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Threats to oil supply security in the past! The 1 st Oil Crisis(Yom Kippur war, Arab oil embargo)! The 2 nd Oil Crisis(Iranian revolution, Iran-Iraq war)! The Gulf Crisis(Iraqi invasion of Kuwait, Gulf war)! Sharp price increase since 1999 ?2

Trend in the world oil priceiUSD/bblj402nd Oil Crisis35302520151051st Oil CrisisGulf Crisis01969 72 75 78 81 84 87 90 93 96 99•Source)Prepared by IEEJ based on BP Statistics3

Japan’s s perception on oil supply security! Japan is vulnerable to oil supply shock! Serious concern over physical shortageparticularly after the Arab oil embargo! Concerns over macro economic impactsof the higher oil prices! Over-dependence on single source ofenergy (oil) and import (Middle East)should be reduced4

Japan’s s strategies to enhance oilsupply security! Diversification in energy mix! Diversification in import source! Energy conservation! Emergency preparedness! Strengthening ties with oil producers5

Diversification in energy mix! Diversification away from (Middle East)oil regarded as important policy target! Alternative energy development and oilimport source diversification becamecrucial policy element in Japan6

Nuclear power development in Japan! Diversification in power source (shift from oil-firedpower)! Quasi-domestic energy source! No SOx, NOx, CO2 emission! However, strong anti-nuclear movement continuedto exist•To promote nuclear power development, legislation,tax and special accounts were introduced (i.e.,Special Account for Electric Power DevelopmentAcceleration Measures, Special Account forElectric Power Diversification, etc.7

Nuclear power generation in JapanBillion kwh35030025020015010050Power generationShare in TPES%16141210864200FY196519671969197119731975197719791981198319851987198919911993199519971999•Source)Prepared by IEEJ based on IEEJ/EDMC Statistics8

Promotion of natural gas (LNG) in Japan! Power industry and city gas industry recognized theneed to diversify from oil! LNG, as long-term and stable form of import! Promotion of LNG as “clean energy” (to cope withair pollution and global warming)! Imports mainly from Asia-Pacific countries! Technological development (CCGT, etc.)! Important energy source for both power industryand city gas industry (major companies)! Government support (Special account, variousassistance measures) became available9

Natural gas (LNG) consumption in Japanmillion tonne605040302010Total LNG consumptionShare of LNG in total primaryenergy supply in Japan1412108%6420019691971197319751977197919811983FY19851987198919911993199519971999•Source)Prepared by IEEJ based on IEEJ/EDMC Statistics10

Coal utilization in Japan! Coal, once dominant energy source in Japan! Reduction in domestic coal production, butcoal imports from Australia expanded rapidly! Up to the early 1970s, there was an eminentshift from coal to oil in Japanese energy mix! After the oil crises, the importance of coal wasrevisited (supply stability and costcompetitiveness)! Need to tackle with the environmentalproblems11

Coal supply in Japanmillion tonne16014012010080604020Total coal supplyShare in total primary energysupply70605040%3020100019451955196519671969197119731975197719791981FY198319851987198919911993199519971999•Source)Prepared by IEEJ based on IEEJ/EDMC Statistics12

Development of “New energy” in Japan! “New energy” such as wind, solar, geothermalregarded as domestic energy! “New energy” in transportation sector regarded asimportant to limit oil demand! Advanced new energy system (fuel cell, districtheating, co-generation, etc.) can limit energydemand and limit emissions! Support by various policy initiatives (Sun ShineProject, the establishment of laws, special accountsand financial assistance)! NEDO as the central body to implement policy topromote new energy development13

Supply of “New energy” in Japan807060Supplies of "new energy" andothersShare in total primary energysupply1.61.41.2trillion kca504030201010.801965196719691971197319751977197919811983198519871989199119931995199719990.60.40.2%0FY•Source)Prepared by IEEJ based on IEEJ/EDMC Statistics14

100%90%80%70%60%50%40%30%20%10%0%Changes in Japan’s s fuel mix1970 1975 1980 1985 1990 1995 1999New energyHydroNuclearGasCoalOil•Source)Prepared by IEEJ based on IEEJ/EDMC Statistics15

Oil import source diversification! Middle East dependence exceeded 90% in the late1960s! Need to reduce risks with respect to oil import(disruption risk, market power risks, etc.)! Importance of low sulfur crude oil! Efforts to increase imports from such countries asChina, Indonesia and Mexico! However, import economics (fitting to refineryconfiguration, transportation cost, etc.) and importavailability emerged as major constraint16

