Always consider hidden risks
Japan s Yen UnCompetitveness - Fukushima and the Yen - Hara-Kiri
( From EIA, Egypt Oil Gas, BarChart, Avondale, Zero Hedge )
In the wake of the Fukushima nuclear incident, Japan’s energy fuel mix likely will change as
natural gas, oil, and renewable energy take larger slices of the market share and supplant some
of the nuclear fuel. Oil is the largest energy resource of fuel consumption in Japan, although its
share of total energy consumption has declined from about 80 percent in the 1970s to 42 percent
in 2010. Coal continues to account for a significant share of total energy consumption, although
natural gas is increasingly important as a fuel source and is currently the preferred fuel-of-choice
for the shortfall in nuclear capacity. Before the 2011 earthquake, Japan was the third largest
consumer of nuclear power in the world, after the US and France, and nuclear power accounted
for about 13 percent of total energy in 2010. Hydroelectric power and renewable energy comprise
a relatively small percentage of total energy consumption in the country.
Consequently, Japan relies heavily on imports to meet its consumption needs. Japan maintains
government-controlled oil stocks to ensure against a supply interruption. Total strategic oil stocks
in Japan were 589 million barrels at the end of December 2011, with 55 percent being
government stocks and 45 percent commercial stocks.
Japan consumed an estimated 4.5 million barrels per day (bbl/d) of oil in 2011, making it the third
largest petroleum consumer in the world, behind the United States and China. However, oil
demand in Japan has declined overall since 2000 by nearly 20 percent. This decline stems from
structural factors, such as fuel substitution, an aging population, and government-mandated
energy efficiency targets. In addition to the shift to natural gas in the industrial sector, fuel
substitution is occurring in the residential sector as high prices have decreased demand for
kerosene in home heating. Japan consumes most of its oil in the transportation and industrial
sectors. Japan is also highly dependent on naphtha and low sulfur fuel oil imports. Demand for
naphtha is falling as ethylene production is gradually being displaced by petrochemical production
in other Asian countries. However, demand for low-sulfur fuel oil is increasing as it replaces
nuclear electric power generation.
Japan’s oil consumption rose slightly in 2011 by 30,000 bbl/d over 2010 due to some postdisaster
reconstruction works and substitution of crude oil and low sulfur fuel oil for the suspended
nuclear power after the Fukushima incident. EIA assumes that net total oil consumption will rise
by another 80,000 bbl/d in 2012 if no nuclear capacity comes back online.
Japan was the third-largest net importer of total oil in the world after the United States and China
in 2011, having imported around 4.3 million bbl/d. After the Fukushima incident, Japan has been
increasing imports of crude oil for direct burn in power plants. The country is primarily dependent
on the Middle East for its crude oil imports, as roughly 87 percent of Japanese crude oil imports
originate from the region, up from 70 percent in the mid-1980s. Saudi Arabia is the largest source
of imports, making up 33 percent of the import portfolio or about 1.1 million bbl/d of crude oil, and
UAE, Qatar, and Iran are other sizeable sources of oil to Japan.
Japan is the world’s largest LNG importer, holding about 33 percent
of the global market in 2011.
In 2010, Japan consumed about 3.7 Tcf of natural gas, importing over 3.4 Tcf of LNG by tanker.
As a result of the March 2011 earthquake, Japan’s LNG imports rose 12 percent in 2011 to 3.8
Tcf, according to some industry sources. IHS CERA estimated that total natural gas imports
increased by a monthly average of 18 percent annually from April 2011 through February 2012
compared with the pre-earthquake increases of 4 percent year-on-year between January and
March 2011. LNG consumption by the electric utilities rose by 20 percent annually to a recordhigh
of 2.4 Bcf in 2011.
After the Fukushima incident, Japan is replacing lost nuclear capacity with more short-term and
spot cargo LNG which made up about 20 percent of total LNG imports in 2011.
Insight estimates capacity fell to around 243 GW in mid-
2011. From the 1 Terawatt hour (TWh) of electric power that Japan generated in 2010, 63 percent
of which came from conventional thermal fuels, 27 percent from nuclear sources, 7 percent from
hydroelectric sources, and 3 percent from other renewable sources. According to the IEA, the
share of thermal generation rose to 186 TWh or 73 percent of total generation in the first quarter
of 2012, the highest on record as LNG and oil supplanted some nuclear power.
country's aging oil-fired power plants are used primarily as extra capacity to meet peak
demand, and less than 10 percent of total electricity produced was oil-generated in
2010. Coal and natural gas comprised 25 percent and 27 percent of total power supply, respectively
Japanese electric utilities are burning more fuel oil and direct crude to make up for lost
nuclear generation. Consumption of fuel oil and crude oil in power sector were
estimated at 210,000 bbl/d and 178,000 bbl/d, respectively, in 2011. Incremental
demand for both fuel oil and crude oil for power ranged between 130,000 bbl/d and
145,000 bbl/d in 2011. FACTS Global Energy forecasts that these figures could
increase by 19 percent for fuel oil to 252,000 bbl/d and 29 percent for crude oil to
230,000 bbl/d in 2012 assuming a few nuclear facilities are brought online. In the first
quarter of 2012 as nuclear capacity dwindled to zero, monthly demand growth for fuel
oil and direct crude oil burn was over 3 times higher on an annual basis. If no nuclear
facilities are brought online in 2012, incremental oil demand for power could be over
250,000 bbl/d on the whole.
The huge devaluation of the Yen against th US Dollar and the Euro since November 2012 is not necessarily a good thing.
( See graph below )
We are forgetting that Japan though its economy is considered one of the largest in the world, approximately $5.8 trillion in terms of GDP, after the U.S. and China, Japan is struggling to secure its energy sources as the country is heavily depending on the oil and gas imports to satisfy the local demand.
Japan has few domestic energy resources and is only 16 percent energy self-sufficient. It is the third largest oil consumer in the world behind the United States and China and the third-largest net importer of crude oil. It is the world's largest importer of liquefied natural gas (LNG) and second largest importer of coal. And since the accident of nuclear plants at Fukushima in march of 2011, dependency among imported energy has been growing tremendously.
So the huge yen shift has crucial implication for a Japanese producer, because the oil is trading mainly in US Dollar but its costs are Yen based driven. So the US Dollar Yen exchange rate has risen from ¥80 to ¥92 ( a 15.7% move ) since november 2012 as Japan seems intent on creating inflation for itself by depreciating its currency. ( See graph below )
And since the beginning of november 2012, the price of oil in US Dollar traded at 88.65 and closed yesterday at 97.77 for an 10.3% price increase. But for a Japanese producer, thanks to that depreciation oil priced in yen is rising even faster as it is relatively flat when priced in dollars : 10.3% increse of crude oil in US dollar plus 15.7% for the Yen devaluation ( for a total of 26% ). Success?
Below, you can find more detailed information about the Japanese Enrgey Situation.
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Today saw the price of oil in Japan rise to its highest since September 2008. Anytime the price of oil has topped JPY10,000 per barrel, Japan's macro-economy has slumped.. ( See graph below )