(Robert Campbell is a Reuters market analyst. The views
expressed are his own)
By Robert Campbell
NEW YORK, March 30 The showdown between Iran and
the West over Tehran's nuclear program remains the overarching
risk facing oil markets but in the near term, nuclear power in
Japan may well become the short term focus for traders.
The near total shutdown of Japan's nuclear power industry
since last year's devastating earthquake and tsunami turned the
Japanese electricity sector into a surprise source of oil demand
growth in Asia last year.
Japanese utilities have turned to low sulfur fuel oil and
sweet crude oil as they scramble to meet power demand,
outbidding regional refiners for some crude grades.
Only one of the country's 54 reactors remains operational
and this plant is slated to shut down for a scheduled inspection
and maintenance in May.
If all reactors are closed this summer, peak oil consumption
by Japanese power generators this summer could reach 1 million
barrels per day, or four times the level posted in 2010,
according to J.P. Morgan oil analysts.
However, there is no guarantee that the entire industry will
remain shut down this summer. Three reactors have passed
first-stage stress tests, theoretically allowing them to be
But now, the question becomes political. Will the Japanese
government allow the restart of some reactors? And if so, how
quickly will they come on line? And will they start in time to
take up some of the burden of meeting peak power demand during
the hot summer?
The government is widely believed to be anxious to restart
the plants to avoid possible power shortages this summer and
reduce the oil bill, but is also under pressure to respect the
wishes of local communities.
Not surprisingly, many Japanese regional politicians are
reluctant to endorse reactor restarts without fresh safety
assurances, according to a Reuters poll of Japanese mayors and
The Japanese government's success or failure in its bid for
support for nuclear restarts over the next few weeks may well
set the tone for the summer given the time needed to restart
reactors, as well as utilities' need to assure themselves of
fuel supplies in time to meet demand.
EYES ON OHI
The key decisions may well come from the town of Ohi in
Fukui prefecture, where two reactors belonging to Kansai
Electric Power are awaiting permission to restart.
Ohi Mayor Shinobu Tokioka has backed a restart on condition
of a thorough probe of the accident at the tsunami-hit Fukushima
plant. But this investigation, which has no set date for
completion, may not be wrapped up until the summer.
That could make a quick restart politically impossible and
may well set a precedent for other mayors and regional
politicians uncomfortable with nuclear power.
If so, that would easily dash hopes for even a modest
reduction in expected Japanese oil demand this summer. That will
do oil markets few favors heading into a summer period fraught
with the risk of lost Iranian oil exports.
But even if the plants are allowed to restart, oil demand
from the Japanese power sector will almost certainly be very
heavy. Each restart will be a political minefield.
And increasingly traders', and Japanese businesses' thoughts
will turn to the 2013 oil market.
Already the slow pace of nuclear restarts and public
opposition to the industry in Japan suggests that extraordinary
oil demand from Japan may well be a big factor again in the
summer of 2013.
A successful restart of a few reactors that helps to restore
public trust in nuclear power at least in the short term while a
new energy policy is crafted will be crucial to avoiding a
repeat of this summer's pressures on oil markets.
But a failed restart effort, or one that flies in the face
of public opinion would be a forewarning of another challenging
summer next year.
(Editing by Marguerita Choy)