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Japan’s Energy Developments and TPP: Cases on Petroleum, Natural Gas and Coal
Farhad Taghizadeh-Hesary, Ph.D.Faculty member, Keio University Visiting Professor, The University of TokyoAssistant to Dean, Asian Development Bank Institute (ADBI)
Taiwan Research Institute
Aug 22, 2016
1
The views expressed in this presentation are the view s of the authors and do not necessarily reflect the views or policies of the Asian Development BankInstitute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy ofthe data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent withADB official terms.
08/22/2016 2
Outline:
1- Importance of energy in Japan’s trade
2- Fukushima and the Japan’s energy mix
3- How a disaster could affect the energy consuming sectors?
4- Recent Developments in Japanese energy policy
5- TPP and the U.S. – Japan energy trade
6- Concluding remarks
08/22/2016 3
1- Importance
of energy in Japan’s trade
1. Importance of energy in Japan’s trade
Japan is one of the world largest energy consumers. It is the world’s largest
liquefied natural gas (LNG) importer, the second-largest coal importer, and
the forth-largest net oil importer.
08/22/2016 4
Japan Imports by Principal Commodity, 2015(Thousands of US dollars)
Foodstuff, 57,885,820Raw Materials, 40,145,431
Others, 93,720,937
Chemicals, 64,020,940
Manufactured Goods, 58,213,908
Machinery, 58,445,248
Electrical Machinery, 99,359,011
Transport Equipment, 25,843,321
Crude Oil, 67,637,644
Petroleum Products, 15,063,903
LNG, 45,689,768
LPG, 5,391,128
Coal, 16,323,144
Mineral Fuels, 150,105,587
Source: Japanese Trade and Investment Statistics (2016). Japan External Trade Organization (JETRO)
Japan’s crude oil and LNG import by source
08/22/2016 5
Saudi Arabia34%
UAE24%
Qatar11%
Kuwait7% Iran
5%Russia
8%
Rest of the world11%
Qatar18%
UAE6%
Australia21%
Brunei6%
Indonesia7%
Malaysia17%
Nigeria4%
Other6%
Russia10%
Oman5%
LNG Imports, 2013
Source: BP Statistical review of World Energy 2014.
Other: Algeria, Egypt, Norway, Equatorial Guinea, Trinidad, Yemen, Peru,
Angola, re-exported amounts.
Source: Japan’s Ministry of Finance, Global Trade Information Services
Crude Oil Imports, 2014 (11months)
08/22/2016 6
Japan’s Import ratio of Energy supply
Source: General Energy Statistics (Agency of Resource and Energy, METI, Government of Japan)
Due to Fukushima Nuclear disaster Japan is dependent on imports for
beyond 95 percent of its energy supply.
75
80
85
90
95
1002
00
0.0
1
20
00
.07
20
01
.01
20
01
.07
20
02
.01
20
02
.07
20
03
.01
20
03
.07
20
04
.01
20
04
.07
20
05
.01
20
05
.07
20
06
.01
20
06
.07
20
07
.01
20
07
.07
20
08
.01
20
08
.07
20
09
.01
20
09
.07
20
10
.01
20
10
.07
20
11
.01
20
11
.07
20
12
.01
20
12
.07
20
13
.01
20
13
.07
Fukushima Nuclear Disaster
per
cen
tage
08/22/2016 7
2- Fukushima and the
Japan’s energy mix
08/22/2016 8
Primary Energy Consumption in Japan
by type based on thermal values (2000 January to 2013 December)
Notes: Thermal values are based on General Energy Statistics (Agency of Resources and Energy).
The data include estimated values. Sources: Ministry of Economy, Trade and Industry of Japan.
Monthly Statistics of Electric Power, Coal Statistics Report, Oil Statistics Report. Monthly Statistics of Demand and
Supply of Energy, Trade Statistics.
-5000
0
5000
10000
15000
20000
25000
30000
20
00
.01
20
00
.07
20
01
.01
20
01
.07
20
02
.01
20
02
.07
20
03
.01
20
03
.07
20
04
.01
20
04
.07
20
05
.01
20
05
.07
20
06
.01
20
06
.07
20
07
.01
20
07
.07
20
08
.01
20
08
.07
20
09
.01
20
09
.07
20
10
.01
20
10
.07
20
11
.01
20
11
.07
20
12
.01
20
12
.07
20
13
.01
20
13
.07
10
^10
kilo
calo
ries
Oil GasCoal NuclearHydro power + Geothermal
Petroleum & other liquids44%
natural gas22%
coal27%
hydro4%
nuclear1%
other renewables2%
Japan’s Total energy consumption
2013
Fukushima and the Japan’s Energy mix
08/22/2016 9
• Two of the most important
developments affecting world
energy markets in recent years
were the Fukushima nuclear
accident in March 2011 and
the shale gas boom that has
made the US the world’s
largest producer of oil and gas
• Since the Fukushima Nuclear
disaster and the subsequent
nuclear shutdown. the
percentage of fossil fuels
has been increasing, as a
substitute for nuclear power as
fuel for power generation.
• Before Fukushima , Japan had
ranked as the third-largest
generator of nuclear power
in the world.
29 29
112 1 0
25 25
25
28 30 31
29 29
4043 43 46
7 814 18 15 11
8 9 9 8 9 91 1 2 2 3
0
10
20
30
40
50
60
70
80
90
100
FY2009 2010 2011 2012 2013 2014
Perc
ent
Power general fuel mix of the 10 EPCOs in Japan
Nuclear
Coal
LNG
Oil, LPG, and other gas
Hydro
Geothermal and renewable energy
Source: Federation of Electricity Power Companies, METI
1008/22/2016
• The level of dependence on petroleum, which had been on a declining
trend in recent years, increased to 47.2 percent in fiscal 2012.
• Result of elimination of nuclear power generation and substituting it with
fossil fuels was that the energy self-sufficiency percentage* reduced
from 19.6 in 2000 fiscal year to 8.6 in 2013 fiscal year
• Above shows, how much oil is important in Japanese energy mix,
hence it expected that oil price movements have significant effects on
Japanese macroeconomic variables including the economic growth and
the inflation rate and several scholars have showed this. (see inter alia:
Taghizadeh-Hesary et al. 2013; 2015a, Yoshino and Taghizadeh-
Hesary, 2015a).
*Energy self-sufficiency ratio = Domestic production of primary energy (including nuclear)/Domestic supply ofprimary energy × 100
After Fukushima, “Oil” plays more significant
role in the Japanese economy
1108/22/2016
3- How a disaster could
affect the energy
consuming sectors?
Crude Oil Consumption by Sector in Japan, 1982–2013
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
2002
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
10
billio
n c
alo
rie
s
Transportation
Residential
Energy power
Non-energy
Industrial
Commercial
Source: Energy Data and Modelling Center (EDMC) database of the Institute of Energy Economics, Japan (IEEJ).
08/22/2016 12
Source: Taghizadeh-Hesary, Rasoulinejad, Kobayashi (2015)
08/22/2016 13
Year 1990 Year 2014
Fukushima nuclear disaster
(March 2011)
Higher sensitivity of Japanese economic
sectors to oil price fluctuations
lower sensitivity of Japanese
economic sectors to oil price
fluctuations
Taghizadeh-Hesary et al 2015, investigated the effects of imported crude oil
price fluctuations on oil consumption in various economic sectors in Japan.
And compared it before and after Fukushima disaster.
They concluded that the transportation, industrial, and commercial
sectors in Japan have a high negative sensitivity to oil price positive
impulses.
The results of this paper show that in the second sub-period, in the wake of
the Fukushima nuclear incident, because the country’s dependency on oil
increased, almost all economic sectors had lower sensitivity to oil price
fluctuations.
