The crisis in Japan has raised serious questions about the safety of nuclear power. Countries around the globe such as Germany, the United States, and China are shutting their oldest nuclear plants or reconsidering their nuclear expansion strategies. Amid all this, natural gas appears to be emerging as the winner.
Natural Gas: world scenario
Natural gas, which primarily consists of methane, is the cleanest of all fossil fuels. It is available abundantly in Canada and the United States. Japan is currently the world's largest consumer of liquefied natural gas.
The largest producers of natural gas are the U.S. and Russia. A shift to a more gas-powered world would mean an expanded market for natural gas and long-term opportunities for these countries.
Although an energy-hungry world is finding it difficult to satiate its thirst, safety concerns are hampering the global nuclear revival. The Japanese crisis couldn't have come at a worse time. The global demand for energy is expected to more than double in the next decade. Considering this, we can expect a surge in natural gas consumption in the future.
To meet domestic energy demand, Japan, which is the largest consumer of natural gas, will have to raise its fuel and gas imports after nearly one-fifth of its nuclear power capacity had to be shut down after the quake and tsunami. Intermittent blackouts, expected to continue at least until the winter, are further complicating the matter.
Since the Japanese disaster, the markets have reacted to the increased interest in natural gas by pushing up the gas prices by 10% and sending prices of uranium, which is used in production of nuclear power, off 30%. Global natural gas production has risen by nearly 44% in the last two decades while gas reserves have grown by 67%. Prices have stabilized around $4.38 per thousand cubic feet last year after peaking to a high of $13.58 per thousand cubic feet in 2008.
Recent projects
Oil companies around the world have been expecting this shift to natural gas for some time now. For example, Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B) recently upped its natural gas production. The company's gas production has overtaken oil output in recent years. Last year, ExxonMobil (NYSE: XOM) bought XTO Energy to increase its presence in the shale gas market. Exxon has been developing resources in Qatar, which has significant reserves of natural gas.
Natural gas, though, has some downsides. Transporting the gas is not an easy task. To ship it abroad, exporters need to liquefy the gas at very low temperatures. The liquefied form is then transported to other countries in specially built ships. But transport is only a minor hurdle that these companies will have to cross in order to benefit from the expected increase in the world's demand for gas.
Exxon has led a $15 billion project in Papua New Guinea to develop an LNG plant. California's Chevron (NYSE: CVX) along with Shell and Exxon has also started a $40 billion gas project in Australia. Canadian gas producer Encana (NYSE: ECA) recently bought an LNG export terminal in British Columbia, and it aims to begin exporting by 2015. Cheniere Energy (NYSE: LNG) and its subsidiary Cheniere Energy Partners (AMEX: CQP) own and operate an LNG regasification terminal in Louisiana.
The bottom line
The Japanese crisis has profoundly affected energy-related strategies all around the world. In the U.S. and elsewhere, nuclear power development plans have faced opposition. Germany has imposed a three-month moratorium on the decision to extend the lifespan of its existing reactors. The Swiss government has also stalled plans of replacing the old nuclear reactors while new development plans have stopped in Turkey as well. With plants being shut down across the globe and coal slowly slipping off the feasible options, everyone is on the lookout for an alternative. The alternative is natural gas.
In the U.S., currently 104 nuclear reactors provide more than 23% of the nation's electricity. With most reactors struggling to get renewed licenses for operations and the prospects of setting up new plants being low, natural gas seems the way to go.
In the next few years, we can expect gas demand to significantly increase and new gas plants to be set up around the world. We will, in all probability, become a more gas-centric world.
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