Japanese energy policy focuses on security

By OGJ editors

HOUSTON, Feb. 1 -- The Japanese government is working on several fronts to enhance energy security and reduce the country's reliance on oil from the Middle East.

But that dependency is unlikely to change much anytime soon, said analyst Tomoko Hosoe in a January report by Fesharaki Associates Consulting & Technical Services Inc. (FACTS Inc.), Honolulu.

Japan is trying to strengthen its nuclear power infrastructure and to import more LNG and has developed a petroleum stockpile system, initiated an environment tax, and is working toward importing oil from Russia and Iran as alternative sources of oil supply.

It also is making upstream investments overseas, reestablishing a relationship with Middle East oil exporters, and helping other southeastern Asian countries develop strategic stockpiling, Hosoe said.

Japan's energy policy
Japan's June 2004 Basic Energy Policy emphasizes increased use of natural gas and other alternatives to oil while retaining nuclear energy as a core energy supply.

Japan imported 59.1 million tonnes of LNG in 2003, about 75% of it from Asia-Pacific suppliers and 23% from the Middle East.

It imported 87% of the 4.28 million b/d of oil it consumed in 2003 from the Middle East, more than half of that from the UAE and Saudi Arabia.

Japan's Ministry of Economy, Trade, and Industry (METI) plans to lower oil imports to 46% of total supply from the current 50% by 2010. It plans to do so by lifting market shares of other energy sources: gas to 15% from 13%, nuclear power to 14% from 13%, and other energy to 3% from 2% while coal's share remains at 18%.

Oil supply diversity
Japan is negotiating with Russia to receive oil via the proposed Nakhodka pipeline project and with Iran for development of Azadegan oil and gas field, with Japan taking a portion of the production, Hosoe noted.

If built, the 4,130-km Russian pipeline would originate at Tayshet, north of Lake Baikal in Siberia, instead of the previously discussed Angarsk. Capacity of the pipeline will likely be 1.6 million b/d (OGJ Online, Jan. 17, 2005). It would extend to Russia's Nakhodka Pacific coast port, although China wanted the pipeline to go directly to Daqing first. A smaller branch line from the main pipeline to Daqing is still a possibility if oil supply is sufficient for both markets.

Whether pipeline construction will proceed, however, and how soon it could be built depends on how much Japan is willing to invest, who will invest in the upstream exploration and production, and whether building a branch to Daqing is a realistic option.

In addition, project costs have skyrocketed, with construction of a Tayshet-Nakhodka pipeline now estimated at $11-16.2 billion, nearly three times the cost of Japan's originally proposed Angarsk-Nakhodka pipeline.

Development of Iran's Azadegan field—which could produce 50,000 b/d of crude oil by July 2007, 150,000 b/d by July 2008, and a final 260,000 b/d by March 2012—also faces challenges (OGJ Online, Sept. 14, 2004).

Japan's overseas upstream investment policy is to participate—through state-owned Japan National Oil Corp. (JNOC)—in exploration and development overseas for a percentage of production.

JNOC, formed in 1967, will be dissolved by March under Prime Minister Junichiro Koizumi's major restructuring plan for 77 state-run organizations. It has been selling the assets of its group companies, including a 16% stake of Japan Petroleum Exploration Co. (Japex) in a $295 million initial public offering (IPO) and 18% of its total 54% stakes in Inpex in a $1.5 billion IPO.

Inpex, with a good business outlook and a large market capitalization, has been a successful JNOC-funded upstream firm, with the core of its activities in Indonesia. The company also is the project operator of Iran's Azadegan field project (OGJ Online, Sept. 14, 2004). Under a buy-back contract, Inpex holds a 75% share of Azadegan, with Iran's Naftiran Intertrade Co. (NICO) holding the remaining 25%.

Azadegan development is seen in Japan as risky for a private company, Hosoe said.

"From the beginning, the Azadegan development has been Japan's national project; thus, it was not purely a matter of economics," Hosoe said. "Japanese politicians and bureaucrats continue their hopes in seeing Japan commercially engage Iran, to diversify energy sources for greater supply security. Meanwhile Inpex is hoping to find an international partner." Discussions are under way with several potential partners, he said.

Nuclear power policy
Although nuclear energy remains central to Japan's energy policy because of the country's obligation to reduce emissions of greenhouse gases under the Kyoto Protocol, Hosoe said, future nuclear growth may be limited.

The country has 52 nuclear reactors and 3 units under construction—one to start up this month, another in July, and a third in March 2006. A fourth is planned for start-up by fiscal 2010. METI plans to build six more by 2030.

Earlier, Japan had planned to build 9-12 nuclear reactors by 2010. Projects have been postponed by a slowdown in electricity demand, intensifying cost competition from gas-fueled, combined-cycle units under industry deregulation, and growing public opposition to nuclear energy following a series of accidents, and controversy over plant maintenance data cover-ups, Hosoe said.

Japan's two largest electric utilities, Tokyo Electric Power Co. (Tepco) and Kansai Electric Power Co. (Kepco), have frozen or delayed construction plans.

Tepco, which owns 38% of Japan's total nuclear power generation capacity, plans to add two 1.38-Gw nuclear units to its existing 4.70 Gw Fukushima Daiichi nuclear power plant. "However, Tepco has already delayed these plans several times and is unlikely to build them anytime soon," Hosoe said.

Fukui prefecture, which contains 15 nuclear power stations, plays a key role in Japan's nuclear policy. It also is where Japan's $6 billion experimental fast-breeder reactor, Monju, sits. Operations at Monju were suspended because of a sodium leak in 1995 after initial start-up in April 1994.

