Oil analysis of Japan

Japan has very limited domestic oil reserves, amounting to 44 million barrels as of January 2012, according to the Oil and Gas Journal (OGJ), down from the 58 million barrels reported by OGJ in 2007. Japan’s domestic oil reserves are concentrated primarily along the country’s western coastline. Offshore areas surrounding Japan, such as the East China Sea, also contain oil and gas deposits; however, development of these zones is held up by competing territorial claims with China. While a preliminary accord was reached between the two governments in May 2008 over two fields – Chunxiao/Shirakaba and Longjing/Asunaro – in September 2010, Japan urged China to implement the agreement as tensions rose over the contested area.

Consequently, Japan relies heavily on imports to meet its consumption needs. Japan maintains government-controlled oil stocks to ensure against a supply interruption. Total strategic oil stocks in Japan were 589 million barrels at the end of December 2011, with 55 percent being government stocks and 45 percent commercial stocks. Japan consumed an estimated 4.5 million barrels per day (bbl/d) of oil in 2011, making it the third largest petroleum consumer in the world, behind the United States and China. However, oil demand in Japan has declined overall since 2000 by nearly 20 percent. This decline stems from structural factors, such as fuel substitution, an aging population, and government-mandated energy efficiency targets. In addition to the shift to natural gas in the industrial sector, fuel substitution is occurring in the residential sector as high prices have decreased demand for kerosene in home heating. Japan consumes most of its oil in the transportation and industrial sectors. Japan is also highly dependent on naphtha and low sulfur fuel oil imports. Demand for naphtha is falling as ethylene production is gradually being displaced by petrochemical production in other Asian countries. However, demand for low-sulfur fuel oil is increasing as it replaces nuclear electric power generation. Japan’s oil consumption rose slightly in 2011 by 30,000 bbl/d over 2010 due to some post-disaster reconstruction works and substitution of crude oil and low sulfur fuel oil for the suspended nuclear power after the Fukushima incident. EIA assumes that net total oil consumption will rise by another 80,000 bbl/d in 2012 if no nuclear capacity comes back online.

The Japanese government’s policy has emphasized increased energy conservation and efficiency. The government generally aims to reduce the share of oil consumed in its primary energy mix as well as the share of oil used in the transportation sector. Oil as a percentage of total primary energy demand has fallen from roughly 80 percent of the energy mix in the 1970s to about 42 percent in 2010, made possible by increased energy efficiency and the expanded use of nuclear power and natural gas. Among the large developed world economies, Japan has one of the lowest energy intensities, as high levels of investment in R&D of energy technology since the 1970s has substantially increased energy efficiency.

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