Bloomberg News

Japan Warned U.S. of Blackouts in Appeal for LNG Supply

September 17, 2013

Japan Warned U.S. of Blackouts in Appeal for LNG Supply: Energy

Tokyo Electric Power Co. branded safety helmets. Photographer: Tomohiro Ohsumi/Bloomberg

The U.S. Department of Energy was informed by Japanese officials that the world’s third-largest economy risked a catastrophic power failure as it prepared to close its last operating atomic reactor last year.

Those warnings, detailed in redacted documents released to Bloomberg News by the U.S. Energy Department in response to a Freedom of Information Act request, reverberate today after Japan idled its only operating nuclear plant for routine repairs.

The initial caution came in the aftermath of the 2011 Fukushima nuclear disaster, and Japan was about to switch off the last of its 50 undamaged reactors and turn on natural gas-fired power plants to keep the economy running. Those plants would depend on a caravan of liquefied natural gas tankers steaming across the oceans, leaving the country vulnerable to supply disruptions.

“Geopolitical risk: Not economically feasible for Japan to stockpile LNG. Japan has 2-3 weeks supply stored, that’s it,” the documents show. “1/3 of Japan would face quick blackout,” a handwritten note in the 151 pages says.

Japan conveyed concern about blackouts to U.S. Energy Department officials in meetings in March of last year with Hirohide Hirai, then head of the trade ministry’s petroleum and natural gas division, and others.

E-mails to Hirai seeking comment and details of the meeting during which the notes were taken weren’t answered.

Reports of radioactive water leaks in recent weeks at the wrecked Fukushima station indicate utilities seeking approval to switch on other reactors face a tougher task this time around.

Nuclear Free, Again

“After the Fukushima leak and the fact that it does look like a very fragile situation, I actually think the prospects of nuclear reactors coming back online have diminished considerably,” said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong.

When Japanese officials aired their concerns to the U.S. last year, they were six weeks away from the May 5 idling of a Hokkaido Electric Power Co. reactor for scheduled maintenance. After that date, the country had no operating reactors until July 2012, when two units run by Kansai Electric Power Co. were allowed to restart.

With Japan again nuclear-free from this week, similar concerns about power shortages are being raised, as its former fleet of 54 reactors provided more than 25 percent of the country’s electricity, prior to Fukushima. The country now has 50 operational reactors as four at Fukushima have been written off.

Global Economy Threat

Japan may not have enough capacity in winter without nuclear power, Makoto Yagi, chairman of the Federation of Electric Power Cos., told reporters in Tokyo on Friday. Japan’s 10 regional power companies are still assessing winter power demand and supply, Yagi said.

The energy department documents also show Japan requested LNG imports from the U.S. to diversify its supply. The blackout risk in Japan, the largest economy after the U.S. and China, would in turn be a threat to the global economy.

At least nine meetings took place between agency staff and Japanese officials after the earthquake and tsunami of March 11, 2011, wrecked Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic station. As reactors shut following the disaster for regular maintenance, safety concerns kept all but two offline.

Meetings involved executives with such companies as Tokyo Gas Co. (9531), Osaka Gas Co., Inpex Corp. (1605) and Marubeni Corp. (8002)

Osaka Gas, Chubu Electric Power Co., Sumitomo Corp, Mitsui & Co., Mitsubishi Corp. and Nippon Yusen K.K. have since April 2012 announced deals to buy LNG from U.S. plants, two of which have been granted provisional export licenses.

Middle East

LNG supply from the U.S. would help mitigate security concerns about shipments from the Middle East. Last year, Iran had threatened to disrupt shipping through the Strait of Hormuz in retaliation for sanctions aimed at the country’s nuclear program. About 25 percent of the world’s LNG supply sails on tankers through Hormuz.

This year, the civil war in Syria threatens stability in the Middle East, which supplied 31 percent of Japan’s LNG in June, according to Bloomberg calculations based on the most recently available finance ministry data.

Any conflict that drives up oil prices would also affect natural gas, since most of the country’s LNG contracts are linked to oil costs.

Blackout Risk

“A crisis in the Middle East is not going to stop the imports of all natural gas,” Hiroshi Takahashi, an energy policy specialist at the Fujitsu Research Institute, said by telephone. “However, if we lack even 10 percent of our electricity supply it’s going to be a serious situation in the summer. There might have been a large scale blackout.”

While the current idling of all reactors is less of a blackout threat because winter power demand is lower than in summer, utilities now have to meet tougher safety standards for restarting atomic plants.

Japan’s Nuclear Regulation Authority, which introduced the tougher rules after Fukushima, said in July that reactors operated by Kyushu Electric Power Co., Shikoku Electric Power Co. and Hokkaido Electric Power Co. were eligible for inspection.

Anti-Nuclear

Since then, Tokyo Electric’s struggle to manage radioactive water at the Fukushima station has shifted the focus of the regulator from restarts to monitoring the plant’s disaster response. The leaks are also fodder for Japan’s anti-nuclear activists.

“The goal is to stop the restart of nuclear power plants,” Hidemichi Kano, a member of the Japan Congress Against A- and H-Bombs, which helped organize the protests, said by phone. “And the phasing out of all nuclear energy in Japan.”

Devalier said she had expected to see as many as 10 reactors come back on line in 2014. Now she doesn’t foresee any until 2015, which she said could set back Prime Minister Shinzo Abe’s efforts to revive the economy.

“We’re going to continue to have a dependence on fossil fuels,” Devalier said. “It erodes manufacturers bottom lines but in terms of consumer sentiment these are costs that have to be passed down.”

To contact the reporter on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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