Japan’s energy needs post-earthquake aren’t a worry yet

A spike in Japanese demand for LNG can easily be met, but futures markets should calm themselves.

As Japan struggles to cope with the aftermath of the 11 March earthquake, issues of energy security are becoming more prevalent not only in Japan, but across the world.

Five nuclear power plants were affected by the Sendai earthquake, and of those, one has suffered a partial meltdown – the Fukushima Daiichi plant. Three major oil refineries were also closed. Amid scrambled attempts to avert a full-scale, Chernobyl-style disaster, fears are now rising about how the shortfall in Japan's energy production – which Société Générale estimates to be roughly 11.3 gigawatts, enough to power as many as 11 million households – will be managed for the foreseeable future.

Consumption of electricity generated from nuclear power stands at 30 per cent of Japan's total usage. The government had previously planned to increase this to 40 per cent by 2017, and then 50 per cent by 2030.

Whether or not these plans will now be halted or contested as a result of the disaster at Fukushima I remains to be seen. What is certain, though, is that Japan will have to meet the demand for energy somehow, despite a large impairment in production facilities.

Japan's energy mix still heavily relies on oil, which accounted for 45 per cent of national energy consumption in 2009, but it is also the world's largest importer of liquefied natural gas (LNG) – in 2010 the Japanese shipped over 70 million tonnes of it. The biggest suppliers of oil and LNG to Japan are Saudi Arabia and Qatar, respectively, with the United Arab Emirates the second-largest supplier of both commodities.

With revolutions still raging across the Middle East, the markets have already been pushing up prices, particularly for oil, in fear of an energy crisis, and the increased demand on the region that Japan's predicament may spur could make the problem even more acute. Due to the shortfall in Libyan supply and worries about Saudi Arabia's stability, prices continue to rise. Today Brent crude spot prices increased to $113.99 per barrel, and LNG futures for April 2015 delivery rose $0.22 per MMBtu on the week to $6.08 according to NYMEX.

If Japan does make up its shortfall with LNG, the UK would bear the brunt of this shift in supplies, as LNG accounts for almost 33 per cent of winter demand, and contracts for next year have risen between 10 and 15 per cent on speculation of increased demand. This follows already high gas prices and a particularly cold winter that added roughly £44 to British domestic gas bills.

This chart, taken from Kiran Stacey's Financial Times blog shows how much LNG Japan needed to make up for an energy shortfall after the 2007quake:

PFC Energy made a prediction based on these figures that, with 9.7 gigawatts of capacity lost (estimates vary, as with the Société Générale figure above), this could lead to at least a 500-600 megaton per month leap in Japanese LNG purchases. PFC believes the price for Asian spot will remain around $8-$9 MMBtu.

There are a few factors to consider in support of this conservative estimate. A global gas glut, including Qatar's huge increase in LNG production capacity, will certainly be able to alleviate Japan's demands. In fact, Qatar has already promised to divert more supplies there if necessary, which it would not have been able to do so easily back in 2007. Further, Japan is still able to use supplies from futures contracts at the moment to meet its energy needs, so its demand is lower than expected.

These factors explain the lack of a significant spike in demand so far, but fears driving the rise in futures prices (as opposed to the relatively stable spot prices) bode less well for the long term.

Liam McLaughlin is a freelance journalist who has also written for Prospect and the Huffington Post. He tweets irregularly @LiamMc108.

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Five things we've learned from Labour conference

The party won't split, Corbynite divisions are growing and MPs have accepted Brexit. 

Labour won't split anytime soon

For months, in anticipation of Jeremy Corbyn’s re-election, the media had speculated about the possibility of a Labour split. But the party’s conference confirmed that MPs have no intention of pursuing this course (as I had long written). They are tribally loyal to Labour and fear that a split would prove electorally ruinous under first-past-the-post. Many still expect Theresa May to hold an early general election and are focused on retaining their seats.