08/22/2016 14
4- Recent Developments in
Japan’s energy policy
08/22/2016 15
Japanese GDP Trends (1990-2015)
-8
-6
-4
-2
0
2
4
6
8
400,000
420,000
440,000
460,000
480,000
500,000
520,000
540,000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Per
cen
tage
Bill
ion
Yen
Year
GDP (constant prices) GDP (current prices) GDP ( constant prices, percent change)
Source: World Economic Outlook Database, October 2015, International Monetary Fund (IMF)Note: GDP, gross domestic product. Data for 2015 is IMF staff estimates.
Since the burst of the Asset price bubble of Japan, Japanese economy went
into a tailspin. “Abenomics” is still in question.
08/22/2016 16
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1950
1955
1960
1965
1970
1975
1980
198
5
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
Per
cen
tage
Year
ten
th
ou
san
ds
Age 14 and less Age 15～64
Age 65 and over Aged Population Ratio
Working Population Ratio (15-64) Total Fertality Rate (TFR)
ForecastHistory
Age 14 and under
Aged population ratio
Total fertality rate (TFR)Working population ratio (15-64)
Source: Ministry of Internal Affairs and Communications, Japan.
Japan faces aging population and working population is diminishing drastically
5236
21
30
27
23
5
5
5
20
17
14
32
27
25
22
22
18
17
15
13
16
16
4
0
50
100
150
200
250
2010 2020F 2030F
Mill
ion
KL
Petroleum product demand forecast
Others
LPG
Heavy oil
Light oil
Heating oil
Jet fuel oil
Naphtha
Gasoline
Implication to Energy market:Demand for petroleum products is significantly shrinking
194
165
133
-15% -30%
Source: Advisory Committee for Natural Resources and Energy (METI, June 2013)08/22/2016 17
29 29
112 1 0
25 25
25
28 30 31
29 29
4043 43 46
7 814 18 15 11
8 9 9 8 9 91 1 1 2 2 3
0
20
40
60
80
100
120
FY2009 2010 2011 2012 2013 2014
Perc
ent
Power general fuel mix of the 10 EPCOs
Geothermal andrenewable energy
Hydro
Oil, LPG, andother gas
LNG
Coal
Nuclear
Japanese government plans to resume nuclear, but uncertainty lies
Twh957
Source: Federation of Electricity Power Companies, METI
1006 955 942 941 910
Nuclear, 21
Coal, 26
LNG, 27
Oil, 3
Hydro, 9
Solar, 7
Geothermal, wind,
biomass, 6.5
2030 (Government Outlook)
1065
08/22/2016 18
Refining capacities are shutting down, and foreign players are leaving from Japan
Source: Petroleum Association of Japan; Ministry of Economy, Trade and Industries (METI)
,McKinsey & Co. report on Japan, 2016
08/22/2016 19
5355
4770 4830 4895 4835 47934616
4479 4475 4391
3947 3917
3550
78
87.182.3
82.279.8
75.377.9 75.7
7678.5
81.2
50
55
60
65
70
75
80
85
90
95
100
0
1000
2000
3000
4000
5000
6000
2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Utiliz
ation r
ate
, %
Cru
de r
efi
nin
g c
ap
acit
y, T
ho
usand B
D
Crude capacity Utilization rate
targetDivestiture of
Tonen General
by Exxon Divestiture of
Showa Shell by
Shell
Crude oil refining capacity and utilization rate of Japanese refineries
FY
Power market liberalization: an energy policy to reduce the costs
Source: Federation of Electricity Power Companies; METI
Po
we
rG
as utilitie
s
Step 1Establishment of “organization for cross-regional coordination of transmission operators”
Step 2
Full Liberalization of electricity retail business
Step 3Legal unbundling of transmission/distribution of EPCOs and full liberalization of tariffs
Step 1
Full Liberalization of gas utility retail business
Step 2Legal un-bundling of gas pipe-lines
2015 2016 2017 2018 2019 2020 2021 2022
Deregulation of Japanese power/gas utility markets
08/22/2016 20
LNG and thermal coal imports have been increasing after Fukushima,
54 55 54
5957 58
62
6769
65
70
79
87 8789
0
10
20
30
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mill
ion
To
ns
LNG Imports to Japan
08/22/2016 21
5- TPP and the U.S. – Japan energy trade
08/22/2016 22
-TPP and Energy
08/22/2016 23
• The TPP negotiations initially included four countries with which the
United States already has bilateral FTAs (Chile, Peru, Singapore,
and Australia, which is also Japan’s largest supplier of coal and
LNG),
• Two oil and gas exporters: Brunei and Malaysia
• And New Zealand and Vietnam.
