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

With its nuclear fleet still mothballed, Japan is getting set to build new power plants of the fossil fuel variety.

Apr 8, 2014 at 10:34AM

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.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers