Japan and the Implications of Nuclear Power

The crisis in Japan has caused some concerns over the future of the nuclear industry in this country. Nuclear power accounts for up to 20% of the electricity generated in the USA. There are many questions surrounding the industry which, just a week ago, were nearly unthinkable:

  • Will this curtail future development, in the US and worldwide?
  • Will permits for existing nuclear facilities be extended?
  • Will any plants be shut down?
  • Will the regulatory agencies impose stricter controls and limitations on production?
  • Will we rely on coal and natural gas as our primary sources of new electric generation?

If nuclear development slows or stops, reliance on natural gas will only increase. Japan, for example, has no gas resources of its own and is entirely dependent on LNG imports. Increases of LNG to Japan seem certain as many of their reactors are now permanently off-line. This will increase the global price of LNG, which will make the prospect of exporting gas look especially attractive to a resource-rich US. There is speculation that LNG exports from the US could start as early as 2015, also providing support to price levels for that term and beyond. Fundamentals in the US for the nearer terms are still favorable as shale production (see previous blog on hydrofraking) remains very high and temperatures have moderated significantly. The US now imports less than 2% of its total usage via LNG with no current LNG export capability. Pricing has nonetheless moved higher as the sharp increases in the longer terms has dragged the nearer terms with it. Price increases have been most acutely felt in the eastern markets as the gas basis from the Henry Hub has widened. Some of these factors are already starting to show up in Calendar 2012 and 2013 futures contracts.