All of Kepco's 11 nuclear power plants are among those in Fukui prefecture, where public opposition to nuclear power plants remains strong because of an accident at the Mihama plant. The company has halted indefinitely plans to begin using mixed oxide fuel in 2007.

Planned environment tax
Revision of the nuclear policy will make it difficult for Japan to meet the target set by Kyoto of a 6% cut in carbon dioxide emissions by 2012.

The Ministry of Environment in November 2004 drafted plans for an environment tax to be levied on electricity and most fossil fuels, including oil, coal, and gas beginning in 2005 to cut energy consumption and encourage a CO2 emissions reduction of 9.5% by 2010.

The initiative would tax the consumption of most fossil fuels at 2,400 yen/tonne of carbon contained in the fuel, with the revenues used to facilitate wider use of wind power and solar energy and to promote the public's use of energy-saving equipment.

However, the proposal faces strong opposition from METI and major industry associations, which contend the tax would be ineffective because energy taxes are already too high. The opponents also warn that additional taxes could slow economic recovery and stifle industrial activity.

It is unlikely that the tax will be implemented before 2006, Hosoe said, and then only if such issues can be resolved.

"However, we do not rule out the possibility that the tax option will be completely abandoned if other effective means for reducing carbon-dioxide emissions can be figured out," he said. "Even if implemented, it will not make much of an impact on oil demand,"

Petroleum stockpiling
Storage of LPG and strategic petroleum reserves in Japan—private and public—aim to protect against energy shortages or disruptions to supply from the Middle East.

The government, through JNOC offshoot Japan Oil, Gas & Metals National Corp. (JOGMEC), maintains national petroleum stockpiles at 10 national oil storage bases. JOGMEC manages the national stockpiles of oil and LPG, builds LPG stockpiling facilities, and prepares for their operation. It also releases stockpiled oil or LPG on orders of the Japanese government.

In addition, all private oil companies and importers of petroleum products are required to hold products or crude oil stocks equivalent to 70 days of refined products. This requirement, along with stringent product-specification regulations, makes Japan a difficult market to enter.

Storage requirements apply to LPG, too. The plan is to complete by 2010 Japan's storage of LPG equivalent to 80 days' imports—30 days, or 1.5 million tonnes, by the government, and 50 days by the private sector.

Japan also supports proposals for joint oil storage by members of the Association of South East Asian Nations.

Other security measures
Efforts to encourage downstream investments by Middle Eastern oil exporters bore fruit in August 2004, when Saudi Aramco bought 9.95% interest in Showa Shell Seikyu KK from Royal Dutch/Shell, its first investment in the Japanese refining business. Aramco will acquire a further 4.99% in 2005. Its holding in Showa Shell eventually may reach 25%.

"Given that Japan's heavy reliance on Middle East oil will remain under any scenario for the foreseeable future, the exporters' interests in investing in the region is seen as laudable," Hosoe said.

Related Articles

KMI brings second Texas condensate splitter online

07/15/2015 Kinder Morgan Inc., Houston, has commissioned the second of two splitters at the company’s new petroleum condensate processing facility located nea...

Michigan DEQ report urges ban of heavy oils in Mackinac Straits pipeline

07/15/2015 Michigan’s Department of Environmental Quality’s Petroleum Pipeline Task Force issued a report that recommended that heavy crude and oil sands be k...

PHMSA orders Plains All American to keep Illinois pipeline shut down

07/15/2015 The US Pipeline and Hazardous Materials Safety Administration issued a corrective action order directing Plains All American Pipeline LP to keep a ...

Advocates urge US to end its crude export ban in Iran agreement’s wake

07/15/2015 Advocates called for removing the US ban on exports of domestically produced crude oil in the wake of the July 14 international nuclear weapons agr...

Poland’s Grupa Lotos lets contract for Gdansk refinery upgrade

07/15/2015 Grupa Lotos SA, Poland’s second largest refiner, has let a contract to KT-Kinetics Technology SPA, a subsidiary of Maire Tecnimont SPA, Milan, for ...

Operators seen still able to raise capital

07/15/2015 Oil and gas operators remain able to raise capital despite falling crude oil prices and, for many, deteriorating financial conditions, according to...

MARKET: NYMEX crude oil prices rise following news of Iran deal

07/15/2015 Light, sweet crude oil prices settled higher on the New York market July 14 following overnight news that Iran reached a tentative agreement with i...

WPX Energy to buy privately held RKI E&P in $2.35 billion deal

07/15/2015 WPX Energy Inc. agreed to buy privately held RKI Exploration & Production LLC of Oklahoma City for $2.35 billion in a move intended to help WPX...

US House panel grills PHMSA’s interim chief over pipeline safety delays

07/14/2015 Members of a US House Energy and Commerce subcommittee asked US Pipeline and Hazardous Materials Safety Administration Interim Executive Director S...
White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts

Operating a Sustainable Oil & Gas Supply Chain in North America

When Tue, Oct 20, 2015

Short lead times and unpredictable conditions in the Oil & Gas industry can create costly challenges in supply chains. By implementing a LEAN culture of continuous improvement you can eliminate waste, increase productivity and gain end-to-end visibility leading to a sustainable and well-oiled supply chain.

Please join us for this webcast sponsored by Ryder System, Inc.


On Demand

Leveraging technology to improve safety & reliability

Tue, Sep 22, 2015

Attend this informative webinar to learn more about how to leverage technology to meet the new OSHA standards and protect your employees from the hazards of arc flash explosions.


The Resilient Oilfield in the Internet of Things World

Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.


Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected