The nuclear plant problems in Japan resulting from the earthquake and subsequent tsunami have highlighted issues facing developed economies as they attempt to meet the burgeoning energy demands of the ever-increasing global population.
Nuclear Energy Review
Energy supply in Japan has been severely cut after the earthquake. The Tokyo Electricity Power Company (Tepco), which operates the stricken nuclear reactors at Fukushima, has been under tremendous pressure in the past week as it desperately attempts to stabilise the core reactors at the plant.
The Japanese nuclear crisis has caused an increasing number of other countries, including China, Germany, France and the United States to reconsider their use of nuclear power.
In Germany, Chancellor Angela Merkel has called for a “measured exit” from nuclear power and an expedited transition to renewable energy. She has ordered a temporary shutdown of 7 of Germany’s 15 oldest nuclear reactors while authorities conduct safety probes, and at least one has been permanently closed as a result.
China, currently building more reactors than any other country in the world, has announced that the government will suspend approvals for nuclear power plants so it can conduct safety checks at existing plants and those under construction.
China is currently building 27 new reactors, which is approximately 40% of the total number being built around the world. China has 13 nuclear power plants in use that supply only 2% of its electricity, but it plans to add a total of 110 nuclear reactors over the next few years and seeks to reduce its reliance on coal-fired plants that currently supply about three-quarters of its energy needs but which emit greenhouse gases. It is also developing alternate energy through solar, wind and hydro-power facilities.
The nuclear situation in Japan has also generated unease in the United States, which gets about 20% of its electricity from nuclear power plants, but has not commissioned a new plant in over 30 years.
Next Move
Governments around the world need to review their nuclear energy power supply facilities and policies. The “black swan” event now has to be re-evaluated in light of the disaster in Japan, in which the earthquakes and resulting tsunami have combined to produce potentially catastrophic consequences.
Alternate Energy Sources
In the near-term, coal, oil and gas will be the winners out of the current situation. We have seen shares in uranium companies and nuclear power suppliers plummet over the past week. However near-term these stocks may be over-sold, presenting trading opportunities.
ASX Energy Sector
The Aussie energy sector has continually underperformed crude oil prices, as they now consistently trade above $US100 and prices below $US75 appear to be a distant memory.
Table: ASX 200 Energy Stock Performances
The table above shows the weekly, monthly, quarterly and annual rolling performances of the ASX 200 stocks in the energy sector.
Surprisingly Caltex (CTX) is the only stock that has shown a consistently positive performance. The other standout in this table is the battering that the uranium stocks have undergone in the past week, particularly Energy Resources of Australia (ERA), Extract Resources (EXT) and Paladin Energy (PDN), all down over 20 percent. For the quarter only Auroa Oil & Gas (AUT), Caltex (CTX), Santos (STO) and Worley Parsons (WOR) have produced gains over 9 percent.
Charting this information provides some other insights.
Chart: ASX 200 Energy stock performances
Some additional information can be deduced from this chart. Clearly uranium share prices have been hammered in the past week and stocks like Energy Resources of Australia (ERA), Extract (EXT) and Paladin (PDN) have the potential to provide some sharp trading opportunities near-term.
Stocks that are set up to provide good returns near-term include:
* Caltex Australia (CTX)
* Linc Energy (LNC)
* Origin Energy (ORG)
* Santos (STO)
* Worley Parsons (WOR)
* Woodside Petroleum (WPL)
Conclusion
The energy sector has been in focus since mid-2009. Energy stocks which have lagged the commodity price look set to provide some good trading opportunities in the near-term. Crude oil prices have recently jumped due the turmoil in the Middle East and North Africa. The Japanese nuclear crisis will only add to the volatility in the sector.
Keep these stocks that have been highlighted above on your watchlist.
By Michael Hevern
Head of Research
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