Energy Crisis Hammers Japan // South Korea: Bullish on Nuclear // Germany Closes Its Last Wind Turbine Factory

Energy Crisis Hammers Japan

Japan, the world's third-largest economy, is struggling to navigate the three crashing waves: the consequences of the Ukraine war, a heatwave, and a weakening currency.

Energy already posed a serious problem for the country, which relies on imported oil and gas for 90% of its energy needs. The Ukraine war and the global tightening of energy supplies it exacerbated have only made matters worse. "[A]s the yen fell to the lowest in 20 years," Oilprice.com reports, "Japan's bill became even bigger, with the price rise in crude oil, which has been some 40 percent in dollar terms since the start of 2022, reaching a whopping 70 percent in yen terms."

Jane Nakano, a senior fellow at the Center for Strategic & International Studies, said, “A confluence of factors, including the higher fuel prices since the war and the tumbling currency, is putting a significant pressure on Japan's energy security, making this one of the most serious energy crises Japan has had."

According to the head of one of Japan's Mitsui OSK Lines, one of the largest shipping companies in Asia, the country has no choice but to keep purchasing Russian LNG.

"We cannot use many nuclear power stations therefore the supply and demand balance of the power industry is quite tight," Takeshi Hashimoto said earlier this month. "Nowadays, the spot market of both LNG and coal is quite expensive. That is one of the reasons why Japan is so reluctant to stop the LNG imports from Russia."

Then there's the heatwave. "Supplies are being strained even more by an unseasonably hot summer, with temperature in the capital nearing 37 degrees Celsius (99 Fahrenheit) last week, compared with a 30-year average of 22.5 Celsius," reports Bloomberg. The government has taken to asking citizens to conserve power.

A weak yen and pricey fuel have pushed Japan's trade balance sheet into the red with imports climbing 50% since last year.

Some are looking to renewable energy for a fix. "Japan’s first two large-scale offshore wind farms, under construction by Marubeni Corp., are scheduled to come online this year, and a change to bidding rules could speed up new projects," Bloomberg reports. Adding more renewables will fragilize Japan's already harried grid.

But the debate over nuclear energy has come back into the public arena due to the crisis--a surprising turn of events given the nation's response to the 2011 Fukushima accident. Bloomberg reports, "The government may seek ways to restart idled atomic plants, according to Noriaki Oba, President of Post-oil Strategy Institute in Tokyo."

“There could be a big impact to the country's policies following the upper house elections,” Oba said. “Public calls for restarting reactors are getting stronger.”

South Korea: Bullish on Nuclear

Atomic optimism overfloweth in Seoul. "South Korea will build four more nuclear reactors by 2030, and extend the life of 10 older units, as the new government backs atomic power as a key tool to zero out emissions," Bloomberg reports.

Nuclear will provide over 30% of the SK's electricity generation by 2030, up from last year's 27.4%, according to the energy ministry.

While the ministry didn't spell out targets for the rest of the country's energy mix, it appears that the government is turning away from renewables.

“The fact that the new government is saying renewable energy will be adjusted at a ‘reasonable level’ basically means it will be lowering the renewable electricity target,” Jang Daul, a government relations and advocacy specialist at Greenpeace East Asia based in Seoul, said.

The government also plans to grow its strategic reserves of oil and LNG to bolster price stability, according to a statement issued on Tuesday. "Crude stockpiles will increase to more than 100 million barrels by 2025, from 96.5 million barrels currently, while LNG reserves will rise to 18.4 million kiloliters by 2034 from 13.7 million, according to the statement," writes Bloomberg.

Additionally, Seoul wants to shrink its dependence on the Middle East for fuel by diversifying imports and pushing for more "direct LNG imports by private companies, according to the ministry."

Germany Closes Its Last Wind Turbine Factory

Nordex, a German turbine blade manufacturer, closed its factory in Rostock. The closure was announced earlier this year, but now 600 Germans will find themselves without a job in the middle of an economic crisis.

The company claims that 50% drop in the cost of generating energy from wind over the last five years has negatively impacted its profitability.

"Despite all the cost-cutting measures already initiated," reports Renewable Energy Industry, "the cost of blade production in Rostock is not competitive, according to the wind turbine manufacturer." Nordex expects demand for the large blades that Rostock facility produced to fall anyway as the world trends toward even longer rotor blades.

Rostock was the last of the rotor blade manufacturing facilities in the country, according to NDR. This fits into a disturbing trend as China slowly replaces German industry. Merkel's legacy seems like it will amount to little more than surrendering energy sovereignty and industrial prowess over to Russia and China, respectively.

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Conversation Starters

• ChinaGas just signed a deal with America's NextDecade LNG developer for 1 million metric tonnes of gas per year from its Rio Grande facility in Texas. The deal is for 20 years and begins in 2026.

• JP Morgan's analysts warn of a "stratospheric" $380/barrel oil in a recent report. The analysts looked into what it would look like if Russia slashed production by 3-5 million barrels a day. "A 3 million-barrel cut to daily supplies would push benchmark London crude prices to $190, while the worst-case scenario of 5 million could mean “stratospheric” $380 crude, the analysts wrote."

• Shippers that are willing to move Russian crude are making a killing. "Shippers can earn around $1.6 million hauling Russian ESPO oil on a small tanker from the eastern port of Kozmino to China, said shipbrokers. That’s around triple the amount prior to the invasion of Ukraine," reports Bloomberg.

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