Crude oil imports from non Middle Eastsourcemillion k80706050403020100OthersMexicoChinaIndonesia1970 1975 1980 1985 1990 1995 1999FY(Source)Koyama, K., “Japan’s Energy Strategies Towards the Middle East”17

Japan’s s dependence on Middle East crude oilmillion kl250%10090200807015060Volume50100Share in total import403050201000FY19501953195619591962196519681971197419771980198319861989199219951998(Source)Koyama, K., “Japan’s Energy Strategies Towards the Middle East”18

Imports of Japanese developed crude oilas a source of diversification(Million Kl) (%)4518403530252015105VolumeShare in total import16141210864201961196319651967196919711973197519771979198119831985198719891991199319951997FY(Source)Koyama, K., “Japan’s Energy Strategies Towards the Middle East”1999019

Japan’s s dependence on Middle Eastenergy imports in TPES250,000Million kcalLNG%60200,000Oil productsCrude oil55Share in T PES50150,00045100,0004050,000350301970 1975 1980 1985 1990 1995 1999 FY•Source)Prepared by IEEJ based on IEEJ/EDMC Statistics20

Energy conservation in Japan! Reduce energy demand and improve self-sufficiency! Reduce emissions from energy use and help theenvironment! Reduce energy input (costs) and improve economiccompetitiveness! Government support by legislation (Energyconservation law, etc) and financial assistancetoward energy conservation! Achievement in higher energy efficiency of energyappliances (micro energy conservation) and shifttowards less energy intensive industry structure(macro energy conservation)21

Energy intensity in JapanIndex(100=FY 1973)250kcal/yen181620014150121010050Real GDPTPESEnergy intensity8642FY0197319751977197919811983198519871989199119931995199719990(Source)Koyama, K., “Japan’s Energy Strategies Towards the Middle East”22

Japan’s s emergency preparedness! Experience of the oil crises made Japan fully realizethe need to improve emergency preparedness! Enhancement of private stockpile obligation (up to90 days cover, later reduced to 70 days cover)! Establishment of national stockpile, achieving thetarget of 50 million kl (crude oil)! Cooperation and coordination with IEA! Enactment of the Laws to cope with emergencysituation (Petroleum Supply and DemandOptimization Law and Emergency Measures forStabilization of National Life Law)23

Japan’s s oil stockpile(Million Kl)70605040302010Private stockNational stockDay cover of private stockDay cover of national stock(Day Cover)1201008060402000196519671969197119731975197719791981198319851987198919911993199519971999(Source)Koyama, K., “Japan’s Energy Strategies Towards the Middle East”FY24

Strengthening ties with Middle East! Foreign policy initiatives (ex., change in policytowards Arab-Israel issue at the time of the Arab oilembargo)! VIP visits to and from the Middle East! Economic assistance policy! Encouragement of FDI! However, there were numbers of constraints, i.e.,consideration of Japan-US relation, outbreak ofIranian revolution and regional wars, US sanctiontowards Iran and UN sanction towards Iraq,relatively poor economic attractiveness of FDI inthe Middle East, etc.25

Japan’s s efforts to enhance oil supply security! Share of oil continued to decline and Japan’senergy mix has been diversified! Middle East dependence in oil import declinedin the 1980s, but bottoming out! Emergency preparedness improvedsignificantly! Behind the achievement, there were suchfactors as: serious public concern over oilsupply security; full scale efforts bygovernment and industry; huge investment andgovernment spending26

Energy policy budget in Japan(100 million yen)16,00014,00012,00010,000Power Source Diversification AccountPower Site Promotion AccountOil & Energy Supply-Demand Structure Upgrading AccountCoal AccountGeneral Account8,0006,0004,0002,0000197419751976197719781979198019811982198319841985198619871988(FY)19891990199119921993199419951996199719981999(Source)Koyama, K., “Japan’s Energy Strategies Towards the Middle East”27

Conclusion! Japan’s fuel mix has been diversified and oil supplysecurity improved! To achieve this, huge investment was required! Oil supply security policy was a priority! Since the 1980s, structural changes in the world oilmarket, energy market liberalization and globalwarming issue emerged, and oil supply securitypolicy is being implemented in this new environment! Key word is “achievement of the 3Es”: economicgrowth, energy security and environmentalprotection28

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