Friday, March 11, 2011

Japanese Tsunami

There was an 8.9 magnitude earthquake and devastating tsumani in Japan overnight.  This video is from al-Jazeera and has just incredible footage of the disaster (not for the faint of heart - I found it quite upsetting to watch).  The loss of life must be staggering, and many people will have had their lives turned upside down.

I imagine the economic damage to Japan will be significant too, but it will take a while until the situation becomes clear.


Stuart Staniford said...

The New York Times Lede blog has a bunch more video. What a nightmare.

Robert said...

I have lived at sea level for more than 40 years. Thus must take this situation (and climate change) seriously. Am not worried at the moment. We are prepared but it is highly unlikely that we will need to evacuate.

Justin said...

Alexander Kinmont, an analyst based in Tokyo, put out a very famous article in 2002 entitled 'The Irrelevance of Japan'. While we all personally feel for Japan at this moment, the markets are certainly signing up for the 'irrelevance' view if you look at their reaction. I think they are wrong for a couple of reasons.

1. This is not good for oil.

BP Stat Review has Japan's oil consumption at 4.4m bpd in 09, down from around 5.5m bpd a few years ago. Part of this is energy efficiency and the moribund economy but part of it is also due to the recovery of nuclear capacity after a series of accidents. We now have a serious loss of coolant accident (LOCA) at one of their major sites in Fukushima and other sites that were in the front line have been shut down. Some of this capacity will not come back in a hurry.

Sendai is not a major industrial centre and
the affected nuclear plants were built in relatively sparsely populated areas (in a Japanese context) that have been hit by the tsunami so not much will be taken out on the demand side.

In short, the slack will be taken up by coal and oil. And while those pictures of the Chiba oil storage tanks going up in smoke are pretty scary, Japan has been plagued by overcapacity in each part of the oil distribution and refining chain for a couple of decades. So if they need to import more oil, they will be able to process it.

2. This could be the final straw for the fiscal deficit

Kobe in 95 produced a massive government expenditure response. I just cannot see how they will finance it this time around. Look at the Japanese Ministry of Finance's latest summary of Japan's Fiscal Condition:

Government revenue is half of expenditure, we are just moving into the worst demographic phase as the baby boomers retire and now we have a massive exogenous shock from the earthquake.

And they hold bucket loads of US treasuries! Japan is definitely not irrelevant! Be warned.

Big Gav said...

A few years ago there was an earthquake which disabled some Japanese nuclear capacity - at the time most reports talked about natural gas fired power filling the gap.

Does anyone have figures showing how their consumption profile changed during that period - did they go back to oil and coal or to gas instead ?

Justin said...

Yes, you can get the data at The Federation of Electric Power Companies of Japan site. It is running real slow at the moment. I guess lots of people accessing it. There is a good chart book here (go to 1-19):

You are right that natural gas has been a major swing factor, more so than oil. The question is whether the extent of nuclear outage will overwhelm the spare capacity in natural gas generation.

Justin said...

This chart gives you a bit more granularity and shows utility oil consumption swinging around quite a lot.

Justin said...

I checked and the last quake related nuclear stoppage was the Kashiwazaki Kariwa outage in July 07. That lines up perfectly with the 07/08 utility oil consumption jump in the chart in my comment above. Eyeballing the chart, looks like oil consumption for energy purposes doubled from around 1 million kl per month to 2 million kl per month and if my maths is right that translates into a little under 200,000 bpd of extra oil demand.

On this occasion, we have far more plants involved, but we probably have a little more natural gas capacity. Overall, looks like a material impact on the oil market.

Stuart Staniford said...

Justin - many thanks for the thoughtful perspective and links.

Justin said...

This must be one of the most stunning presentations of graphical and video information I have ever seen: