Events in Japan decide nuclear option’s future

SINCE the impact of the earthquake that hit Japan last week, and the devastating effects of the tsunami that followed in its wake, the Japanese central bank has been throwing yen by the trillions into the economy to try and mitigate the disaster’s effects. At the same time, the government has taken a similar interventionist approach to the country’s oil reserves.

According to Banri Kaieda, Japan’s de facto energy minister, the Japanese government has reached the decision to allow the release of three days’ worth of consumption from the country’s strategic petroleum reserves. These are held by the private sector to ease oil supply shortages.

The Dow Jones Japan electricity and the oil and gas total stock market indices, which have seen a -11.5 per cent and -8.69 per cent shift respectively on the US dollar price return since the earthquake hit, will have investors waiting in the wings. However, with the government already having demonstrated its intention to intervene heavily, those ready to speculate in the sector may be kept at bay.

In the long term, the future of the nuclear fuel industry will hinge on that of the nuclear reactor of Tokyo Electric Power Company’s (TEPCO) Fukushima Daiichi reactor.

Ankit Jain, equity research analyst at Standard and Poor’s, views the likely outcome of events as being higher regulation of the industry, pushing governments further towards a focus on sustainable energy: “Safety concerns alone may prompt governments to explore other power sources. Near term, we expect fossil fuels to be the key energy beneficiary of the events in Japan. However, on sustainability grounds, we believe the ultimate winner will be renewables.”

David Morrison, market strategist at GFT, does not see the outcome as being so definite: “There has been a reticence in developed nations to ramp up their nuclear fuel producing capacity, however there has been a steady move amongst the developing BRIC nations, especially India and China, to expand their energy base, decreasing their reliance on fossil fuels in favour of nuclear energy.” As a result of this, as you can see from the graph below, Cameco, Paladin and Uranium One, which together produce around 20 per cent of the world’s uranium, have seen healthy growth.

Although he says that TEPCO’s second reactor could be to nuclear energy what the BP oil disaster was to deep sea drilling, ironically, he predicts that BP, along with other oil companies, could be a big winner as part of Japan’s need for oil in its rebuilding operation over the coming months.