Resource-poor Japan depends overwhelmingly on fossil-fuel imports to meet its energy needs, complicating calls for the nation to boycott Russia’s oil and liquefied natural gas (LNG) after Moscow’s invasion of Ukraine.
Japan gets most of its primary energy needs from crude oil, more than 90% of which comes from the Middle East, based on government data. LNG comprises about 24% of the total energy mix.
But LNG takes up a bigger piece of the pie when it comes to electricity production, at 36%.
That dependence has increased since 2011, when most of Japan’s nuclear facilities were idled after the massive earthquake and tsunami that triggered meltdowns at a plant in Fukushima.
Until it was overtaken by China last year, Japan was the world’s largest importer of LNG, accounting for about 22% of the total market, according to the US Energy Information Administration.
The LNG supply is primarily used in electricity production, but it is also used for heating and cooking in most residential households.
Australia was the biggest single supplier of LNG at 36% of Japan’s imports as of last year, followed by Malaysia with 14%. Russia accounts for 9%, the same as the US.
Japan could thus replace its Russian LNG supply, but that would only compound a surge in global prices, as demand for non-Russian gas grows while supply shrinks.
Asia LNG spot prices rocketed to a record of more than $59 per metric million British thermal units (mmBtu) recently, compared with less than $3 per mmBtu before the start of the Covid-19 pandemic.
Japan has more leeway with its crude oil supplies. The country’s top refiners have said they would be able to find replacements in the global spot market in the event of disruptions of Russian crude as it accounts for less than 4% of their total imports.
Tokyo also held 480 million barrels, or 240 days’ worth of oil reserves in national and private stockpiles as of December 2021.
But there are only two to three weeks of LNG inventories because Japan does not have underground storage facilities, as is common in Europe, and long-term storage is not possible due to evaporation.
The effect is already being felt in Japanese households in the form of surging power bills.
The surging costs also add to inflationary pressures that have been compounded by supply chain disruptions related to the coronavirus pandemic.
So far, Bank of Japan governor Haruhiko Kuroda has ruled out tightening monetary policy to deal with those pressures.
For Prime Minister Fumio Kishida’s government, however, the increase in consumer energy prices could impact the government’s popularity ahead of critical Upper House elections this summer.
- Reuters, with additional editing by George Russell