Japan too dependent on Mideast for oil
www.japantoday.com Yasushi Azuma
Despite two oil crises in the 1970s and the 1991 Persian Gulf War, Japan has still not succeeded in alleviating its heavy dependence on the Middle East for its oil imports.
Among developed nations, Japan is one of the poorest in natural resources and imports 86% of its oil from the Middle East.
Following the two oil crises, Japan began trying to change its excessive dependence on the Middle East and succeeded in bringing its dependency ratio down to the 60% level in the 1980s.
But this returned to the 80% level in the 1990s after some countries, such as China and Indonesia which used to export substantial amounts of oil to Japan, became basically oil-importing countries, according to the Ministry of Economy, Trade and Industry (METI).
Oil prices have recently remained high — over $30 a barrel — due to the strikes in Venezuela and continuing tensions over Iraq, and many people fear they will rise even further if the United States and its allies start a war on Iraq.
But how seriously this would hit the world economy remains uncertain.
Tsutomu Toichi, managing director and chief executive economist of the Institute of Energy Economics, has warned of serious consequences if the war is prolonged, and oil fields and shipments in Saudi Arabia and Kuwait are affected by it.
"In such a case, the uncertainty over future oil supplies will grow and oil prices will rise further," Toichi said, adding it is important for Japan and other developed countries to release their oil reserves quickly to stabilize the markets.
"Many Asian countries including China do not have any oil reserves for emergencies. If these countries are hit by a surge in oil prices, Japan will also be indirectly affected," he said.
In order to lower Japan's dependence on the Middle East, METI is focusing on expanding oil imports from Russia through a pipeline from eastern Siberia to Nakhodka along the Sea of Japan.
METI recently sent Iwao Okamoto, director general of the Natural Resources and Energy Agency, to Moscow to lobby Russia to adopt the plan in line with Japan's request.
But there is speculation that Moscow will decide on a project in favor of China rather than Japan.
Russia's Interfax news agency reported last Thursday that the Russian Energy Ministry has decided on a compromise plan, calling for building the China-proposed route first and then adding a branch for supply to Japan.
If Russia adopts the Chinese plan, it will be a blow to METI's strategy of diversifying Japan's oil imports, as it is believed Japan would not be able to secure enough oil supplies under the plan.
Japanese oil companies themselves, meanwhile, have also begun to move to purchase oil from areas other than the Middle East as procurement costs from the region have risen recently.
Nippon Oil Corp., for example, has bought about 12.6 million barrels from regions other than the Middle East, such as West Africa and Russia, since November, and with prices at high levels, many oil-exporting countries are itching to sell to importers, including Japan.
Nevertheless, such moves are seen as only temporary measures to cope with the current Middle East crisis, since these companies believe that conditions for exporting oil from the region will return to being advantageous again, compared with other areas, once the present crisis comes under control.
The recent surge in crude oil prices has already affected Japan, with the cost of various oil-related products, including kerosene and propane gas, moving higher, according to the Oil Information Center.
The average retail price for kerosene rose by 6 yen to 825 yen per 18-liter can as of March 3 from the previous week, while that for propane gas climbed 6 yen to 5,881 yen per 10 cubic meters as of late February from a month earlier, the center said.
The Japanese government is trying to play down fears of a possible energy shortage in the event of a war.
Takeo Hiranuma, head of METI, said last Friday at a press conference, "Securing oil imports and supplies at stable prices will be possible unless the war is prolonged."
Hiranuma said Japan has 171 days worth of oil reserves and is ready to release the supply whenever necessary in accordance with member countries of the International Energy Agency.
If the military conflict ends swiftly, Japan may not suffer much economically.
Regardless of the duration of the war, however, Japan finds it necessary to step up its efforts to diversify oil imports and those of other energy sources to reduce the risks.
March 13, 2003