CAPITAL: Tokyo

MONETARY UNIT: Yen

REFINING CAPACITY: 5.06 million b/d

OIL PRODUCTION: 13,600 b/d

OIL RESERVES: 60 million bbl

GAS RESERVES: 1.38 tcf

The outlook for Japan`s energy market and the shaping of key government and company energy policies were at a critical point in 1998.

Government officials had to grapple with questions over the future shape of Japan`s energy mix, considering the Kyoto climate change treaty and the proposed Northeast Asian gas grid.

Although Japan was one of the biggest natural gas consuming nations, its gas supply network was embryonic.

For a Northeast Asian gas grid to be fully realized, Japan needed to build a domestic gas supply network beyond the string of LNG terminals dedicated to electric power plants.

The Institute of Energy Economics Japan prepared a report on those issues for the Ministry of International Trade and Industry.

Noting a slowdown in Japanese demand growth, it said, "With respect to energy policy measures, the main current of deregulation on the one hand and the sharp reduction in greenhouse gas emissions dictated by the Kyoto summit on the other contradict each other, making the prospect for the ultimate solution of the problem still far from certain."

The ministry was considering lifting an 18-year ban on constructing oil-fueled thermal power plants. It also planned to support a proposal to bring natural gas to Japan from the Sakhalin area via pipeline and to encourage domestic construction of nuclear power plants.

The moves were part of a drive to help stem global warming by reducing coal use. Coal-based power plants emit 20% more carbon dioxide than petroleum-based plants, and 60% more than gas-fired units, MITI said.

The ministry wanted 20 nuclear power plants built by fiscal 2010 to raise the nation`s nuclear power supply percentage to 45% from 35% in fiscal 1996.

It also planned to curb the growth in power demand to an 1.2%/year through fiscal 2010 by toughening energy-saving regulations for household appliances. Without action, growth was expected to be 2.1%/year through 2010.

Japan was examining the possibility of building a national gas pipeline system to lessen its dependence on nuclear and other fossil fuels with higher carbon dioxide emissions.

Japan was the world`s seventh largest natural gas consumer in 1997 at 2.2 tcf of gas, amounting to 12% of primary energy consumption-mostly LNG imported for electricity generation.

LNG fueled more than 25% of Japan`s electric power generation, while nine power companies consumed more than 50% of total gas supply.

Marketing

Japan`s economic woes forced more reorganization and rationalization.

Mitsubishi Oil, which was merging with Nippon Oil (Nisseki), planned to split off its refining operations and join them with Nippon Petroleum Refining, a Nisseki subsidiary.

The new refining company would manage four refineries: the 385,000 b/d Negishi plant, the 75,000 b/d Kawasaki plant, the 230,000 b/d Mizushima plant, and the 170,000 b/d Muronan plant. The two firms were considering closing the Kawasaki plant.

Exxon`s Japanese marketing units, Esso Sekiyu KK and General Sekiyu KK, were reducing staff and were considering integrating branches as well as head offices.

Nippon Oil Co. and Japan Energy Corp. planned to save on distribution costs with a cross-supply agreement.

Nippon Oil would supply Japan Energy service stations on the northern island of Hokkaido with about 360 million l./year of products from its Muroran refinery, while Japan Energy would supply a like amount to Nippon Oil stations in north-central Japan (Kanto) from an affiliated facility in Ibaraki Prefecture.

Nippon Oil had supplied its northern Kanto operations from its Yokohama refinery, while Japan Energy supplied stations in Hokkaido from the Ibaraki affiliate. Nippon Oil already participated in similar arrangements with Idemitsu Kosan Co. and Mitsubishi Oil Co.

Japan`s marketers were planning to close at least 20% of their operating stations. If plans proceeded, about 10,000 of Japan`s 59,615 stations would be closed within 3 years. Some observers said marketers must halve the number of service stations to achieve significant economic gains.