With only two out of 48 nuclear reactors inoperation, Japan’s energy mix has to changeand experts are pushing lower calorific coalas a necessity in meeting the country’senergy needs.
Great potential for Indonesia asJapan’s coal attitude changesJapan will move from higher quality coal to lower calorific value coal as the country’sreduced nuclear power capacity has caused energy prices to soarJapan is one of the largest coal importers in the world. In 2010, the country imported128, 957 tons of coal. This places Japan just above China, which imported 128,560and both countries are well ahead of Korea, India and Taiwan.“Japan is a mature market in terms of coal demand,” said Toshimi Tsuchiya, director ofChubu Energy Trading in Singapore. This means that no significant demand increase isexpected.While there will be little demand increase in the future, Tsuchiya was adamant thatthe quality of coal Japan imports needs to be of lower calorific value because ofsoaring costs.Indonesia is well-known in the mining industry for its lower calorific value coal andhas the potential to supply Japan as its coal dynamics change.
Earthquake changes power policyEarthquake changes power policyPreviously it was inconceivable to imagine planning and building new coal-firedstations in Japan because of government policy. The government has been strict inensuring that it meets its global warming promises.Since the devastating earthquake that hit Japan in March 2011, only two out of the 48nuclear reactors are in operation. The capacity has been covered by thermal powergeneration, including coal.The earthquake has caused the Japanese government to re-evaluate its energy policy. Thishas meant a shift away from nuclear generation.
Earthquake changes power policy“The introduction of renewables and energy conservation proposed by thegovernment are not enough to cover the drop off effect from diminished nucleargeneration capacities,” said Tsuchiya.Coal fired power plants are the realistic choice to meet Japan’s power needs.The government is also recognising this reality as it has eased the EnvironmentalImpact Assessment, which is necessary for building new coal fired power plants.The assessment’s criteria have become more transparent and the time for theassessment to be completed has been reduced from three years to one year.This makes it highly likely that new coal-fired stations will emerge in Japan.
Turning to lower grade coalThe nuclear shutdown has meant that fuel costs have soared and Japanesepower utilities are raising their tariffs. Fuel cost is now amounting to 40% of thetariff and a cost reduction is not only in the nation’s interest, but necessary.Japan is different to its neighbours, Korea and Taiwan, as these countries areprice sensitive and focus on generic coals. Japan is brand oriented and consciousof the security of supply.For example, the Australian free on board (FOB) Japanese price for 6000 net asreceived (NAR) coal averaged $105M/T in 2011 and 2012. While 5500 NAR coalfor Korea and Taiwan averaged $87M/T over the same period. The pricedifference is larger than calorific value.
Turning to lower grade coalJapan’s power utilities will now need to change their behaviours because of thisstrong cost pressure. The price differences with other countries will also need tobe more aligned.Power stations will move towards using lower grade coals. “This is especially trueas a market dependent on high Japanese prices is not sustainable” said Tsuchiya.Tsuchiya reiterated that Japan needs to be proactive in new coal trials andinvestments for facilities. They also need to enhance stockyard capacity andmaximise availability of blending facilities.It is expected that new coal fired stations, which focus on lower grade coal willemerge in Japan. This is where Indonesia could play a pivotal role in supplyinglower grade coal to meet Japan’s price cutting needs.
Find out more about Japan’schanging coal procurementdynamics by downloading theCoaltrans East Asia NetworkingForum brochure here.