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The Impact of Events in Japan

March 31, 2011

Japan has been in the headlines recently for two related events – the earthquake and resulting tsunami, with extensive loss of life, and the radiation and disruption caused by the Fukushima’s Daiichi nuclear power plant and the loss of power from other plants shut down over safety concerns.

Effects of the tsunami on the rest of the world –  One of the first questions raised when the news came in from Japan was whether the earthquake and tsunami would cause a re-run of the financial collapse of 1997.  This arose from financial problems in Thailand and led to melt-down in the markets in Indonesia, South Korea and Thailand.

This has not happened.  Japan has stabilised its currency and the impact on supply chains has been less than first anticipated, as Japanese companies switched production to sites outside Japan.  What was different?

Japan is a G7 country, and though its citizens were critical of their government immediately after the tsunami, on the whole “systems” came into play – family, community, government.  And the effect on international markets has been less than expected, as Japanese companies moved to relocate capacity to sites outside Japan.  So the effect on supply chains has been less than first feared.

Effects of the damaged nuclear plant –  The effects of the damage to the nuclear plant are likely to be felt for longer.

Across the world, nuclear investment has been put on hold, and the likely beneficiary will be electricity generation from natural gas. Large deposits of shale and new techniques for extracting oil and gas have reduced the cost at the same time as oil prices have soared.  Meanwhile technologies for liquefying natural gas have become widespread.

At the same time, the underlying global demand for energy could triple from 2000 levels if emerging economies follow traditional development paths. Even if energy efficiency is increased and supply growth is accelerated, Shell in their latest scenario briefings[1] anticipate a gap the size of the industry in 2000. As they point out, the investment in the next ten years will largely shape the energy supply in 2050.  A shortfall of energy in 2050 may be the most significant fallout from the recent events in Japan.

Written by Gill Ringland, CEO at SAMI Consulting.

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