• Canada and Mexico, neighboring U.S. energy trading partners and
members of the North American Free Agreement (NAFTA), joined
negotiations in October 2012.
• Japan joined in July 2013.
• Prior to that, however, the leaders of the then nine TPP countries on
November 12, 2011, announced that they had achieved agreement on
numerous issues and released a detailed outline of the TPP framework,
which never once mentioned the word “energy.”
5-1. Coal
08/22/2016 24
Japan is 100%
dependent on foreign
coal to meet its needs.
Although Japan’s demand
for coal is expected to
grow even further, its
trade in coal with the
United States is still
relatively modest.
Japan relies on
Australia for almost
two-thirds of its coal
imports, while the U.S.
share is only 3%.
However, there is an
opportunity for the U.S.
share to grow given the
abundance of coal that
exists in the United
States.
08/22/2016 25
• The United States has the richest
coal reserves in the world,
equivalent to over two hundred years
of domestic demand and over 25%
of the global supply base.
• It recently became the world’s third-
largest coal exporter, due in part to
cheaper shale gas displacing coal in
U.S. power-generation markets. is
coal was then shipped to Europe,
where it replaced more expensive
natural gas.
The United States has the richest coal reserves in the World
• As a result, coal exports more than doubled between 2009 and 2012 to a
record 126 mt.
• Looking ahead, the EIA projects that U.S. coal exports will increase to 161 mt
by 2040, with new exports mostly coming from the West Coast
08/22/2016 26
• The Powder River Basin (PRB) in
Wyoming and Montana is likely the
primary source of these potential
new coal exports to Japan, as it
contains the world’s largest deposits
of low-sulfur, sub-bituminous coal.
• The fifteen or so mines operating
there produce 40% of U.S. steam
coal output, and there is potential
for expansion.
• IEA: “PRB could be game
changer in global coal markets.”
The Powder River Basin (PRB) is likely the primary source of
these potential new coal exports to Japan
Image: Export avenues from U.S. coal project in PRB
• IEA: PRB would have the short-term effect of decreasing international
coal prices by up to $15 per ton.
08/22/2016 27
Environmental concerns and infrastructure limitations in
the west coast might restrict the US coal export to Japan
• There is limited capacity
on the West Coast to
export coal, and
significant investment in
expansion of port, rail
and mining infrastructure
is needed.
• new ports in Oregon and Washington will add approximately 50 MT of
annual export capacity however these are not enough.
• The outlook for increased coal exports out of the Pacific Northwest is clouded
by environmental concerns and resistance by local stakeholders.
5-2. Oil
08/22/2016 28
• Japan consumes about
4.7 million barrels per
day (mmbd) of oil,
almost all of which is
imported, and is
dependent on the
Middle East for
approximately 80% of its
oil supplies.
• The U.S., is only a small
supplier of crude and
product to Japan.
