public opinion slightly since it reinforces the idea that the new safety standards are enough to withstand large earthquakes, but I doubt this has influenced the opinion of local communities, more those who live far from potential danger,” Chris Wilkinson, senior analyst at Rystad Energy, tells LNG Business Review.

“I don’t think the earthquake has resulted in much change in public opinion either way, the largest impact may be associated with potential delays in upcoming restarts,” Wilkinson continues. “Nuclear power will be needed to be one of Japan’s core baseload power supply sources if they wish to hit their net-zero target by 2050 and hence restarts are inevitable, unless serious damage occurs in the coming years.”

At the same time, “the decisions of local governments of prefectures and cities where nuclear plants are located will remain an important part of the decision-making process in restarts,” he adds. “Public opposition has grown after the earthquake, which could impact local governors’ opinions.”

The rehabilitation of Japan’s nuclear power sector remains in progress. Two nuclear units – Onagawa 2 and Shimane 2, with combined capacity of 1.64 GW – are anticipated to restart this year.

Tohoku Electric Power Company, operator of the Onagawa 2 unit, announced on 10 January it would delay the unit’s restart due to prolonged safety upgrade work. Onagawa 2 is the only nuclear power plant looking to resume in eastern Japan, while western Japan already has 10 online.

Any increase in public opposition could also delay the restart of Chugoku Electric Power Company’s Shimane 2 reactor in the western part of Honshu Island. Both reactors have been idle since 2011 and any delay to their restart would present upside potential to Japanese LNG demand this year. In addition, last month’s earthquake prompted the shutdown of three coal-fired plants and capacity reduction at one coal-fired plant, with a total of 1.55 GW affected. If these coal units are offline for an extended period, LNG demand would receive an additional boost.

Kansai Electric Power Company intends to delay the restart of its 870 MW-capacity Takahama Unit 4, after the utility originally wanted to complete planned maintenance in early April and resume normal operations later in the month.

Every month the restart is delayed will likely require Kansai Electric to use 60,000-80,000 tonnes of LNG per month to compensate for lost baseload nuclear generation, according to Odaka. This could partly explain why Kansai Electric is currently seeking one LNG cargo per month from April 2024 to March 2025.

Meanwhile, BloombergNEF has revised its latest forecasts for coal power generation in Japan upwards as it believes the current outages will be more than offset by lower maintenance at coal-fired plants, judging from the latest values on the HJKS, a system operated by the JEPX for utilities to report outages, says O’Neil.

LNG down – but not out

The long-term outlook for Japan’s LNG demand is for a long goodbye.

“After this decade LNG demand will decline as the energy transition takes a firmer hold, although the pace of decline will be slow,” says Du. “Gas will act as a back-up and dispatchable generation source to support renewable ramp-up until long-duration battery storage and hydrogen mature and scale up. We expect LNG demand to gradually fall to around 55 mtpa by 2040 and towards 40 mtpa by 2050.”

READ Japan’s government raises concerns over potential delays to US LNG projects

Rystad Energy is more circumspect, predicting that imports could fall below 50 mtpa in 2040, says Odaka.

Although Japan’s LNG demand looks set to trend downwards over the coming decades, the country’s challenging energy transition means that natural gas is set up for a meaningful role that should not be underestimated, argues Du: “Despite pressures from nuclear restarts, gas will play a transition role in the mid-term, supporting the transition from coal to nuclear and renewables.”

An “ambitious outlook” in Japan’s 6th Strategic Energy Plan, released in 2021 and presently the primary energy policy guiding Tokyo, calls for the share of fossil fuels in the power mix to be halved by 2030 compared to 2019 levels, from 82% to 40%, substituted by nuclear and renewables.

Japan released a Green Transformation Roadmap in December 2022 that aims to accelerate measures supporting decarbonisation investment over the next decade. The roadmap is generally aligned with the 6th Strategic Energy Plan and pledges to invest JPY 150 trillion (USD 1.02 trillion) of public-private financing over the next decade to transform 22 industrial sectors to meet carbon neutrality. The roadmap also officially endorsed a carbon pricing scheme with a phased rollout and low initial charge to limit the burden on businesses.

Despite the measures proposed in the roadmap, Japan’s ability to meet the targets in the 6th Strategic Energy Plan is in question. The nuclear restart progress has been slow and is expected to miss Tokyo’s 2030 targets given the challenges in technical regulation reviews, local government consent and legal battles – challenges that could be potentially amplified by January’s earthquake.

Compounding problems is the fact that Japan, constrained by mountainous geography and natural disasters and high population density, has trailed other developed economies in deploying renewable energy. As a result, renewable power deployment is set to also lag behind the 2030 targets.

Coal- and gas-fired power will probably be needed to pick up the shortfall. Coal remains one of Japan’s cheapest sources of power generation but faces increasing pressures from an emissions perspective. This positions LNG and gas to play a significant role as a transition fuel to fill the gap of missed nuclear and renewable targets, ensure grid stability as renewables ramp up, and underpin decarbonisation commitments.

By 2030, Japan’s portfolio of long-term LNG contracts will fall by one third from its 2022 level to about 55 mt, according to Japan’s Ministry of Economy, Trade and Industry (METI), although this still leaves time to renew, extend or sign new contracts. It explains why the decision by US president Joe Biden’s administration to pause US LNG export permits ahead of the presidential election in November alarmed Tokyo.

“We are concerned that this temporary suspension of export permits will delay the start of new LNG production from the United States,” Ken Saito, head of METI, said on 30 January. “Therefore, from this perspective, we would like to closely examine the medium- to long-term impact of this matter and take the necessary steps to ensure that Japan’s stable energy supply is not compromised.”

Embracing e-methane

Against this backdrop, Japan is betting big on hydrogen-based synthetic methane to help it decarbonise city gas supply, Minh Khoi Le, head of hydrogen research at Rystad Energy, tells LNG Business Review. Also known as e-methane, the fuel is produced from CO2 and hydrogen through methanation.

Because the CO2 can be captured from emission sources or through direct air capture, and the hydrogen produced via renewable power, synthetic methane can be considered a low-carbon or carbon-neutral alternative to traditional natural gas, even if CO2 is emitted during combustion.

Synthetic methane is attractive for Japan because it can make use of the country’s existing gas infrastructure that includes 37 LNG import terminals and extensive city gas facilities. Japan’s government is positioning methanation as a growth industry and one of the key ways for Japan to achieve its stated target of net-zero emissions by 2050.

By 2030, METI wants synthetic methane to replace 1% of city gas volumes, rising to 90% by the net-zero deadline of 2050. A complete shift to synthetic methane for all domestic city gas consumption would cut Japan’s CO2 emissions by around 10%. - JX

Contact the editor:

Kostya Tsolakis
[email protected]

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