Impact of Japanese Earthquake on Global Energy Markets

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Frost & Sullivan analyst briefing on the Impact of the Japanese Earthquake on Global Energy Markets

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Impact of Japanese Earthquake on Global Energy Markets

  1. Impact of Japanese Earthquake on Global Energy Markets-Analyst Briefing<br />Ravi Krishnaswamy<br />Vice President – Energy and Power, Asia Pacific<br />September 2011<br />
  2. Introduction<br />The recent earthquake and nuclear crisis in Japan led to ripple effects in the global energy markets. It not only affected the nuclear power market but also other energy markets.<br />This analyst briefing outlines the immediate developments in various energy markets such as nuclear, oil, LNG, and renewable energy both at the domestic and global levels. It also discusses the possible future developments in these markets.<br />As the shutting down of nuclear reactors has led to severe power shortages, especially during summer, this market insight discusses the impact of the crisis on the Japanese power rental market.<br />“Short-term development” refers to the immediate developments following the earthquake within a horizon of a year, while “long-term development” refers to a forecast period of 2013-2015.<br />
  3. Importance of Nuclear Power in Japan <br />Japan’s ‘Energy Policy’ aimed at making nuclear power contribute up to 50.0% of total power requirements by 2030<br />Source : Electricity Review Japan - Federation of Electric Power companies, Japan <br />
  4. Nuclear Power - Drivers and Restraints<br /><ul><li>Governments relooking at energy policies and reconsidering nuclear power investments
  5. Stringent policies/extensive redundant safety features likely to make nuclear power costly
  6. Financing for nuclear ventures anticipated to become difficult
  7. Nuclear power technology expected to grow due to increasing investments to make this technology safer
  8. Nuclear safety-related industries likely to witness enhanced demand</li></ul>Drivers<br />Restraints<br />Demand restraints are likely to have a more pronounced impact in the short-term. Safe nuclear power is a key demand driver for technology investments.<br />Nuclear power is most likely to face stunted growth than expected prior to the earthquake.<br />
  9. Snapshot - Nuclear Power Developments <br /><ul><li>Countries reassessing nuclear safety measures
  10. Decommissioning and safety-related activities
  11. Fall in stock value of nuclear / nuclear related companies
  12. Uncertainty over nuclear demand
  13. Effects on overseas projects by Japanese nuclear technology providers
  14. Careful considerations for nuclear power development
  15. Regulatory regimes to be made more stringent
  16. Development in other industries for safe nuclear operations
  17. Resurgence of nuclear power
  18. Rise in costs of nuclear power</li></ul>GLOBAL<br /><ul><li>‘Energy Policy’ review
  19. New nuclear plans shelved
  20. Possibility of nationalization of TEPCO.
  21. Huge revenues from decommissioning
  22. Credibility of Japanese nuclear reactor builders affected
  23. Japanese nuclear reactor makers and nuclear related industries could lose sales
  24. Surge in nuclear safety constructions and construction of back up power facilities</li></ul>DOMESTIC<br />Short-term <br />Long-term<br />
  25. Oil Market – Drivers and Restraints<br /><ul><li>Economic slowdown leading to minimum activity in industrial/transport sectors is likely to reduce the oil demand
  26. Shutdown of large refining capacities leading to lesser crude oil consumption
  27. Large-scale usage of LNG lessens oil demand
  28. Crude/Fuel oil consumption likely to increase as utilities operate oil-fired plants to tackle power shortages
  29. Crude oil consumption set to rise as the nation rebuilds its power infrastructure</li></ul>Demand Drivers<br />Demand Restraints<br />Short-term impact of drivers and restraints is more pronounced than that in the long-term because of the reduction in refining capacity rather than the drive for additional power.<br />
  30. Snapshot – Oil Energy Sector Developments <br /><ul><li>Volatility in oil exports from the Middle East
  31. Global increase of refinery utilization rates and margins
  32. Dampened effects on oil prices
  33. Likely status quo in terms of oil’s importance to energy mix</li></ul>GLOBAL<br /><ul><li>Increase of oil-generated power
  34. Increase of crude oil and oil product imports
  35. Rethink on scaling down of refining capacity
  36. Resumption to current situation in terms of power plants/refining capacities
  37. Possible increase in backup refining capacity/number of oil-fired power plants</li></ul>DOMESTIC<br />Short-term <br />Long-term<br />
  38. LNG – Drivers and Restraints<br /><ul><li>Decline of economic activity following the natural disaster leading to lesser power requirements
  39. Transportation infrastructure for LNG not yet developed; has to be transferred only through tankers
