Are you sure?

Anti-nuclear mood set to be boon for gas

Countries around the world gave mixed responses to the Japanese disaster, depending on the extent to which they rely on nuclear energy. With stress tests in the EU and widespread protests against nuclear, it is already clear that the biggest nuclear incident of the last 25 years could have a profound effect on energy markets.

Germany, itself situated in a region of Europe prone to be hit by earthquakes, gave the most drastic response, instantly shutting down eight of its nuclear plants. It has since been revealed that the country does not plan to reactivate them. In fact, a senior official said Germany will completely phase out nuclear power by 2020.

Other countries have not taken such serious steps, but predictions about the prominent role of atomic power in the global energy mix are likely to be revised. According to ExxonMobil’s Global Energy Outlook released earlier in the year, nuclear capacity is set to increase 70% by 2030.

End of the renaissance

But these projections were made when, as deputy state secretary in charge of climate affairs Péter Olajos put it, “nuclear energy was having a renaissance, mainly because of its good track record.” As such, countries wanting to have more energy generated by nuclear plants will have to consider another factor: the rise in costs.

One factor, albeit of less importance, is scarcity if a bigger number of countries were to follow the German example and shut down plants or scrap construction plans. The other is that construction will be more expensive as safety requirements will necessitate additional safeguards in the facilities’ designs.

“We are always moving from catastrophe to catastrophe, where we learn of additional things that could go wrong and we have to prevent in the future. There are now also worries that if something like this could happen in Japan, which is generally known for its advanced technology, then imagine what could happen in countries that are not as developed,” Olajos said.

The most obvious answer to the resulting supply gap is the increasing demand for gas. “Renewables are insufficient to instantly make up for the gap, while coalbased production depends on the CO2 cost. Gas is the only viable quick choice,” according to László Koncz, CEO of Budapest gas utility FŐGÁZ.

Need more gas

Accordingly, gas consumption is predicted to rise. Not that it needed that much of a push, with ExxonMobil predicting that gas demand will have risen by 85% between 2005 and 2030. Gas is still available in plenty, especially with the rapid development of non-conventional drilling technologies, which has already allowed the United States to fully supply its domestic demand.

This, of course, carries serious political implications for Europe, as the EU has continued efforts to reduce its dependence on Russian gas. The same applies for Hungary, which like several of its neighbors in CEE is looking towards nuclear as the best alternative to gas and to cope with rising power demand in the country. There are currently plans to build 14 new reactors in Hungary, the Czech Republic, Lithuania, Bulgaria, Slovakia and Romania with an aggregate capacity of 21.5 GW, which – when realized – would double the overall power output of these countries.

But political aspects aside, gas is also set to emerge as the fuel most in demand because unlike the other most common alternative, coal, it comes with low harmful emissions. As Olajos agreed, this is indeed an acute question of climate policy. And due to the limits involved in the use of coal, such as environmental and quantity considerations, these changes are likely to raise electricity prices, KBC Securities expert Olena Kyrylenko noted.

Business opportunities

From the perspective of commerce, there will be beneficiaries, apart from gas producers of course. As Olajos pointed out, countries that will have to rely on polluting technologies to cover a bigger share of their energy needs will have to do so by buying carbon quotas. “This is a business opportunity for us,” he said.

Furthermore, although renewables will not begin an overnight conquest, they are sure to receive a boost. Accordingly, alternative energy companies like E-Star or PannErgy are set to enjoy better positions, but regional energy majors like MOL or CEZ could also benefit if they successfully adapt to the changing energy market, Kyrylenko said. However, if energy prices soar to such heights that it has the crippling effect on economic growth, as some worst-case scenarios predict, the story will be very different.