The conflict between Israel and the Palestinian Islamist group Hamas has renewed worries in energy-poor Japan over its heavy reliance on the Middle East for oil and gas, and the US ally has struck a careful diplomatic tone over the crisis in the Gaza Strip.
Below are key facts about Japan’s dependency on Middle Eastern energy:
CONCENTRATED CRUDE SOURCE
Japan, the world’s fourth-largest oil buyer, imports 95 per cent of its crude from the Middle East, a concentration that has grown sharply in recent decades and is unique among major oil importers.
Of the 2.75 million barrels of oil per day (bpd) Japan imported in August, Saudi Arabia (1.14 million bpd) and the United Arab Emirates (1.12 million bpd) were the biggest suppliers, with Kuwait accounting for 200,000 bpd.
The United States is the world’s biggest oil producer but only a small supplier to Japan, delivering 42,000 bpd in August.
At the time of the Arab oil embargo of 1973, Japan imported 77 per cent of its oil from the Gulf countries. That event triggered domestic inflation and a drop in production of goods.
Dependence on Middle Eastern crude increased after Japan’s key refiners stopped importing Russian oil soon after Moscow’s invasion of Ukraine in February last year, though some refiners had still imported Russian oil intermittently until February this year.
Before the Ukraine war, Japan imported some 100,000 bpd from Russia – or 4 per cent of its needs.
Japan is the world’s second largest importer after China of liquefied natural gas (LNG), which is used to generate electricity and provide city gas, and its supply portfolio is more balanced.
About 40 per cent of the 5.7 million metric tons of LNG imported by Japan in August came from Australia, while 12 per cent came from three countries – Qatar, Oman and the UAE.
WHAT ARE JAPAN’S ALTERNATIVES?
Japan has limited options to reduce its dependency on Middle Eastern supplies, at least for crude oil.
It could seek more supply from the United States, or seek permission from the Group of Seven (G7) nations, of which it is a member, to buy Russian crude above the $60 price cap set by the group after Moscow’s Ukraine invasion.
Oil supplies to Japan from Russia’s Sakhalin 2 project are currently exempt from the cap.
Japan could also look to buy oil on the spot market, although available supply would tighten sharply for all such buyers if Middle Eastern shipments were disrupted.
In the event of a short term supply disruption, Japan could tap its vast reserves, which totalled 480 million barrels at the end of August, or 236 days’ worth, according to the Ministry of Economy, Trade and Industry (METI).
LNG inventories held by major Japanese power companies, a key indicator of stock levels, were at 2.23 million metric tons as of Oct. 22, above a five-year average of 2.01 million tons for end-October, METI data shows.
DEMAND REDUCTION
For natural gas, Japan is already reducing imports as it restarts nuclear plants that were shut in the aftermath of the 2011 Fukushima disaster.
Japan has restarted 12 nuclear reactors – some of which are under planned maintenance – with nearly 12 gigawatts of combined capacity, out 33 reactors Japan is considering restarting. Each gigawatt of nuclear power is equivalent to a million metric ton of LNG a year.
Japan has also been recently reducing LNG imports by adding renewable energy sources such as solar and wind.
Overall use of fossil fuels in Japan, the third-largest economy, is declining.
According to the International Energy Agency, Japan’s petroleum demand declined to 3.3 million bpd in 2021 from 4.2 million bpd in 2010, and is expected to fall further to 2.7 million bpd in 2030, as the country’s population shrinks and the economy shifts to lower-emission energy sources.
Japan plans to cut use of LNG in the power sector to 20 per cent by 2030 from 37 per cent in 2019 but aims to keep importing the fuel which it considers a ‘transition’ energy source.