Japan mulls strategic moves in changing energy landscape, forum told

Mounting Middle East instability has further complicated Japan’s efforts to move ahead on an ambitious energy supply diversification strategy, speakers said at a Mar. 10 discussion at the Atlantic Council. Lower crude oil and natural gas prices are making the government’s development of economic and strategic policies more difficult, they said.

“Five years ago tomorrow, we had an extremely disastrous event—the big earthquake and tsunami at the Fukashima plant, which hurt our nuclear capacity. There’s been much progress, but much still has to be worked out,” said Ken Koyama, managing director and chief economist at the Institute of Energy Economics in Japan.

Koyama said the government there finally decided last year to pursue a three-pronged energy mix through 2030 with a combination of nuclear and alternatives, alternatives and efficiency, and LNG and coal. “Setting a desirable target is different than implementing it,” Koyama said. “Achieving it will be difficult. From now on, we’ll need to pay very strong attention to reach that goal.”

Reduction of nuclear capacity following the Fukashima incident reduced Japan’s energy self-sufficiency to 6%, placing it among the world’s lowest, Koyama said. “I think our relationship with the Middle East remains very important,” he said. “We know there are many difficulties with instability in the region. Japan will continue to pay attention to what’s going to happen there.”

Syria, Iran, Saudi Arabia

Syria, despite not being a significant Middle East oil and gas producer, looms large in Japan’s energy concerns there because it is so geographically strategic, a second speaker said. “Whether the Assad regime prevails or is replaced, it would not make a big difference to Japan. The matter is not who governs Syria, but if it is governed or not,” said Kota Suechika, a visiting scholar at the London Middle East Institute School of Asian and African Studies.

“Japan’s main concern is preventing further spillover of the conflict to the whole region, which would endanger our energy security,” Suechika said. “We don’t have many options because our policy there in the past was largely passive and noninterventionist. But we shouldn’t forget that Japan has been a major financial source for development in many of these countries. Its lack of foreign policy in the past has brought it security and political advantages because it has been relatively neutral. It could continue ties with Iran, Saudi Arabia, and the US, which is a unique advantage.”

Iran’s return to global crude markets with the lifting of Western sanctions against it has revived its rivalry with Saudi Arabia, other speakers pointed out. “Saudi Arabia does not seem inclined to give up the market share it gained while Iran was under international sanctions,” said Sara Vakhshouri, a nonresident senior fellow at the Atlantic Council’s Global Energy Center. “But it was Russia which took Iran’s traditional oil market share in China. In January, the Chinese imports of oil from Iran were less than in January 2015 when Iran was still under sanctions.”

Despite differences in their governments, the Iranians and Saudis are both trying to structure new oil supply deals in ways that reflect current global market realities, she said. “Now that a nuclear deal has been reached, Iran is suddenly open to all kinds of investments after so many years of seeing no one except the Chinese and Russians,” Vakhshouri said. “Saudi Arabia has made significant agricultural investments in the US. It also owns the largest US refinery, the Motiva plant in Port Arthur, where it can decide to send its crude oil.”

A fourth speaker, Yasuyuki Matsunaga, said, “The Japanese government has been sending high-level delegations to Iran since last year.” Matsunaga, a political science professor in the Tokyo University of Foreign Studies Graduate Program in Peace and Conflict Studies, added, “Various Japanese corporations and companies have comparative advantages since they have been involved in projects in Iran since the 1970s. We had broad relationships with Iran’s civil society both before and after the 1979 revolution.”

Matsunaga noted that while relations between Iran and Saudi Arabia have grown worse in the last 6 months, Japan’s relationships with the two countries have not been affected. “Our approach is to broaden bilateral relations beyond just buying oil and gas,” he said. “By strengthening bilateral relationships, we try to stabilize the situation with less of a military, political approach, but with an economic strategy.”

Contact Nick Snow at nicks@pennwell.com.

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