Japan on gas, coal power building spree to fill nuclear void

Reuters

* 12 new gas, 2 new coal power plants by end 2014

* New plants to boost gas and coal power by 6 percent

* Plants to combat rising energy import costs

* Oil demand for power to fall by 20 pct in winter

By Osamu Tsukimori and Rebekah Kebede

TOKYO/PERTH, Oct 16 (Reuters) - Japan plans to start up 14new gas and coal-fired power plants by the end of 2014, allowinga switch away from pricey oil, as Tokyo struggles with ashutdown of nuclear reactors and energy imports drive a recordtrade deficit.

Regional power monopolies will construct 12 gas-fired unitsnext year, while two new coal power plants will be completed byDecember 2013, according to a Reuters survey of utilities.

The new power plants will buy liquefied natural gas (LNG)and coal to scale back on the use of expensive crude and fueloil plants. They will also give Japan a bigger buffer to preventfuture power outages when generation plants go offline.

"What this will do is introduce an additional reserve margininto the power network, particularly in areas where some nuclearis coming back," said Nicholas Browne, a senior analyst withWood Mackenzie in Singapore.

Expanding gas-fired generation is the only viablelarge-scale option in a nuclear-free Japan to power itsindustrial and commercial sector and keep electricity prices lowenough for businesses to stay competitive globally.

A massive earthquake and tsunami in March 2011 hit theFukushima nuclear power station, operated by Tokyo ElectricPower Co, also known as Tepco, causing three reactormeltdowns and hydrogen explosions.

The disaster undermined public confidence in the safety ofnuclear power, leading to the shutdown of all plants formaintenance and safety checks, which pushed the world'sthird-largest economy and biggest importer of LNG to post itsfirst trade deficit since the second oil shock 31 years ago.

Prior to Fukushima, nuclear power accounted for about 30percent of electricity and at this stage Japan may have onlyfour nuclear reactors back operating by March 2015, theInstitute of Energy Economics Japan says.

The new gas and coal power plants, which based onInternational Energy Agency (IEA) data will cost an estimated $7billion to build, will add 6.4 percent more fossil fuel capacityby the end of 2014.

Mitsubishi Heavy, General Electric, Hitachi and Mitsubishi Electric are among the firmsthat will benefit from construction.

Gas-fired units next year will add 5.2 gigawatts ofcapacity, or 7.8 percent, to the 66.3 gigawatts the power firmsnow operate, according to industry data. The IEA estimatesplants with such power output would cost about $4.5 billion.

The two coal-fired units due to start commercial operationsin December will add 1.6 gigawatts online from the current 39gigawatts. Building two plants that produce 1.6 gigawatts wouldcost about $2.4 billion, according to the IEA.

ENERGY SUPPLY FLEXIBILITY

Lower coal and gas prices relative to crude and fuel oilwill clip a skyrocketing energy import bill, but fuel costs willgrow and still account for a big chunk of the trade deficit.

Japan's trade gap reached a record 4.8 trillion yen in thefirst half of this year alone.

With the cost of some fuels falling slightly this year, theMinistry of Industry has revised down its estimate for the extracosts Japan will pay for fossil fuels in the year to March 31,2014, to 3.6 trillion yen from 3.8 trillion in April, which willmostly cover LNG and coal.

"With oil prices staying this high and peak summer demandbehind us, the utilities have quickly dropped usage of crude andfuel oil in favour of LNG," said Akitsugu Takahashi, a marketingexecutive for Japan's biggest refiner JX Holdings.

Japan's coal imports are set to hit another record over thenext year, but the Petroleum Association of Japan (PAJ) has saidoil use at power plants could fall 10 to 20 percent this winterfrom a year earlier.

Helping to ease costs, utilities will likely fuel the newgas-fired units with long-term supply contracts due to start in2014, such as from Exxon Mobil's PNG LNG plant, ratherthan from spot market purchases, traders and analysts said.

LNG coming into Japan through long-term supply contractswill likely jump about 5 million tonnes to 72.5 million tonnesin 2014, up from 67.2 million tonnes this year, according toTony Regan, an analyst with Tri-Zen International.

Consultancy FGE expects Japan's total LNG demand this yearto be at 85.7 million tonnes, increasing slightly to 86.4million tonnes in 2014 on higher demand for power that willaccompany the new start-ups.

View Comments (2)