Energy Institute's Toichi on Japan's Energy Policy: Comment

["Sandy Perle" <sandyfl@earthlink.net>]

Energy Institute's Toichi on Japan's Energy Policy: Comment

Tokyo, April 5 (Bloomberg) -- Tsutomu Toichi, director at the 
Institute of Energy Economics, Japan, commented on Japan's energy 
policy, crude oil prices and their effect on the Japanese economy: 

On OPEC's output increase and oil prices: 

``If we examine the supply and demand balance in the second quarter, 
a small (inventory) build-up can be expected. My view is these 
increases may not be enough to reduce crude oil prices, WTI for 
example, to $20-25 per barrel immediately. Crude prices may be 
maintained at around the current level in the second quarter.'' 

On impact of oil prices on Japanese economy: 

``The impact of higher crude oil prices on the Japanese economy is 
very limited, and the Japanese public is not as concerned as in the 
U.S. 

``Oil consumption per GDP in Japan has declined more than 50 percent 
since 1973 to 1999 mainly due to improvement in energy efficiency as 
well as development of alternative energies sources like nuclear 
power, LNG and coal. 

``The share of oil in total imports stood at about 40 percent in 
1981. It was only 10 percent last year. In 1998, that was only 7, or 
8 percent. So that's a dramatic decline. 

``Negative impacts of higher oil prices on inflation are very limited 
in case of Japan because our economy is still under deflationary 
pressure as indicated with extremely low interest rates. 

``Oil product prices in Japan have increased only modestly even 
though crude oil prices have more than doubled in the last 12 months. 

``So consumers may be happy, but most oil companies are losing money 
now and face extremely difficult financial situations because they 
can't pass the increasing crude import costs to final product costs. 

``This is my observation why the responses of policy makers to higher 
oil prices are different in Japan and the U.S.'' 

On energy security: 

``Japanese oil security policy is based on the following two 
measures. 

``The first one is to have enough oil stockpiles, including private 
and national, to cope with future oil supply disruptions. At present 
Japan's total oil stockpiles account for about 121 days of oil 
imports. 

``I'm arguing that our national oil stockpiles should be used more 
flexibly and timely to stabilize Asian oil markets in the early stage 
of future oil supply disruptions. We have a lot of national 
inventories. If we can use oil stockpiles to stabilize oil prices, 
that will be very good for produces and consumers. 

``The second measure is to develop so called Japanese flag crude oil 
by financially supporting Japanese companies for investment, 
exploration and development overseas. More than 30 years ago, a 
policy target was set to accomplish 30% of all the crude oil imported 
by, so called, Japanese flag crude oil, but it accounts only 15 
percent in recent years, including Arabian Oil's crude. 

``Unfortunately, many companies involved in exploration and 
development have suffered from financial deficits partly due to lower 
crude oil prices as well as the Japanese yen's appreciation.'' 

On energy policy: 

``The current energy policy aims to secure stable supply, increase 
competitiveness by cutting costs, and reduce Co2 emissions to comply 
with the Kyoto protocol agreed in 1997. 

``Since these tend to contradict each other, it is a very difficult 
and complicated task for policymakers to balance these three targets. 


``About 80 percent of Japan's total primary energy is supplied by 
imports. Therefore, policy options of Japan are rather limited, 
compared with the U.S. and European countries. So we have to make 
more efforts to improve energy efficiency in all sectors as well as 
to develop alternative energy sources. 

``We don't have a panacea to fix, or accomplish our energy target. 
Under these circumstances, nuclear energy has been playing a vital 
role to reduce oil dependency as well as to restrain Co2 emissions. 

``But unfortunately, the nuclear accident last September 
substantially changed Japanese public sentiment to nuclear 
development.'' 

On Japan's goal to promote nuclear energy: 

``We have 52 nuclear power plants under operation with total capacity 
of 45 gigawatts and nuclear energy accounts about 35 percent of total 
power generation in Japan. 

``The current energy program supports the view 20 new nuclear power 
plants with additional capacity of 25 gigawatts by 2010 will be 
built. 

``My best estimate is at about 10 new nuclear power plants will be 
built by 2010. Our nuclear development program will be slowed down, 
but not stopped.'' 

On other types of energy: 

``I think alternatives to (slowing nuclear power development) will be 
coal, LNG, or oil. 

``From the economical view point, coal-fired power plants are the 
cheapest and power companies are now building coal-fired plants. 
These plants are coming into operation in the coming years. 

``That will conflict with how to reduce Co2 emissions. So I think it 
depends on what kind of policy and mechanism will be introduced. For 
example, if the emission trading system is introduced, then the 
Japanese power industry will use coal. Japan can emit Co2 and buy 
coal cheaply from overseas. 

``LNG is cheap, but it's a very inflexible supply source, so it is 
not easy for power companies to deal with in this liberalized 
market.'' 

On other oil supplies: 

``From the economical view point, there is no promising oil suppliers 
(to replace Middle East supplies) to Asia. There are only some 
possibilities in oil in East Russia, such as Sakhalin. But its supply 
capability is very limited so far. Natural Gas produced in Siberia 
and Sakhalin has a huge potential (to reduce Japan's energy 
dependency on the Middle East), but not so much for oil.'' 

------------------------------------------------------------------------
Sandy Perle					Tel:(714) 545-0100 / (800) 548-5100   				    	
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