Seeking Alpha

Will Japan Lead Us Away from Oil Dependence?

Includes: DBO, OIL, USO
by: Jim Kingsdale

With the oil price spurting to vertigo-inducing levels ($134 Thursday), attention is finally starting to focus. That’s comforting (to the extent there is any comfort as we approach the Rapid Transition), since recognizing the problem is always the first step toward its solution.

As countries learn from each other’s strategies for changing over from petroleum to electricity, I suspect Japan will be among the leaders. They are using conservation techniques and are home to companies like Nissan and Panasonic that are innovating advanced battery and automotive technology. In fact, Nissan is central to the oil-to-electricity conversion plans of both Israel and Denmark.

The article quoted below from Canada’s Globe and Mail details the history of Japan’s progress, having recognized long ago the need to use less oil and PV and having stressed nuclear, natural gas and solar. The piece fails to note the government’s push toward solar water heating. In fact, the whole area of renewable power generation is omitted. But I think the Japanese bear watching closely to see how they react to the energy crisis. Along with Israel and Denmark, the smart and scrappy Japanese are likely to come out on the other side of this problem well before the U.S. and most other countries.

Here’s the full Globe and Mail story:

As oil soars, Japan’s plan makes sense


Globe and Mail Update

May 21, 2008 at 6:00 AM EDT

By rights, the Japanese should be panicking.

Their rocky island home is all but carbon-free, so it has to import its fossil fuels. When oil prices spiked before, in the 1970s, the country experienced an “oil shock” that temporarily crippled the economy and sent nervous consumers rushing to the market for essentials.

That isn’t happening this time, even with oil prices hitting new highs close to $130 (U.S.) a barrel yesterday. Part of the reason is Japan’s remarkable success at reducing its dependence on oil.

At a time when other major economies are slurping oil at a record pace, Japan has actually reduced its imports to around 4.12 million barrels a day in 2007 from five million in 1973.

Increased energy efficiency is saving Japan about $140-billion a year, calculates Robert Feldman, the managing director of Morgan Stanley in Japan. Japan’s consumption of oil per unit of GDP has fallen to one-third of its 1973 level.

Japan certainly looks good against other major economies. The U.S., the world’s biggest net importer of oil, brings in about 13 million barrels a day, up from about six million in 1973. China, the third largest importer, just behind Japan, has seen imports grow to 7.8 million barrels a day as of last year, up from 4.2 million in 1997, a rise of 86 per cent.

How has Japan done it? Necessity, as ever, has been the mother of invention. Unlike China, which has plentiful supplies of coal, and the United States, which has lots of coal and enough oil to supply a good part of its own needs, Japan relies almost completely on foreign sources for its oil, coal and natural gas. Some of the answers have come from developing nuclear energy and new technologies, while old-fashioned conservation has also played a role.

A shortage of oil to run its military machine was one motive behind Japan’s attack on the Western powers in East Asia in the Second World War. An oil embargo was choking off the supplies needed to maintain and expand its Asian imperial conquests.

Japan was reminded anew of its dependence on foreign energy when the Arab oil embargo of 1973 sent prices soaring, making Japan’s economy shrink for the first time since the end of the war. Japan came to realize that its economic life hung on a slender, 12,000-kilometre thread – the distance tankers had to travel from the oil fields of the Middle East to Japanese ports.

Thus began a three-decade-long national effort to become less reliant on oil. Despite the public’s extreme sensitivity about nuclear energy after the trauma of Hiroshima and Nagasaki, the government invested heavily in nuclear, building a network that today includes 55 reactors and generates 30 per cent of its electricity and 11 per cent of total energy requirements. That makes Japan the third-largest producer of nuclear energy after the United States and France.

Japan also shifted away from oil to natural gas, which is available from less distant and more reliable suppliers such as Brunei and Indonesia. Natural gas provides about 15 per cent of Japan’s energy needs, up from 2.7 per cent in 1975. Oil provides about 46 per cent, down from 71 per cent. Coal accounts for about 22 per cent, up from 18 per cent, and other sources provide the remainder.

Conservation and improved energy efficiency has also played a role. Japanese cars have improved their average mileage by 30 per cent over the past decade.

Further improvements are in the works. Nissan Motor Co. plans to make its cars an average of 15 per cent lighter to raise fuel economy. And of course Japanese car makers such as Toyota have led the world on fuel-saving hybrids like the Prius. Demand for gasoline fell 1.3 per cent in March from a year earlier, partly because of prices that have hit $1.50 (Canadian) a litre, but partly because of more efficient cars.

Auto makers aren’t the only ones working on trimming energy use. Matsushita Electric Industrial, which makes Panasonic-branded products, is touting a new fuel cell capable of supplying 6o per cent of a household’s energy needs.

Experts are looking for new sources of energy, too. A state-backed drilling company has managed to extract natural gas from underground sources of methane hydrate, a kind of gas-rich ice that exists in massive amounts below Japan’s seabed. Other companies are working on extracting large amounts of methane from sewage and other bio-waste.

At July’s G8 summit in Japan, Prime Minister Yasuo Fukuda hopes to persuade other countries to tackle global warming by pooling resources to develop new technologies.

Despite all this progress, Japan still has a long way to go on the energy front. Host of the meeting that produced the Kyoto accords, Japan has seen its emissions rise by close to 7 per cent from 1990 levels.

The government has tried to dig its way out of economic trouble by building kilometres of new roads and highways, using up tons of oil for asphalt and construction machinery while encouraging car use. Shutdowns and maintenance problems in the nuclear industry have made the government’s plans to raise the share of Japan’s electricity coming from nuclear to 40 per cent look unrealistic.

As Morgan Stanley’s Mr. Feldman notes, Japan still imports 82 per cent of its primary energy, a reduction of only five percentage points from the time of the oil shock more than three decades ago.

Still, Japan’s effort to control its energy use is impressive. It will suffer like every other oil-importing economy from the dramatic runup in oil prices, but without a national effort on energy it would have been a lot worse.