Yuka Obayashi and Rocky Swift

TOKYO, Reuters – Japan’s resource-poor economy relies heavily on imports of fossil fuels for its energy requirements. This complicates calls to Japan to stop buying oil from Russia and liquefied gas (LNG), following the invasion by Russia in Ukraine.

These are the stakes:

What’s in Japan’s Energy Mix? And Why is LNG so Important?

Japan receives most of its primary energy from, with more than 90% coming from the Middle East according to government data. About 24% of total energy mix is made up LNG.

LNG, which accounts for 36% of all electricity produced in the country, takes up more than half. This dependence has grown since 2011 when Japan’s most important nuclear facilities were shut down following the tsunami and earthquake that caused meltdowns at Fukushima in northern Japan.

WHAT IS JAPAN’S USE OF LNG? AND FROM WHERE DO IT COME OUT?

Japan, which accounted for 22%, was the largest LNG importer in the world, until it was overtaken last year by China. LNG supplies are used principally in electric production. However, it’s also used as heating and cooking fuel in most homes.

At 36%, Australia was Japan’s largest single supplier of LNG. Malaysia followed at 14%. Russia contributes 9% to Japan’s LNG imports. This is almost the same percentage as the United States.

JAPAN COULD REPLACE RUSSIA-SOURCE LNG WITH JAPAN

Russia is responsible for less than 10% Japan’s LNG supplies, so it may be able to replace those from other sources. This would cause a spike in global prices and increase demand, while the supply of non-Russian natural gas shrinks.

The Asia LNG spot price soared to record levels of $59 per million British Thermal Units (mmBtu), compared to less than $3 before the COVID-19 pandemic.

Japan is able to have more flexibility with crude oil supply. Japan’s leading refiners said that they will be able find substitutes on the spot market in case of Russian crude oil disruptions. Russian crude accounts for less then 4% of total imports.

Japan had 480 million barrels or 240 days worth of oil reserves as of December 20, 211. There are only about two to three weeks worth of LNG inventories in Japan, since there is no underground storage facility, which is common in Europe. Long-term storage is also not possible because of evaporation.

WHAT DOES HIGHER LNG PRICES MEANT FOR BOJ AND ECONOMY?

Surging power costs are already a sign of this effect in Japanese households. Inflationary pressures are also being created by rising costs. These effects have been exacerbated in Japan due to disruptions in supply chains caused by the coronavirus epidemic.

Haruhikokuroda, Bank of Japan Governor, has so far rejected tightening of the monetary policy as a way to address these pressures.

According to Temple University political scientist James D.J., Fumio Kishida believes that the rise in energy prices will have an impact on the popularity of the government ahead of crucial Upper House elections. Brown.

What JAPANESE FIRMS ARE INVESTED in RUSSIAN LNG

Trading houses Mitsui & Co and Mitsubishi Corp have stakes in the Sakhalin-2 project in eastern Russia. Mitsui is also a shareholder in Arctic LNG 2, a $21 billion project that will be completed in 2023.

Sakhalin Oil and Gas Development is a consortium comprising Itochu Corp and Marubeni Corp. It’s part of the Sakhalin-1 Project. These projects have been funded by the Japanese government, which has poured billions into them through loans.

JAPAN CAN’T JUST SWITCH IT NUCLEAR REACTORS ACKON?

Japan is doing this more and more. After the Fukushima nuclear disaster in 2014, power from these plants dropped to almost nothing. However, it now accounts for about 3%. Although the government plans to increase that number to 20-22% by 2030 according to market watchers, many believe this pace to be impossible.

Sixteen reactors now operate, down from 54 in the days before Fukushima. Others still go through an extensive re-licensing procedure, which is subject to stricter safety standards.

Itsunori Itodera, a top lawmaker in Japan, said Tuesday that Japan could speed up its nuclear restart to compensate for fuel shortages.

Perhaps another indication of this shift was the announcement by the government this week that it will forgo an official commemoration of the nuclear accident of March 11, 2011, for the first-time since 2011.