Rather than splitting, Corbyn’s opponents will increase their level of internal organisation in a manner reminiscent of the left’s Socialist Campaign Group. The “shadow shadow cabinet” will assert itself through backbench policy committees and, potentially, a new body (such as the proposed “2020 group”). Their aim is to promote an alternative direction for Labour and to produce the ideas and organisation that future success would depend on.

MPs do not dismiss the possibility of a split if their “hand is forced” through a wave of deselections or if the left achieves permanent control of the party. But they expect Labour to fight the next election as a united force.

Neither the Corbynites nor the rebels have ultimate control 

Corbyn’s second landslide victory confirmed the left’s dominance among the membership. He increased his winning margin and triumphed in every section. But beyond this, the left’s position is far more tenuous.

The addition of Scottish and Welsh representatives to the National Executive Committee handed Corbyn’s opponents control of Labour’s ruling body. Any hope of radically reshaping the party’s rule book has ended.

For weeks, Corbyn’s allies have spoken of their desire to remove general secretary Iain McNicol and deputy leader Tom Watson. But the former is now safe in his position, while the latter has been strengthened by his rapturously received speech.

Were Corbyn to eventually resign or be defeated, another left candidate (such as John McDonnell) would struggle to make the ballot. Nominations from 15 per cent of MPs are required but just six per cent are committed Corbynites (though selection contests and seat losses could aid their cause). It’s for this reason that allies of the leader are pushing for the threshold to be reduced to five per cent. Unless they succeed, the hard-left’s dominance is from assured. Were an alternative candidate, such as Clive Lewis or Angela Rayner, to succeed it would only be by offering themselves as a softer alternative.

Corbynite divisions are intensifying 

The divide between Corbyn’s supporters and opponents has recently monopolised attention. But the conference showed why divisions among the former should be interrogated.

Shadow defence secretary Clive Lewis, an early Corbyn backer, was enraged when his speech was amended to exclude a line announcing that Labour’s pro-Trident stance would not be reversed. Though Lewis opposes renewal, he regards unilateralism as an obstacle to unifying the party around a left economic programme. The longer Corbyn remains leader, the greater the tension between pragmatism and radicalism will become. Lewis may have alienated CND but he has improved his standing among MPs, some of whom hail him as a bridge between the hard and soft left.

Elsewhere, the briefing against McDonnell by Corbyn allies, who suggested he was an obstacle to recruiting frontbenchers, showed how tensions between their respective teams will continue.

Labour has accepted Brexit

Ninety four per cent of Labour MPs backed the Remain campaign during the EU referendum. But by a similar margin, they have accepted the Leave vote. Jeremy Corbyn and John McDonnell, both long-standing eurosceptics, confirmed that they would not seek to prevent Brexit.

Owen Smith called for a referendum on the eventual deal during his leadership campaign. But with some exceptions, such as Angela Eagle, most of his backers have rejected the idea. Though 48 per cent of the electorate voted Remain, MPs emphasise that only 35 per cent of constituencies did. Some still fear an SNP-style surge for Ukip if Labour seeks to overturn the outcome.

The debate has moved to Britain’s future relationship with Europe, most notably the degree of free movement. For Labour, like Theresa May, Brexit means Brexit.

Corbyn will not condemn deselections 

The Labour leader could have won credit from MPs by unambiguously condemning deselection attempts. But repeatedly invited to do so, he refused. Corbyn instead defended local parties’ rights and stated that the “vast majority” of MPs had nothing to fear (a line hardly reassuring to those who do). Angela Eagle, Stella Creasy and Peter Kyle are among the rebels targeted by activists.

Corbyn can reasonably point out that the rules remain the same as under previous leaders. MPs who lose trigger ballots of their local branches face a full and open selection. But Labour’s intensified divisions mean deselection has become a far greater threat. MPs fear that Corbyn relishes the opportunity to remake the parliamentary party in his own images.  And some of the leader’s allies hope to ease the process by reviving mandatory reselection. Unless Corbyn changes his line, the issue will spark continual conflict. 

George Eaton is political editor of the New Statesman.