Japan's Decisions Have Left it with Very Little Options for the Future

After the Fukushima nuclear meltdown, Japan shuttered all of its nuclear power plants. Although there have been calls to restart at least some of them, there are no immediate plans for any of the 48 nuclear powered electric plants to come back online. So, with a nuclear freeze still in effect, Japan's power companies are set to build 11,000 megawatts of new coal and natural gas plants.

Nothing to burn
Godzilla movies aside, nuclear power was an almost perfect fit for Japan. The country is the fifth largest economy in the world, so despite being a tiny island with few if any resources, it needs a lot of power. Nuclear provided a fairly cost effective balance between energy and pollution. But it's easy to understand the country's fear after Fukushima.

Without nuclear, however, Japan has had to shift to fossil fuels, virtually all of which have to be imported. According to Toshikazu Okuya, an official in the Japanese Ministry of Economy, Trade, and Industry, electricity bills have gone up 20% since the nuclear shut down. "The increased cost of importing fuels has had a big, negative impact on our balance of trade," Okuya recently told NPR.

Good news for some
That's bad news for Japan, but good news for companies that can provide the fuel the country so desperately needs. For example, Peabody Energy (NYSE: BTU  ) , BHP Billiton (NYSE: BHP  ) , and Rio Tinto (NYSE: RIO  ) all have thermal coal mining operations in nearby Australia. While the big stories in Asia are still China and India, increasing demand from Japan is a nice support for what has been an oversupplied market.

(Source: CIA)

Peabody Energy CEO Gregory Boyce specifically highlighted Japan as a positive last year, noting that, "Japanese coal use increased every month in 2013 over the prior year and new coal generation was added to replace the nuclear capacity." And even more is on the way, with reports of at least four more coal plants on the drawing board.

Peabody will likely see the most benefit from increased Japanese thermal coal consumption, since Rio Tinto and BHP Billiton are both broadly diversified miners. Iron ore and steel making coal are much more important to their top and bottom lines. That said, any extra demand for thermal is good news for this trio.

Back in the U.S.A.
U.S.-based coal miners are salivating at the Japanese opportunity, too. Cloud Peak Energy (NYSE: CLD  ) has even gone so far as to send test coal to the country. According to CEO Colin Marshall, the test runs went well. But because the company has limited export capacity, there's no contracts on tap to get excited about.

Like many of the U.S. coal miners, Cloud Peak Energy is waiting on new ports to be built before it can ramp up its export efforts. And it isn't going all that well over on the West Coast, which is closest to Asia and the relatively cheap Powder River Basin coal region. For example, Arch Coal (NYSE: ACI  ) recently got news that the state of Washington is taking a hard line in its review of the Millennium Bulk Terminal that the company is backing. If the terminal doesn't get built it would definitely put a crimp in Arch Coal's export plans.

That said, U.S. coal is being exported from existing ports, so at least Arch Coal, Cloud Peak Energy, and Peabody Energy can participate in Asia's coal demand to some degree. The export of natural gas, which will see at least three new Japanese power plants if construction plans hold up, is severely restricted. Although new liquified natural gas facilities are getting approved, most are years away from completion. That, despite the huge price disparity between U.S. gas and, well, the rest of the world.

Japan's energy picture isn't a pretty one. However, for suppliers like Peabody, BHP, and RIO, that just means that Japan is an increasingly important customer for thermal coal. U.S. coal miners like Cloud Peak are, literally, chomping at the bit to get involved. If new U.S. ports get approved, expect Cloud Peak and others to jump on board as quickly as possible.

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