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Japan energy overview

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Hydrocarbon Engineering,

Japan has limited domestic energy resources that have met less than 9% of the country's total primary energy use since 2012, compared with about 20% before the removal of nuclear power following the Fukushima plant accident. It is the third largest oil consumer and net importer in the world behind the United States and China. Furthermore, it ranks as the world's largest importer of liquefied natural gas (LNG) and second-largest importer of coal behind China.

In light of the country's lack of sufficient domestic hydrocarbon resources, Japanese energy companies have actively pursued participation in upstream oil and natural gas projects overseas, providing engineering, construction, financial, and project management services for energy projects around the world. Japan is one of the major exporters of energy-sector capital equipment and has a strong energy research and development (R&D) program supported by the government. This program pursues energy efficiency measures domestically to increase the country's energy security and to reduce carbon dioxide (CO2) emissions.

In March 2011, a 9.0 magnitude earthquake struck off the coast of Sendai, Japan, triggering a large tsunami and serious nuclear damage at the Fukushima-Daiichi reactors. The damage to Japan's energy infrastructure resulted in an immediate shutdown of about 10 gigawatts (GW) of nuclear electric generating capacity. The plants that were not immediately damaged were gradually shut down as a result of scheduled maintenance and lack of government approvals to return to operation. Two nuclear reactors, Kansai Electric's Ohi reactors 3 and 4, were restarted in July 2012 and represented the only source of nuclear power in the country for more than a year. However, these two reactors were shut down again in September 2013, suspending all of Japan's nuclear power generation for a second time in more than 40 years.

Nuclear generation in Japan represented about 27% of the power generation prior to the 2011 earthquake and was one of the country's least expensive sources of electric power. Japan replaced the significant loss of nuclear power with generation from imported natural gas, low-sulphur crude oil, fuel oil, and coal. This substitution of more expensive fossil fuels led to higher electricity prices for consumers, higher government debt levels, and revenue losses for electric utilities.

Japan imports virtually all its fossil fuels, whereas very little fuel is needed for nuclear energy generation. Japan spent about US$270 billion, or around 58% more, for fossil fuel imports in the three years following the Fukushima accident. Despite some strength in export markets, the yen's depreciation and soaring natural gas and oil import costs from a greater reliance on fossil fuels and sustained high international oil prices through the first half of 2014 continued to deepen Japan's recent trade deficit. The trade balance reversed from a 30-year trade surplus, which was $65 billion in 2010 to a deficit that reached US$112 billion in 2013. The recent drop in oil prices in the latter part of 2014 is likely to ease the trade deficit and provide some relief to Japanese utilities.

Japan's current government intends to resume using nuclear energy as a baseload power source with necessary safety measures. The government believes that the use of nuclear energy is necessary to help reduce current energy supply strains and high-energy prices faced by Japan's industries and end users. The government's new energy policy issued in 2014 emphasises energy security, economic efficiency, and emissions reduction. Key goals and plans to balance the country's fuel portfolio include strengthening the share of renewable and alternative energy sources, diversifying away from oil to reduce dependency in the transportation sector, and developing the most advanced generation technologies using fossil fuels. These efforts occur in the context of the government's goal to reverse two decades of economic stagnation in Japan and to provide economic revitalisation through public infrastructure spending, monetary easing, labour market reform, and business investment.

Adapted from press release by Joe Green

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