The resource-poor archipelago of Japan finds itself between a rock and a hard place this summer, with power prices sapping the economy and difficult choices to make about the nation’s future sourcing of energy. The issues have become a talking point in the upcoming elections to the parliament’s upper house scheduled for July 10.
Tokyo last week initiated a three-month energy saving period for the first time in seven years, asking citizens to go easy on lights, televisions, air conditioning, and heated toilet seats. June was the hottest month the country has experienced since 1875 with utility firms rushing to restart power plants that had been undergoing repairs.
Utility operators need to maintain an electricity reserve rate—the amount of excess supply capacity that can be used to meet demand spikes—of 3%. The Ministry of Economy, Trade and Industry projects that reserve rate will dwindle to 3.1% for three major metropolitan areas in July.
Japan’s economy is still heavily dependent on fossil fuels (see chart below). Renewable energy contributes 18% of Japan’s electricity supply while nuclear energy provides just 4%, having dropped steeply after the Fukushima tsunami in 2011.
Japan imports 90% of its energy needs. The war in Ukraine, coupled with a weakening yen, has sent energy costs surging for the island nation where, for instance, the average cost to import a tonne of LNG in the Japanese currency was almost 120% higher in May than a year earlier.
Last week Russia moved to transfer the rights of the giant Sakhalin-2 gas project, potentially ditching foreign participation in the LNG project which Japan is heavily invested in. Trading houses Mitsubishi Corp and Mitsui & Co own a combined 22.5% of Sakhalin-2 with roughly half of all output heading to Japan, the world’s third largest economy.
Sakhalin is the closest LNG project to Japan, with gas from there taking less than two days to arrive, as opposed to around a month for imports from the US. Sakhalin supplies 9% of Japan’s total LNG imports, the country being the second biggest gas importer in the world after China.
Mitsui OSK Lines (MOL) president and chief executive Takeshi Hashimoto told the Financial Times last week that despite the Sakhalin-2 news, he did not see any way for Japan to reduce its dependence on Russia for gas imports any time soon.
“We cannot use many nuclear power stations therefore the supply and demand balance of the power industry is quite tight,” Hashimoto told the Financial Times. “Nowadays, the spot market of both LNG and coal is quite expensive. That is one of the reasons why Japan is so reluctant to stop the LNG imports from Russia.”
Japanese prime minister Fumio Kishida has had to navigate a tricky line when it comes to his attitude towards Russia and sanctions in the wake of war with Ukraine. Kishida has vowed to ween his country off Russian coal imports, but has not made any similar commitments when it comes to LNG.
Japanese trading houses are also co-investors in other Russian energy developments including the Sakhalin-1 oil and Arctic LNG 2 projects.
The energy crunch Japan is facing is spurring debate about the country’s future energy mix with growing calls to reopen long shuttered nuclear power plants and a renewed renewables push.
Japan’s first two large-scale offshore wind farms, under construction by Marubeni Corp, are scheduled to come online this year, while 2022 has also seen Kawasaki Heavy Industries kickstart the seaborne liquefied hydrogen trades, sourcing this new energy from Australia.
Another new source of energy under development comes from IHI Corp which has created a giant subsea turbine that harnesses the energy in deep ocean currents and converts it into electricity. A prototype of the new system was tested successfully earlier this year with its backers suggesting it could be scaled up rapidly.
