Japan Kick Starts its Nuclear Program

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Japan Kick Starts its Nuclear Program

For the first time in four decades, Japan is facing summer without nuclear power . . .  but it appears that may not last much longer.

You see, Japan’s nuclear power industry is finally getting back on its feet after the March 2011 Fukushima disaster.

On July 16, Japan’s Nuclear Regulation Authority announced that safety clearance was granted to two 890-megawatt nuclear reactors in Kagoshima, Japan.

The reactors are owned by Japanese utility, Kyushu Electric Power ADR (KYSEY), and they passed Japan’s strict, post-Fukushima standards for safety to operate.

The start-up will begin after final approval by the local community is given sometime this autumn . . .  And that’s really just the beginning. Overall, Japanese utilities have submitted requests for safety certification on 19 reactors.

Thirsting for Energy

The revival of Japan’s nuclear power industry shouldn’t come as a surprise to our faithful readers.

In a February article about the uranium rebound, I cited Japans’ re-emerging nuclear reactors as an important factor. And back in March, our Chief Resource Analyst, Karim Rahemtulla, forecasted the change.

You see, prior to Fukushima, nuclear power accounted for 30% of Japan’s electricity generation.

Since then, Japan has struggled to find replacement fuels (such as liquefied natural gas) for power generation. Expensive, imported fuels drove up the price of electricity – while worsening the country’s trade balance – and Japan’s trade deficit hit a record 23 months in a row.

On top of that, Japanese electricity prices are up about 17%, and last year, they were more than double the U.S. rate for electricity. It’s no wonder that Prime Minister Shinzo Abe is desperate to fix the situation as soon as possible.

Nuclear Fallout

The interesting investment story here is the effect that Japan’s nuclear power restart will have on both uranium and LNG.

First of all, the effect on LNG prices in northern Asia is expected to be limited.

After all, only two reactors will be starting up this year, and Kyushu Electric’s LNG purchases are forecasted to drop this fall by only 500,000 metric tons. That’s the equivalent of 10 cargoes.

But the positive price action will likely be seen in the uranium market, which needs all of the help it can get. Prices are at a nine-year low, falling 60% since the Fukushima disaster. They hit a low on May 19 at $28 per pound, the lowest since May 2005.

Prices are still hovering there, down 18% this year alone. The lack of demand since Fukushima has led to a surplus of 10 million pounds this year, putting a further damper on the price.

Luckily, as Japan fires up its reactors, the downward price spiral should come to an end. Plus, there’s good news on the supply side: Kazakhstan, the world’s largest producer of uranium, says it will halt all projects aimed at increasing output of uranium.

With more demand and stabilized supply, higher prices for uranium should be dead ahead.

And “the chase” continues,

Tim Maverick

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