Japan’s government approved its new, but unpopular, energy policy in April by reinstating nuclear power as an “important base-load power source.”
It has tried to reassure the public the overall direction toward less reliance on nuclear power generation has not changed. It is unclear how many of the existing 48 idle nuclear reactors will be able to restart, given the high costs of further upgrades to meet new safety guidelines, local opposition and seismic risks.
The share of nuclear power fell from 30% of Japan’s power supply before the Fukushima nuclear catastrophe in 2011 to just 3% of electricity generation by 2012.
Japan was the world’s largest importer of LNG with about 33% of the global market before 2011. It has limited and declining proven natural gas reserves. Natural gas comprised 27% of its total power supply and coal 43%.
Energy supply security has always been a major security concern for Japanese governments. Japan was the third-largest economy in the world, its fourth-largest energy consumer, the third-largest oil consumer and importer, the second-largest coal importer and the world’s largest LNG importer before the Fukushima catastrophe. Its poor availability of domestic energy resources determined Japan’s domestic energy policies and drove its foreign energy policies.
The expansion of nuclear power since the 1973-74 oil crisis was the result of Japan’s heavy oil and LNG dependence on the Middle East. The importance of nuclear power in Japan’s energy mix has never been really questioned because it serves all three objectives of the energy triangle – energy supply security (reduction of unstable energy imports), environmental/climate targets (like the one of the Kyoto protocol) and the economic competitiveness of its entire industry.
Japan, with limited fossil fuel resources, was only 16% energy self-sufficient at the beginning of 2011 and had one of the highest energy security risk indexes of developed countries despite one of the best energy efficiency standards in the world.
Its risk level in 2010 was lower compared with 1980 thanks to nuclear power and enhanced energy efficiency.
Japan trailed only the United States and China as a consumer and importer of oil even before the Fukushima disaster.
The government’s objective, as part of its 2006 energy security strategy, was to further decrease oil consumption and import 40% of Japan’s total crude oil from Japanese-owned concessions by 2030, compared with 19% in 2012. Japan was forced to import 30,000 bpd in 2011 and 80,000 bpd in 2012 because of the effect of Fukushima and the need to compensate for the loss of almost all nuclear power.
Renewable energy sources are still seen as a mid- and long-term solution. The loss of Japan’s nuclear reactors has to be replaced primarily by much higher unstable fossil fuel imports in the coming years.
Coal was not used initially as the primary substitute for the loss of the nuclear power supply. Japan’s LNG imports rose by 12% in 2012.
LNG import prices rose 38% in 2011, compared with 2010 and between 2010 and 2012, the total value of Japan’s LNG costs surged from 3.5 trillion yen (US$42 billion) to 6.5 trillion yen (US$78 billion). Japan’s LNG consumption could double by 2030 if most of nation’s nuclear reactors are not restarted.
Japan has coped with the dual challenge of a 30% rise in LNG imports and gas import dependency along with increasing LNG prices. This has been against a background of huge public debt of about 200% of its GDP and rising electricity prices undermining economic competitiveness. Increased imports of LNG resulted in a record trade deficit of US$72 billion in 2012.
Japan has also become more interested in the U.S. shale gas revolution and the option of importing stable and less expensive LNG supplies from America, in addition to its more proactive foreign energy policies to secure and diversify its oil and LNG imports.
Gas is facing tough competition from much cheaper coal as a base-load fuel for power generation. Japan will remain the world’s second-largest importer of coal;
Japan’s rising LNG import dependence and the long-term oil-indexed LNG prices need addressing by the Japanese government and industry to establish a gas-to-gas and spot-LNG market with trading gas hubs, more flexible and long-term gas contracts and a reduced over-dependence on expensive LNG imports.
Japan’s growing dependence on increasing its expensive LNG imports and its heavily increased subsidies to expand renewable energy have complicated Prime Minister Shinzo Abe’s plans to revive its long-foundering economy. Japan’s energy sector recorded US$13 billion in annual pre-tax losses in 2012 because of rising imports and fossil fuel prices. This is unsustainable economically.
This article originally appeared in World Review and can be found at www.worldreview.info/expert-info/Dr%20Frank%20Umbach.
Author: Frank Umbach is a senior associate and head of the Programme International Energy Security at the Centre for European Security Strategies (CESS) GmbH, Munich-Berlin.