India to bear the brunt of Japan's Nuclear No-Go

The Japanese government has unveiled a plan to shutter all nuclear plants by 2030. The decision is a major policy shift for the resource-starved country that depended on nuclear power for a third of its energy till recently. It also has severe repercussions for India.

In the absence of nuclear power since the meltdown at the Fukushima-Daiichi plant, Japan is soaking up LNG (liquefied natural gas) from the global markets, driving up prices in the Asia. Imported gas is becoming unaffordable for customers in India. GAIL and its partners have spent the past year trying really hard to sell gas that they’ve contracted from Chevron’s Gorgon field in Australia. The gas, to be delivered at Petronet LNG’s terminal at Kochi by the end of the year, was expected to ease energy shortages in southern India. But with the asking price at about $16/ mmbtu (million metric british thermal units), they are yet to sign up a single customer.

Similarly, though there was much joy at the BPCL-Videocon-Anadarko consortium's gas find at Mozambique in east Africa, it now turns out that we may not be able to afford the gas. The consortium is currently busy hawking the gas at global capitals for about $14/mmbtu. At this price it is more likely to find customers in Japan.

Part of the problem is the poor health of state electricity boards. If NTPC’s Kayamkulam plant, a natural customer for the gas expected at Kochi, were to buy LNG at GAIL's price, they’d have to charge upwards of Rs 15 per unit of power produced. Cash strapped SEBs are unwilling to buy power at this price. GAIL had closed the long-term contract to buy gas from the Australians after haggling about the price for more than three years. The Indian firm competes with the large Japanese buyers - usually trading firms Mitsui, Mitsubishi and Japex, all over the world. The trading firms have been signing up contracts from gas producers at much higher prices- over $17/mmbtu.

The obvious solution would be to import gas from the United States, which is dealing with problems of plenty, after the huge success with shale gas. Gas prices at the Henry hub in Louisiana fell to $2/mmbtu earlier this year, as producers ran out of storage for the gas. GAIL and other Indian companies are indeed, making a beeline for the US for gas. Producers like the Texas-based Cheniere energy, are building LNG export terminals to export US gas to energy-starved markets in Asia. But nothing can change the fact that the USA is 12,500 kms away from India. So even at $2/mmbtu, the landed price (with liquefaction, transportation and re-gassification) is unlikely to be lower than $9/mmbtu.

The Japanese phase out strengthens the anti-nuclear lobby within India, and is bound to slow down new capacity addition. Over the next few years, India’s energy demand is expected to grow at a rate double that of the GDP. If the bottlenecks on coal production continue, reliance on other conventional fuel (oil and gas) can only increase. Fuel will have to be found from various sources- whether it is piped gas from Central Asia or more oil from Saudi Arabia. The central issue will of course, be the landed price.

Some reports say Japan’s decision to eschew nuclear power may not be cast in stone. The country is heading for elections, and the short-term imperatives of Prime minister Noda’s Democratic Party of Japan are to go with the anti-nuclear sentiment of the public. A change in government may turn the tide again. But whatever the final direction, Japan’s turning away from nuclear power bodes ill for India.

The thoughts and opinions shared here are of the author.