March 17th, 2011
03:41 PM GMT
(CNN) - Within hours of the Japanese earthquake, natural gas price futures for summer delivery started to rise. Within three trading days, Barclays reports that UK natural gas prices have shot up more than 13%. It's only a matter of time before the suppliers pass that rise onto customers.
Why should this happen?
Simply put by Tom Wallin of Energy Intelligence: "This is a game changer on a number of levels for nuclear and secondarily for gas and oil too."
Here's why. Japan had counted on nuclear power for 30% of its electricity generation. While much of that has not been knocked out, in the short term Japan will have to find a way to replace the lost energy. It's already the world's biggest importer of liquefied natural gas (LNG) and of coal. It's also the world's third-largest importer of oil.
Shell for one says it already re-routed some LNG to Japan. The theory is prices will have to rise and more LNG heads to Asia and less to Europe.
Coal prices are also up strongly in just a few days, even though "it can take some three to five years to build a coal-fired power plant," according to Hayden Atkins of Macquarie Securities. "I think in a country like Japan where they now have to think about a change in the generation mix, it's not clear where coal is going to fit in from that perspective."
Interestingly fuel prices, especially natural gas, tend to follow oil prices. But oil fell immediately after the earthquake for several reasons: Japan lost a number of refineries, and factories that are damaged or destroyed won't need the amount that would normally be imported; the economy will slow and demand in the medium term will shrink.
Of course it's not just the plight in Japan. China and Germany have already pulled back on existing or planned nuclear power plants. If energy demand in these countries continues apace (ie: Japan does not lead to a global recession) then other fuels will need to be sourced and shipped immediately. Many are betting on coal. Barclays says that means CO2 emissions will rise strongly in Europe this spring, making it harder for countries to meet targets and adding pressure to Europe's troubled emissions trading scheme. "The events of the past few days have fundamentally shifted the outlook for European energy and carbon markets," Barclays warns.
It may be politically palatable to pour scorn on nuclear. But how will countries meet their emissions targets for 2020?
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