• In 2011 the US became a net exporter of refined products for the first time
since 1949, and currently exports a net balance of about 1.5 mm bd. Of this
amount, Japan accounts for about 135,000 barrels per day on average,
29
Cheap oil prices will limit unconventional oil supply
2015 2016 2017 2018 2019 2020 2021
World Demand 94.4 95.6 96.9 98.2 99.3 100.5 101.6
Non-OPEC Supply 57.7 57.1 57.0 57.6 58.3 58.9 59.7
OPEC Crude* 32.8 33.0 33.0 33.2 33.5 33.6 32.0
OPEC NGLS etc 6.9 7.0 7.1 7.1 7.1 7.2 6.7
Total World Supply* 96.4 96.7 97.0 97.8 98.7 99.5 100.5
Implied Stock Change 2.0 1.1 0.1 -0.4 -0.7 -1.0 -1.1
Source: IEA (2016). Note: *OPEC actual output in 2015. Assumes a post-sanctions increase for Iran in 2016 and adjusts for OPEC
capacity changes thereafter. Orange parts in this table are the projections by IEA. NGLs stands for Natural gas liquids
Global balance summary (million barrels per day)
Recent Global Spot Oil price Movements (Jan 04, 2010- July 18, 2016)
(Jan 04, 2010- July 18, 2016)
0
20
40
60
80
100
120
140
Jan
04
, 20
10
Mar
04
, 20
10
May
04
, 20
10
Jul 0
4, 2
01
0
Sep
04
, 20
10
No
v 0
4, 2
01
0
Jan
04
, 20
11
Mar
04
, 201
1
May
04
, 20
11
Jul 0
4, 2
01
1
Sep
04
, 20
11
No
v 0
4, 2
01
1
Jan
04
, 20
12
Mar
04
, 20
12
May
04
, 20
12
Jul 0
4, 2
01
2
Sep
04
, 20
12
No
v 0
4, 2
01
2
Jan
04
, 20
13
Mar
04
, 20
13
May
04
, 20
13
Jul 0
4, 2
01
3
Sep
04
, 20
13
No
v 0
4, 2
01
3
Jan
04
, 20
14
Mar
04
, 20
14
May
04
, 20
14
Jul 0
4, 2
01
4
Sep
04
, 20
14
No
v 0
4, 2
01
4
Jan
04
, 20
15
Mar
04
, 20
15
May
04
, 20
15
Jul 0
4, 2
01
5
Sep
04
, 20
15
No
v 0
4, 2
01
5
Jan
04
, 20
16
Mar
04
, 20
16
May
04
, 20
16
Jul 0
4, 2
01
6
US
Do
llars
per
Bar
rel
WTI
Brent
Note: WTI price is Cushing, OK WTI Spot Price FOB (Dollars per Barrel), Brent price is Europe Brent Spot Price FOB (Dollars per Barrel). Source: Spot Prices for Crude Oil and Petroleum Products, Thomson Reuters, Release date: 7/20/2016
5-3. Natural gas
08/22/2016 30
• Japan accounted for 37% of world
trade in LNG in 2012, with no single
source.
• Traditionally, the power sector has
accounted for just over half of
Japanese demand for natural gas.
• After the Fukushima LNG
consumption by electric utilities
grew by roughly 33% from 2 trillion
cubic feet (tcf) in 2010 to 2.7 tcf in
2012.
• EIA calculated rose from $9 per million British thermal unit (mmbtu) before the
crisis to $16 mmbtu in 2012, an increase of 78%.
Japan has high demand for cheap LNG
• This translated into a 24% jump in LNG imports from 3.5 tcf per year in 2010 to
4.3 tcf per year in 2012.
31
• the outlook for U.S. shale gas revolution resulted in a drastically shift in LNG
export. Whereas in 2008 shale gas production was 5 bcf per day, production soared to 32
bcf per day in 2014, an increase of over 600%.
• For countries with which the US does not have FTAs, the Department of Energy (DOE)
must issue export permits unless such exports are determined through a public process
to be inconsistent with the public interest.
• Under a new set of procedures finalized in August 2014, this review occurs after either
the Federal Energy Regulatory Commission (FERC) or the Maritime Administration
(MARAD)—in the case of offshore facilities—has approved the siting of the proposed
project’s LNG export terminal. Obtaining facility approval from either agency is a
lengthy and expensive proposition.
There are some legal barriers for US natural gas export
LNG projectJapanese
companies
Estimated volume
(bcf/year)
DOE/FERC
approval
Starting delivery
date
Cameron (LA) Mitsubishi and Mitsui 384 Yes 2018/2019
Cove Point (MD)
Sumitomo,
Tokyo Gas, and
Kansai Electric
Power
110 Yes 2017/2018
Freeport (TX)
Osaka Gas and
Chubu Electric
Power
100 Yes 2018/2019
source : EIA; LNG project websites; and Jason Bordoff and Trevor Houser, “American Gas to the Rescue,” Columbia Center on Global Energy Policy, September 2014
FERC: Federal Energy Regulatory Commission.
