CAPITAL: TOKYO
MONETARY UNIT: YEN
REFINING CAPACITY: 4,962,660 BC/D
OIL PRODUCTION: 12,300 B/D
OIL RESERVES: 58.5 MILLION BBL
GAS RESERVES: 1.4 TCF
In July 2000 Japan announced an agreement to open its energy sector to foreign competition. The announcement came at the Group of Eight Summit of leaders from the US, Japan, Britain, Canada, Germany, France, Italy, and Russia.
The energy deregulation measures included a pledge to implement and enforce measures designed to ensure open access to the electricity transmission grid owned by utilities.
Japan would also disclose information on the development of transmission rates by utilities so new firms seeking to compete could determine if the rates were being set fairly.
To foster the shift to a competitive electricity market, Japan agreed to eliminate its antitrust exemption for electricity and gas monopolies, enforce competition guidelines, and expand them as appropriate.
Japan also agreed to establish a nondiscriminatory framework for access to its natural gas sector, set to be decontrolled in 2001. It would review the results of the initial steps in 3 years, a move expected to lead to further liberalization.
The agreement meant foreign firms would be able to produce, sell, and trade power in Japan's $135 billion electric power market.
The energy policy recommended abolishing targets for the percentage of crude imports that must come from overseas projects in which Japanese firms participate.
It also suggested a reduced role for Japan National Oil Corp. (JNOC) in funding such projects. The study said instead Japan should aim to reduce its dependence on crude oil. Japan's policy had been that imports from overseas Japanese projects should meet 30% of domestic demand, or 1.2 million b/d.
However, the Ministry of International Trade and Industry said that such numerical targets were inappropriate, given fluctuation in crude prices and the rising importance of natural gas.
For a decade, about 15% of crude imports had come from Japanese-owned projects, mostly from Japan's Arabian Oil Co. concession allowing it to produce 300,000 b/d of heavy sour crude from the Neutral Zone between Saudi Arabia and Kuwait.
In 2000 the Saudis did not renew the concession, and AOC's production was halved, also slashing much of Japan's 4 billion bbl of overseas crude reserves.
LNG
The first production of LNG from a domestic Japanese gas source was behind a supply contract signed between Japex and Asahikawa Gas Co. (AGC), a local distributor in the northern island of Hokkaido. Japex said all other LNG used in Japan was imported.
Japex had operated Yufutsu oil and gas field in Hokkaido since 1996. Production of 10 MMcfd was due to rise to 40 MMcfd by 2005. Gas was delivered through a 45-mile pipeline to various customers. Yufutsu field was the only source of gas for the island.
Japex said AGC was using LPG and wanted to switch to gas, but its limited market and the remoteness of Yufutsu field precluded laying a 120-mile pipeline.
Japex, however, decided to liquefy Yufutsu gas and deliver it by specially designed rail cars over existing tracks. The company had used this method to supply imported LNG to remote customers on the main island of Honshu.
Construction of the 150-tonne/day liquefaction plant, with storage of 1,000 tonnes, began in early 2001. Completion was due in early 2003.
Japex said that liquefaction plants of similar size were often found in the US for peak-shaving needs, but Japex's plant was designed to operate year round to meet AGC's base demand.
Japex said potential demand for LNG in Hokkaido could be large. Fifteen local distribution companies were isolated from each other, and none could afford a new pipeline or LNG import facility.
Pipelines
A MITI subcommittee recommended that JNOC oversee a project to build a gas pipeline network.
The recommendation was significant because it would give the state company a new role and because it signaled government support for a national gas pipeline grid.
The subcommittee was expected to present firm proposals to the government in 2001.
The project would consist of a 2,500-km Pacific Coast marketing-distribution trunkline linking large urban areas, a 2,500-km Sakhalin gas import trunk
line from the northern tip of Hokkaido to the strait between Honshu and Kyushu Islands, and several 200-300 km laterals crossing Hokkaido, Honshu, and Kyushu.
Only 5% of Japan's urban area was served by a gas distribution system in 2000. The three biggest city gas utilities had distribution lines limited to 50 km from the nearest LNG terminal or synthetic gas plant.
The outlying service areas and the 200-plus smaller city gas companies depended on truckload shipments of LNG or, more commonly, bottled LPG. As a result, prices were high and the price charged by the country's largest gas utility, Tokyo Gas Co., was less than half that charged by the smallest utilities.
Per capita gas use was very low in Japan compared with other high-income countries. Electric utilities used more than 50% of the country's gas supplies. LNG fueled more than 25% of Japan's electric power generation.
Refining
Japan's refining and petrochemical companies were continuing to integrate their plants under MITI's petrochemical industry restructuring program, the Renaissance Project.
The integration was not expected to solve the overcapacity problem facing both refiners and petrochemical producers.
The Renaissance Project proposed pipeline connections among the country's five biggest refining-petrochemical complexes to enable greater sharing of feedstocks. Under the plan, a single refiner would be designated the sole supplier to all the petrochemical producers at each manufacturing center, regardless of corporate affiliation.
The aim of the program was to slash production costs for naphtha and petrochemical products.
MITI said the competitiveness of the country's petrochemical industry had been undermined by the cost of Japanese oil refining, which it said was twice as high as in other countries.
Under Renaissance, MITI would fund technology development to link the facilities within the production centers, while the companies would pay construction costs.
Five production centers were chosen: Kashima, Mizushima, Kawasaki, Keiyo, and Tokuyama.
Links
Mitsubishi Chemical Corp., Asahi Chemical Industry Co. Ltd., Nippon Mitsubishi Oil Corp., and Japan Energy Co. would improve feedstock supply to ethylene plants at Mizushima.
By 2004 they were to build 10 pipelines linking Nippon Mitsubishi Oil's and Japan Energy's refineries to crackers operated by Mitsubishi Chemical and Sanyo Petrochemical Co. Ltd.
Meanwhile, Mitsubishi Chemical planned to build a pipeline linking its cracker to Kashima Oil Co. Ltd.'s refinery along similar lines to the project at Mizushima. Completion was due by 2003.
At the Kawasaki complex, Showa Shell Sekiyu KK and Toa Oil Co. Ltd. agreed to link their refineries in 2001 and were considering including Tonen Corp.'s plant, giving them a combined capacity of 480,000 b/d.
At nearby Keiyo, Nippon Mitsubishi Oil planned to link with Cosmo Oil Co.
The five oil companies eventually will feed the various petrochemical units operated in the zone by Mitsui Chemical Inc., Idemitsu Petrochemical Co., Sumitomo Chemical Co., and Maruzen Petrochemical Corp.
Oil industry analysts said Renaissance failed to address the overcapacity problem. Japan's refining capacity was 5.3 million b/d at the start of 2000, and analysts said it should be reduced up to 20%.
Reductions had been few. Nippon Mitsubishi Oil was considering closing its 75,000 b/d refinery at Kawasaki. It shut its 26,000 b/d refinery at Niigata. Showa Shell closed its 40,000 b/d Niigata refinery and planned to reduce output 50,000 b/d at its Kawasaki and Yokkaichi refineries. Japan Energy planned to cut its production 100,000 b/d.