  40. Most of the facilities that were shutdown because of the earthquake were oil-fired while only one LNG fired plant was shutdown.
  41. LNG import terminal survived the earthquake. Hence, it was the ideal and cleaner alternative.
  42. Easy availability of LNG</li></ul>Demand Drivers<br />Demand Restraints<br />As a replacement to nuclear power, LNG has been largely preferred over oil and coal. This is expected to set a precedent for the long-term requirements as well.<br />
  43. Snapshot- LNG Market Developments <br /><ul><li>Japanese utilities increasingly shifting to LNG
  44. Rise in LNG imports
  45. Japan buying Pricey Spot cargoes of LNG
  46. Short-term LNG power solutions
  47. LNG projects in emerging countries such as Russia, China, and India poised for growth
  48. Expansion in support infrastructure of the LNG supply chain – liquefaction and regasification</li></ul>GLOBAL<br /><ul><li>Tightening of Asia Pacific basin
  49. LNG exporters benefit due to increase in demand
  50. LNG supplies are diverted to Japan
  51. LNG logistics experiencing a sharp increase in prices and supply
  52. Acceleration of gas projects
  53. Efforts will be taken to ensure high efficiency of gas turbines
  54. Development of LNG transmission network to reduce LNG costs
  55. Utility companies likely to intensely scout for overseas LNG projects</li></ul>DOMESTIC<br />Short-term <br />Long-term<br />
  56. <ul><li>Longer development time in terms of technology development and installation
  57. It is more of a long-term plan than a short-term plan.
  58. In the aftermath of nuclear power crisis, renewable energy has become highly relevant with its very less emissions and low safety concerns.
  59. Increasing cost of nuclear power could make RE more comparable in terms of price.</li></ul>Demand Drivers<br />Demand Restraints<br />Long-term impact is likely to be very high, as RE is more of a long-term energy source. Its advantage as a cleaner source of energy is a key demand driver.<br />Renewable Energy – Drivers and Restraints<br />
  60. Snapshot – Renewable Energy Developments <br /><ul><li>Government policy shift
  61. Alternative energy stocks surge
  62. Diversification by power systems businesses
  63. Renewable power likely to cost less
  64. Large-scale R&D in renewable power support infrastructure
  65. Acceleration of smart grid system implementation
  66. Possibility of achieving grid parity with RE sources</li></ul>GLOBAL<br /><ul><li>Supply chain of major solar power equipment firms disrupted
  67. Major rethink on Japan’s renewable energy policies
  68. Feed-in-tariff legislation for renewable sources is receiving more mileage
  69. Japan’s vision of 20.0% renewable power generation capacity by 2020 likely to gain fruition
  70. Widespread adoption of solar and other RE sources </li></ul>DOMESTIC<br />Short-term <br />Long-term<br />
  71. Impact on Energy Markets<br />Energy Market: Impact of the Earthquake in Key Energy Sectors (Japan), 2011-2015<br />Impact of Japanese Earthquake<br />Source: Frost & Sullivan<br /> Key: Very High High Medium Low No Impact<br />Impact of the Japanese earthquake and nuclear crisis is expected to be very high in the renewable energy (RE) and nuclear power sectors. The impact on the LNG sector would be higher than that on the oil sector, as LNG is a cleaner fuel of the two and is expected to replace nuclear both in the short- and long-terms.<br />
  72. Power Rental Market Overview <br />Power Rental Market: Revenue Forecast (Japan), 2005-2015<br />Pre-crisis Forecast<br />CAGR: 2.5%<br />Note: All figures are rounded; the base year is 2008. Source: Frost & Sullivan<br />
  73. Revenue Forecasts – Post-Fukushima Crisis <br />The power rental market in Japan witnessed a steep hike in 2011, and it is likely to remain high during the forecast period because of the following reasons:<br /><ul><li>The revamp in disaster recovery plans by companies including power rental firms that have witnessed a need to improve their emergency responses
  74. Large-scale investments in reconstruction efforts during the forecast period
  75. Hampered transmission and distribution networks before complete rebuilding occurs
  76. Entry of multinational companies in the power rental market.
  77. Increase of rental revenues due to the heightened demand
  78. Capital expenditure likely to be deferred, as firms are yet to fully recover from the disaster</li></ul>Post crisis, the power rental market is expected to generate a revenue of US$99.4 million in 2011 and reach about US$287.5 million in 2015.<br />
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  80. For Additional Information<br />Donna Jeremiah<br />Corporate Communications<br />Asia Pacific<br />+603 6204 5832<br />djeremiah@frost.com<br />Carrie Low<br />Corporate Communications<br />Asia Pacific<br />+603 6204 5910<br />carrie.low@frost.com<br />Ravi Krishnaswamy<br />Vice President<br />Energy & Power Systems<br />+65 6890 0999<br />apacfrost@frost.com<br />Jessie Loh<br />Corporate Communications<br />Asia Pacific<br />+65 6890 0942<br />jessie.loh@frost.com<br />

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