Japan’s fusion industry seeks state backing amid Middle East energy strain

Hello and welcome to Energy Source, coming to you from London.

Extreme heat is not only making life uncomfortable across Europe but is also beginning to hit the continent’s economy, with drought threatening Hungary’s power supply and disrupting trade along Germany’s Rhine river.

Hungary is preparing for electricity rationing after record-low water levels on the Danube river forced the country’s only nuclear power plant, which supplies up to 40 per cent of its electricity, to shut down for the first time. The disruption is expected to weigh on industrial output, agriculture and public finances, while similar drought-related pressures are emerging elsewhere in Europe, underscoring the growing impact of extreme weather on the region’s energy security.

There is also fresh momentum behind nuclear energy as investors look for reliable sources of electricity amid booming AI demand. Westinghouse Electric, the US nuclear reactor designer and services company, confidentially filed for an initial public offering, while support for nuclear power is growing in Italy, fuelled in part by opposition to renewable projects that some critics say would “spoil the landscape”, as Prime Minister Giorgia Meloni’s rightwing coalition pushes to revive the country’s nuclear industry.

In today’s newsletter, we look at Japan’s fusion ambitions, as the country’s heavy dependence on Middle Eastern energy imports adds urgency to the search for domestic alternatives. One fusion start-up has expanded its prototype plant budget, hoping Prime Minister Sanae Takaichi’s enthusiasm for the technology will help unlock public funding.

We also report on Chevron and Exxon’s blockbuster earnings, which drew the ire of Donald Trump.

Thanks for reading, Ryohtaroh

Japanese fusion start-up scales up ambitions amid PM Takaichi’s interest in fusion 

A Japanese fusion start-up has unveiled plans for a prototype power plant costing up to $5bn, betting that Prime Minister Sanae Takaichi’s enthusiasm for fusion will help unlock public funding and narrow the gap with better-funded US rivals. 

Yuto Yoshioka, chief operating officer at Starlight Engine, said governments had fundamentally changed the way they viewed future fusion technology, as multiple energy crises enforced the importance of energy security in the minds of policymakers.

He said the energy crisis and the fact that the US and other countries were “increasingly putting their own interests first” had created “a real sense of urgency” in Japan, which relies on the Middle East for more than 90 per cent of its oil.

Building fusion plants is rapidly becoming a multibillion-dollar undertaking, forcing companies to seek political as well as financial backing as governments decide which projects merit the funding needed to reach commercialisation.

Fusion aims to recreate the reaction that powers the sun by combining atomic nuclei, unlike conventional nuclear power plants that generate electricity by splitting atoms. More than 50 private ventures are racing to build a commercially viable power plant, though no company has yet built one.

Starlight’s revised design enlarges its reactor to accommodate larger superconducting magnets capable of confining superheated plasma. The company now estimates the prototype will cost as much as ¥800bn, or $5bn, roughly $2bn more than the initial plan, and aims to bring it into operation in 2035.

The rising cost reflects intensifying competition as developers move from laboratory experiments to multibillion-dollar prototype plants. Yet fundamental scientific uncertainties remain alongside engineering challenges, making it increasingly difficult for governments to determine which companies are most likely to deliver first energy from fusion. 

Yoshioka optimistically said that Starlight hoped Tokyo would ultimately finance about two-thirds of the project’s cost. Takaichi has long taken a personal interest in fusion and included support for the technology in her 2021 leadership campaign for the ruling party.

Tokyo recently designated fusion energy as one of 17 strategic fields to promote investment, alongside next-generation advanced nuclear reactors.

If realised, fusion could provide abundant carbon-free electricity by using widely available fuel while producing much of the tritium required through a so-called fuel cycle.

Political backing is vital to Japan’s fusion ambitions, as the country is one of the smallest investors among the world’s major fusion powers.

Between 2022 and 2025, the Japanese fusion industry received €1.2bn, both privately and publicly, compared with €7.3bn in the US and €6.9bn for China, according to Fusion for Energy, the EU agency responsible for the ITER fusion project. Japan also lagged behind the UK, where the fusion industry received €1.4bn.

The US dominates private funding, with companies such as Commonwealth Fusion Systems raising about $4bn from investors including Google. Meanwhile, China is increasing its public support through state-controlled commercial entities.

As governments are unlikely to back every developer, fusion companies are increasingly seeking political credibility alongside financial support. Germany’s Proxima Fusion has partnered with the Bavarian government in the hope of securing majority backing from Berlin for a prototype plant.

Yoshioka drew parallels to Japan’s push to revive the semiconductor industry, justifying his argument for the sizeable government support on fusion energy. He added that the project deliberately included Japan’s megabanks in its latest fundraising because they could “bring government and industry figures on board”. (Ryohtaroh Satoh)

Oil bosses draw Trump’s ire after blockbuster earnings

Oil industry bosses are back in Donald Trump’s crosshairs following Exxon and Chevron’s announcement of blockbuster second-quarter profits worth a combined $26.5bn.    

On Monday the US president lashed out at Mike Wirth, Chevron chief executive, on social media for failing to mention his administration’s pro-fossil fuel policies in an interview on Fox Business. He also reiterated his call for oil companies to bring retail prices “DOWN NOW” amid voter unease at surging petrol and diesel prices due to the Iran war.

“The only thing he conveniently forgot to mention is that, without the genius, foresight, strength, and stability, of the TRUMP Administration, the Oil Industry, and our Country itself, would be DEAD! As an example, they threw Mike and Chevron out of Venezuela, but now their back, far bigger and stronger than ever before, expecting to make a fortune!” he said.

Later in comments to reporters, Trump said Chevron and Exxon had made “too much money” on rising oil prices and should “give some of that back to the public”.

Crude prices have fallen back sharply since peaking at $126 a barrel on April 30, but pump prices remain stubbornly high — a big reason why Trump’s approval ratings have slumped to near-record lows.

US petrol prices currently average $4.09 per gallon, according to data from the AAA motoring group, up almost $1 from a year ago and far off the president’s claim in June that prices should be at $2.25 a gallon — a level last reached in 2020 during the coronavirus pandemic.

Higher prices are supercharging oil industry profits. Chevron made net income of $12.2bn in the three months to end June, a fivefold increase on the same period last year and a record for the Houston-based oil group. ExxonMobil reported $14.5bn net income in the second quarter, double the same period a year earlier and its best quarterly profit since Russia’s 2022 full-scale invasion of Ukraine caused a surge in oil prices.

Both companies used the windfall to drive down debt while others are rewarding shareholders directly by increasing dividends and buybacks. Phillips 66, a refiner, said on Friday it had approved a $10bn increase to its share repurchase programme. Other oil and gas companies due to report results this week are expected to do likewise.

This creates difficult optics ahead of November’s midterm elections for Trump, who promised to slash energy prices and avoid so-called forever wars that have dogged previous presidents in Iraq and Afghanistan. It also explains why analysts have not ruled out the administration placing an export ban on US oil or petroleum products — a tool that US energy secretary Chris Wright has ruled out and said would be counter-productive.

Rapidan Energy Group says it maintains a 35 per cent likelihood of this type of intervention if fuel prices climb high enough to raise the political pressure on the administration. The US oil industry will be hoping its supercharged profits don’t result in an export ban that would undermine its reputation as a reliable producer. And executives doing interviews about their stellar financial results on national television will have to remember to thank the president for creating the conditions that have enabled them to prosper. (Jamie Smyth)   

Power Points

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Rachel Millard, Malcolm Moore, Ryohtaroh Satoh and Stephanie Findlay with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.