The politics of nuclear now favour existing fossil fuel producers

Marc Chandler wrote a good piece on the politics of nuclear in Germany and elsewhere in Europe. I want to piggyback on his comments with some of my own thoughts and questions regarding what this could mean for the energy space. This is a quick shot, so I’ll bullet point this.

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  1. The circumstances of the Fukushima accident were unique: total electric power blackout caused by largest Japanese earthquake in 300 years followed by tsunami waves 7 meters high impacting a 40-year old nuclear plant at the end of its useful life.  Basically, this situation is the worst confluence of factors anyone could create; this is the worst case scenario for a nuclear accident… or is it?
  2. Many think the Fukushima incident demonstrates what can happen in extreme and unknowable circumstances – Donald Rumsfeld unknown unknowns. Think terrorism for example as a known unknown.
  3. Given the political fallout Marc pointed to in Germany and Switzerland and that I have seen in France, in the U.S. and elsewhere, it is likely that nuclear power has been given a massive setback globally. President Obama’s plans to get nuclear going in the U.S. are going to face hostility, especially from the Democratic base.
  4. This reduces the number of available energy sources such that existing energy sources should benefit. Alternative energy is not presently being used or produced in quantity or at a price which makes it a likely beneficiary over the medium-term. On the other hand, oil, natural gas, and coal all have well developed energy infrastructures (and government lobbyists).  My assumption is that these existing fossil fuel sources will win.
  5. If energy demand continues to strain the present energy infrastructure as recovery continues (that’s a big if), then we should expect prices of oil, natural gas and, coal to increase. Potential beneficiaries include Exxon Mobil (XOM), Berkshire Hathaway, Devon Energy, Xstrata, Peabody Energy, and Massey Energy.

Right now, oil prices are swooning because of the devastation wrought by the Japanese earthquake and the loss of energy demand that entails. Over the medium term, however, the situation could be different. Energy markets are still tight.

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