Published on Saturday December 15 2012 (AEST)
JAPAN goes to the polls this weekend in an election that will be watched closely by Australia's uranium and liquefied natural gas companies.
If the major opinion polls out of Tokyo are anything to go by, uranium stocks could be the big winner to come out of the election. And Australia's LNG players, already facing headwinds in the form of escalating costs and increased competition, may have something else to worry about.
The Liberal Democratic Party, which historically has been more pro-business and pro-nuclear than its key rivals the Democratic Party of Japan, looks likely to take office from the DPJ.
While the debate around nuclear energy remains a highly sensitive one in Japan, the LDP has been campaigning on a platform far more nuclear-friendly than its rivals. The LDP has been proposing a three-year review that would determine which of Japan's 48 idled reactors are sufficiently safe to restart, raising the hopes of uranium miners and explorers eager to see Japanese uranium demand restored.
The vote could well deliver a big boost to a uranium sector that has struggled to attract investor support since the Fukushima nuclear disaster last year.
The subsequent shutdown of Japan's nuclear reactor network heralded a substantial fall in the price of uranium and the shares of the companies working in the uranium sector.
Paladin Energy, for example, was trading at about $5 a share before the earthquake and tsunami that led to the Fukushima disaster but is now worth just 89c a share.
The subsequent fall in the uranium price has dented the profitability of those already mining uranium, and the price is now considered too low to justify the development of new sources of supply.
Greg Cochran, the managing director of Perth-based, Namibia-focused uranium explorer Deep Yellow, believes the election of the LDP could lead to a gradual restart of Japan's nuclear capacity, offering hope to the uranium sector. "While it's politically challenging -- and it's understandably a sensitive issue -- ultimately the rational outcome is for Japan to go back to nuclear," Mr Cochran told The Weekend Australian.
Since shutting down its nuclear output, Japan has dramatically stepped up its reliance on imported coal, LNG and oil as a means of meeting its power needs. That, Mr Cochran said, had had an adverse effect on the country, environmentally and economically.
"Japan's carbon dioxide emissions have increased dramatically since Fukushima, and that's in a world in which their industrial production is down," he said.
"That's simply a result of the fact they're burning more oil and gas and coal to replace the 30 per cent of supply they had from nuclear.
"The importation of all that additional carbon-based fuels is also meaning they're running significant trade deficits. It's a really challenging situation.
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While investors still are not pouring back into uranium stocks ahead of the election, Mr Cochran noted that Deep Yellow had been able to raise another $12 million in equity in recent months.
Besides the increasing likelihood of Japan restarting its nuclear capacity, 2013 is also the year the long-running highly enriched uranium agreement -- which saw Soviet-era nuclear warheads from Russia recycled into nuclear reactor feedstock -- draws to an end.
Mr Cochran noted that the HEU agreement accounted for about 15 per cent of the global uranium supply, and its expiry could be the catalyst for a further uranium price rebound.
Uranium's election-inspired gain could be the LNG industry's pain. Japan's increased appetite for LNG in the wake of Fukushima helped drive a surge in spot LNG prices, providing a handy fillip for those producers with spare cargoes.
The prospect of Japan abandoning nuclear forever also opened up the potential for the country -- which already ranks as the world's single-biggest buyer of LNG -- stepping up its appetite even further.
Those hopes will look much more remote if indeed the LDP triumphs tomorrow.
Japan's potential nuclear restart adds another layer of uncertainty to the LNG demand outlook.
The market is already under pressure as buyers eye the potential to secure cheaper gas supplies out of North America, and China works hard to prove up what are expected to be vast domestic supplies of shale gas and coal-seam gas.
Speaking to The Weekend Australian, CLSA's head of Asian oil and gas research, Simon Powell, said Australia's LNG projects looked increasingly likely to be caught in a pinch between rising costs and worsening market dynamics.
"Australian LNG projects are an awful way up the global cost curve relative to other projects, number one. Number two, demand for LNG beyond 2015 may not be as much as people predict," he said.
"China will prove up a lot more unconventional gas than people actually think, the Japanese could potentially restart their nuclear program as their demand for electricity rises.
"And a prolonged economic malaise in Europe means we're already seeing European LNG cargoes end up in Asia."
But before uranium players begin to celebrate and LNG companies start to fret, there is an important reason to keep calm.
Assuming a change in leadership this weekend, Japan will have had seven prime ministers in just five years.
Given that record, it is easy to see how major policy changes may never be far away.
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