Good News for LNG Customers – Unit 7 of Kashiwazaki-Kariwa Should Start Up Soon

One of the biggest contributors to the market price of Liquified Natural Gas (LNG) during the past two years has been a significant increase in purchases from Japan. A major reason for those purchases was the long term shutdown of Kashiwazaki-Kariwa after an earthquake. That facility, home to 7 nuclear power plants, is the largest single power generation site in the world; replacing its power output with plants burning natural gas has made a significant impact on the world’s consumption of LNG since Japan has little indigenous fuel. The total power generating capacity lost due to the earthquake was 8.2 GW.

Finally, after nearly two years, Tokyo Electric Power has received permission from the governor of Japan’s Niigata prefecture to begin trial operation of the newest of the seven reactors at the site.

Here is a quote from a Reuters update on the situation:

Operating the No.7 reactor could reduce Tepco’s annual fuel purchases by more than 70 billion yen ($713 million) and cut carbon dioxide emissions by 5 million tonnes, according to company and Reuters calculations.

It could also cut use of annual crude oil equivalent by 1.87 million kilolitres (32,000 barrels per day).

Imagine the impact that finishing the repairs on the rest of the plants will have on the spot market prices for the fuels that have been used to replace 8.2 GW of nuclear plant generating capacity if restoring just 1.3 GW saves the plant owner $700 million!

In case your imagination needs numbers here are a few that you might want to consider. Full restoration of 8.2 GW reduces the demand for fossil fuel for replacement power by about 200,000 barrels of oil per day equivalent. For this situation, about 40% has been in the form of LNG and about 60% has been low sulfur fuel oil burned in facilities that are generally held in reserve.

According to Impacts on International Energy Market of Unplanned Shutdown of Kashiwazaki-Kariwa Nuclear Power Station the the increase in fossil fuel consumption in Japan attributable to the nuclear plant shutdown caused by the summer 2007 earthquake has been somewhere between 7.5 and 8.5 million kiloliters per year of low sulfur fuel oil AND 3.3 to 3.9 million tons of LNG.

It should be noted that the earthquake did little physical damage to the plants. It mainly broke some instruments and required careful inspection and engineering analysis of complex piping systems.