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Japan: an industry saviour?

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World Coal,

Anthony Fensom, Australia Correspondent, World Coal.

Japan’s position as the world’s second-largest coal importer and fourth-largest consumer has been reinforced, following its post-Fukushima nuclear shutdown. In April 2014, the nation’s Strategic Energy Plan recognised coal as “an important baseload power supply because it involves the lowest geopolitical risk and has the lowest price per unit of heat energy among fossil fuels.”

The revised government plan also promoted “reducing the environmental load” through the use of highly efficient coal thermal power generation technology, including the replacement of aging plants.

Coal remains the cheapest fuel to burn in Japan, with high prices of oil and LNG helping total coal imports to increase from 204 million t in 2012 to 211 million t in 2013. However, imports dropped by 1.7% in 2014 to 188 million t and thermal coal demand could fall further in 2015, due to plans to restart shuttered nuclear plants.

In its fiscal 2015 outlook report, the Institute of Energy Economics Japan (IEEJ) said as few as two or as many as 32 nuclear plants could resume operations, with the latter case resulting in LNG imports potentially falling to their pre-Fukushima level.

In February, Reuters reported government plans to restart at least two nuclear plants operated by Kyushu Electric Power Co. with June targeted for the first restart. All 48 of the nation’s nuclear plants were closed for safety checks following the 2011 Fukushima disaster, but according to Japan’s Nuclear Regulation Authority, 18 plants have been eyed for potential restart.

Tokyo has been keen to flick the nuclear switch back on, after a record trade deficit blowout due to increased imports of fossil fuels, costing US$270 billion extra over three years and resulting in an estimated 20% hike in electricity prices for households and a 30% rise for industry.

Nuclear power represented 27% of Japan’s net generation in 2010, with natural gas and coal accounting for 30% and 24%, respectively. However, following the nuclear shutdown, coal’s portion increased to 30% and gas to 43%, with fossil fuels growing to represent 86% of electricity generation in 2013.

Almost 4 GW of extra coal capacity came online in 2013, increasing the share of coal-fired generation, with a number of new natural gas and coal-fired power plants proposed. Utilities including Osaka Gas, Kansai Electric Power and Tokyo Electric Power Co. (TEPCO) have announced plans to build new coal-fired power plants, taking advantage of the global supply glut ahead of the full liberalisation of the nation’s power and gas market.

According to Shinichi Kihara of Japan’s Ministry of Energy, Trade and Industry (METI), Japan has achieved “the highest level of efficiency in the world” for coal thermal power generation and it is keen to export technology such as that used at J-POWER’s Isogo thermal power plant in Yokohama.

“If the most advanced technology in operation in Japan is applied to coal thermal power generation in the US, China and India, CO2 emissions could be reduced by about 1.5 billion t,” exceeding Japan’s annual emissions of 1.3 billion t, Kihara explained.

Japan has promoted the 600 MW ultra-supercritical Isogo plant as the pin-up for its export push, arguing that more efficient coal-fired power is key to curbing emissions in developing economies.

A turning point was marked in December 2014, with the decision by trading house Mitsui & Co. to make its first coal investment in 10 years: a US$763 million investment in a Mozambique mine operated by Vale, following other new investments by Idemitsu in Indonesia and JOGMEC in Australia.

Just months earlier, Marubeni had reportedly eyed selling a stake in a Canadian coal mine for only a dollar; however, the surge in acquisitions has signalled better times ahead. Idemitsu has forecast a 30% rise in thermal coal imports by 2020, including not only from Australia, but also from countries such as Indonesia.

“Japanese customers are gradually changing. They used to buy only the highest grade Australian coal. Now, some want less costly sub-bituminous coal [mainly produced in Indonesia]," Idemitsu’s Toshihiko Shagema told Dow Jones Newswires.

Looking ahead, the IEEJ said coal in the fiscal year to March 2015 would decline by 2.4% from the previous year for the first drop in three years, with the operating rate of coal-fired power plants declining due to “an unscheduled suspension of some plants.”

However, in fiscal 2015, the coal market is expected to increase by 0.4%, due to higher industrial coal consumption amid a recovery in steel and other industrial production, despite some coal-fired power generation plants remaining suspended.

Written by Anthony Fensom. Edited by . This article first appeared as part of a report on East Asian coal demand in World Coal Asia 2015. 

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