The Energy Products Sector includes products such as turbines, solar cells,
static convertors, civil nuclear equipment, and high-voltage electric
conductors
5.4. Energy related products
Source: International Trade Administration, Department of Commerce, U.S.
08/22/2016 32
TPP Implementation Offers
New Opportunities for U.S. Exporters
Japan’s efforts to diversify its energy sources is expected
to generate significant growth in the renewable energy
sector, including solar power, wind power, geothermal,
and biomass. Projections indicate that Japan will install
more renewable energy capacity over the next two years
than any country but China. While the Japanese renewable
energy market has always been important to U.S.
companies, Japan’s decision to use policy incentives to
adjust its energy mix has increased the demand for
renewable energy technologies over the last three years,
providing additional opportunities for U.S. exporters
Market Opportunity Spotlight
Japan – Renewable Energy
08/22/2016 33
6. Concluding remarks
08/22/2016 34
• Due to Fukushima Nuclear disaster Japan is dependent on imports for beyond 95
percent of its energy supply.
• After Fukushima, Oil, Gas and Coal play more significant role in the Japanese
energy mix.
• In the wake of the Fukushima nuclear incident, because the country’s
dependency on oil increased, almost all economic sectors had lower sensitivity to
oil price fluctuations.
• Demand for petroleum products will be significantly shrinking in Japan.
• US could be a potential supplier of Oil, LNG and Coal to Japan
• The barriers in this middle could not be solved by TPP. The issues are i)
infrastructure limitations and environmental issues in US (coal), ii) legal barriers
(natural gas), and iii) high production costs (shale oil)
• TPP could promote energy related products trade between Japan and the U.S.
Reference
08/22/2016 35
1. “Monetary Policy and the Oil prices” (2016). N. Yoshino and F. Taghizadeh-Hesary. eds. Tokyo:Springer
2. N. Yoshino and F. Taghizadeh-Hesary. (2016), Causes and Remedies of the Japan's Long-lastingRecession: Lessons for China. China & World Economy, 24: 23–47. doi: 10.1111/cwe.12149
3. F. Taghizadeh-Hesary. and N. Yoshino and (2015) “Macroeconomic effects of oil pricefluctuations on emerging and developed economies in a model incorporating monetaryvariables”. Economics and Policy of Energy and the Environment. Issue 2: 51-75, DOI:10.3280/EFE2015-002005
4. N. Yoshino and F. Taghizadeh-Hesary (2015) “Effectiveness of the Easing of Monetary Policy inthe Japanese Economy, Incorporating Energy Prices”. Journal of Comparative AsianDevelopment. 14(2): 1–22. DOI:10.1080/15339114.2015.1059059
5. N. Yoshino and F. Taghizadeh-Hesary (2015) “An Analysis of Challenges Faced by Japan’sEconomy and Abenomics”. The Japanese Political Economy. 40: 1–26.
6. DOI: 10.1080/2329194X.2014.9985917. Yoshino, N. and Taghizadeh-Hesary, F. (2014), ‘Monetary Policies and Oil Price Fluctuations
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8. Taghizadeh-Hesary, F. and Yoshino, N. (2014), ‘Monetary Policies and Oil Price Determination:An Empirical Analysis’, OPEC Energy Review, 38 (1): 1-20, DOI: 10.1111/opec.1202
9. Taghizadeh-Hesary F., Yoshino, N., Abdoli, G. and Farzinvash, A. (2013), ‘An Estimation of theImpact of Oil Shocks on Crude Oil Exporting Economies and their Trade Partners’, Frontiers ofEconomics in China, 8(4): 571–591, DOI: 10.3868/s060-002-013-0029-3
South-Pars, Iran
World largest conventional gas reservoir
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Thank you for your Attention
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Photo credit: IRNA
08/22/2016
