Impact of Fukushima Crisis on Global Energy Markets

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Analyst Briefing By Ravi Krishnaswamy, Frost & Sullivan.

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Impact of Fukushima Crisis on Global Energy Markets

  1. 1. Impact of Fukushima Crisis on Global Energy Markets<br />Analyst Briefing<br />By<br />Ravi Krishnaswamy<br />Vice President<br />Energy & Power<br />April 8, 2011<br />
  2. 2. The Fukushima Crisis has put a question mark on Nuclear Renaissance<br />Source: World Nuclear Association<br />
  3. 3. Crisis to have profound impact on the Japanese and Global Energy Industry <br />Long Term<br />Global Energy Sector<br />Japanese <br />Energy Sector<br />Short Term<br />
  4. 4. In short term, more fossil fuel imports and mandated energy savings measures to be in place<br />Power Shortages in Japan<br /><ul><li> Power shortages of about 10 to 15 million kW is predicted this summer
  5. 5. Government likely to impose restrictions on power use
  6. 6. Large power users may be impacted while household may be urged to undertake voluntary savings
  7. 7. Economic growth and confidence on manufacturing sector likely to be impacted </li></ul>Increased Import of Fossil Fuels<br /><ul><li> Estimates suggest that Japan’s energy demand could increase by somewhere between 400,000 and 750,000 barrels per day of oil equivalent (Source: STRATFOR)
  8. 8. International LNG shipments from the open market and spot trade, might be diverted to Japan
  9. 9. To make up for its lost nuclear power, Japan will import 10 percent more LNG than it did last year and an additional 130,000 barrels of oil per day</li></ul>State Involvement in TEPCO<br /><ul><li> Share prices at historic low, falling below 1951 levels and has lost 87 percent of its market value since the crisis
  10. 10. With mounting claims and loosing 20 percent of its generation capacity, TEPCO looks very vulnerable
  11. 11. Government likely to step in either taking partial stake, or providing bail out funds or help in spinnning of the nuclear power facilities into a separate company and acquire it fully</li></li></ul><li>Delay in Approvals and Mixed Sentiments to plague the sector globally <br />Stress Test – Stringent Safety Checks at Existing Facilities<br /><ul><li> All major nuclear power generating countries including USA, France, China & India have ordered reassessment of safety features in likely scenario of disasters
  12. 12. Political fall out of the nuclear crisis bigger in some countries like Germany
  13. 13. Some European countries are considering to close any reactors that have not passed the stress test
  14. 14. Major countries like USA, France, China, India are categorical in going ahead with their nuclear power plans</li></ul>Delay in Approvals<br /><ul><li> Germany has announced a three-month moratorium on extending the life-span of the country's 17 nuclear plants
  15. 15. Obtaining finance for nuclear power in several countries will be delayed and become more expensive
  16. 16. Environmentalists, political parties and public in some cases are likely to complicate the approval process for new power plants through legal route</li></ul>Impact on global nuclear stocks<br /><ul><li> Investor appetite for nuclear sector is quite low
  17. 17. Stocks of General Electric, Areva, Energy Resources of Australia etc which crashed after the crisis onset has recovered some lost ground
  18. 18. Stocks of OEMs who have a wider prortfolio and diversified operators could rebound</li></li></ul><li>Power Rental Companies and Solar Energy likely to gain in Japan <br />Reconstruction to increase power demand<br /><ul><li>Reconstruction costs estimated to be about $200 billion, though some estimates put it at as high as $1 trillion
  19. 19. Temporary and permanent power requirement will increase in quake hit regions to support reconstruction
  20. 20. Power rental companies set to benefit – Aggreko signed 200 MW deal to supply gas and diesel fired power to TEPCO for one year</li></ul>Solar Energy to gain<br /><ul><li> Japan may look towards solar PV as a solution to alleviate power needs in the short term and also to maintain the growth of one of its sunrise industries
  21. 21. RPS and other solar incentives may take a back seat so for as the utilities are concerned
  22. 22. As a part of reconstruction package the government may allocate a share of the expenditure to promote solar PV </li></ul>Utility Sector to Undergo Overhaul<br /><ul><li> There could be a rethink on the way the utilities are currently structured in Japan, private and vertically integrated utilities
  23. 23. Government will seek to at least have more regulatory oversight, if not some form of stake in the nuclear power sector</li></li></ul><li>Cost of Nuclear Power set to Increase, while alternate forms of energy gets more support<br />Increased CAPEX and OPEX for Nuclear Power<br /><ul><li> Even the Current nuclear power construction estimates of about US$6000 per kW have always been overrun
  24. 24. Engineering and construction costs to raise significantly due to need for multiple level of redundancies
  25. 25. Safety checks and disaster planning will increase the operation costs
  26. 26. Insurance costs likely to increase</li></ul>Stringent Regulatory Regime<br /><ul><li> Ability of an individual plant operator to tackle a large crisis will be evaluated
  27. 27. Ways of commercial cooperation with the government and international agencies will be incorporated
  28. 28. Operation under prologned blackout periods will be reasessed
  29. 29. French President has called for International safety standards for nuclear power plants</li></ul>Renewable Energy and Energy Efficiency to Benefit<br /><ul><li> It will be poltically damaging for Governments not to support renewable energy or energy efficiency; hence current subsidies will continue
  30. 30. German wind power industry claims it can power 65% of country’s needs in long term completely replacing nulear
  31. 31. Natural gas easiest option to add significant base load and peaking capacity
  32. 32. Abundant natural gas supply from Qatar and Russia
  33. 33. LNG and piped natural gas time tested and resilient
  34. 34. Clean Coal Technologies like IGCC and CCS will get renewed focus and governement funding in some cases</li></ul>Natural Gas and Clean Coal Gains Ground<br />
  35. 35. Contact Details<br />Ravi has over 18 years of industry experience and has long-standing working relationships with leading industry participants in multiple geographies. His expertise covers a wide range of sectors; Power Generation & Renewable Energy, Utility, Power Systems & Power Quality and Oil & Gas. He is an opinion maker and constantly helps to shape the opinions of the industry by holding interviews on TV and print media as well as making keynote speeches at conferences.<br />For any other enquiries, email us: <br />apacfrost@frost.com<br />

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