Cheap energy masks downturn (part 2)

IEEJ analyst expects Japan’s energy consumption to rise in 2015 after four years of decline

Japan’s total energy consumption, buoyed by a mild economic recovery, could begin growing again in the current financial year starting 1 April 2015, according to an analyst at the Institute of Energy Economics, Japan (IEEJ).

“Helped by weak oil prices, the resurgent industrial and transportation sectors will raise Japan’s energy use by about 1.2% in FY2015, but it will still fall short of FY2010’s consumption by about 7%,” said Senior Economist Akira Yanagisawa.

Following the 11 March 2011 destruction of the Fukushima Daiichi nuclear complex, Japan’s energy use plunged as the government and industries responded to the loss of the country’s entire nuclear power capacity – that supplied nearly 30% of its electricity – by sharply curtailing daily activities. The already sluggish Japanese economy fell into recession in the last financial year ending 31 March 2015.

In a recent report, Yanagisawa said Japan’s consumption of coal, naphtha and electricity will be boosted by a recovery in the nation’s iron, steel, automobile and petrochemicals production. He expects Japan’s diesel and heavy fuel oils consumption to decrease as the nation continues switching over to natural gas.Japan’s energy use shrank last year on a combination of nationwide conservation efforts, an increase in the consumption tax and cooler weather.

“Electricity and city gas use will increase, while kerosene and heavy fuel oil will continue declining amid the fuel switch,” said Yanagisawa. He has forecast a gradual decline in the use of oil for electricity generation, with LNG taking up the slack alongside a partial resumption of the country’s nuclear energy capacity. Electricity generated by nuclear and alternative energy sources are seen to account for more than 10% of power supply in FY2015.

Lower energy prices provide respite

The 60% collapse in oil prices since mid 2014 has given the Japanese economy a much-needed respite after years of being weighed down by the high cost of imported energy. From 2000 - mid 2014, Brent crude prices traded mostly between US$100 - 120/bbl, while LNG cargoes were sold to Japan at four to five times the levels before the tsunami-earthquake tragedy.

Burdened by the high cost of oil and gas imports, Japan’s merchandise trade deficit surged 11.4% to a record ¥12.78 trillion in 2014. Imports climbed 5.7% to ¥85.89 trillion to outpace a 4.8% rise in exports to ¥73.11 trillion.

The IEEJ estimates that a US$10/bbl rise in the oil price reduces the country’s GDP by 0.3% while shrinking its trade balance by ¥2 trillion and reducing private consumption, which accounts for 60% of the domestic economy.

It expects the Japanese economy to grow by 1.8% in FY2015, thanks to a combination of low energy prices and Tokyo’s expansionist economic policies to boost private consumption, investments and exports through a weaker yen.

China could open up oil and gas storage sector to foreign participation

China could open up its tightly held oil and gas storage and pipelines sector to foreign investment as the next phase of the national plan to enhance domestic energy security.

Officials are discussing the idea’s implementation after it was first raised last year amid growing fears over safety, health, and environmental threats posed by the rapid expansion of the country’s storage and pipe infrastructure. Beijing also wants foreign expertise and capital to help it quickly expand the nation’s strategic oil and gas stockpiles to take advantage of low energy prices.

Under pressure to meet the country’s fast-rising energy demand, China’s state-owned firms have been racing to build storage terminals along the coast and linking them through pipelines to refineries, ports, and petrochemical plants, as well as oil and gas fields across the country. Safety, environmental, and health standards were largely ignored, resulting in the construction of thousands of kilometres of pipelines that Beijing now fears could become a security threat in the future.

After extensive discussions, the National Energy Administration (NEA) announced last December that it would consider allowing foreign and private companies to participate in the construction, development and operation of China’s LNG terminals, in addition to oil storage and pipeline facilities.

Although China has made impressive strides in building up the first phase of its strategic petroleum reserves to more than 100 million bbls since 2009, the government believes the industry can do better. In July 2014, Beijing set the stage for increased foreign participation when it signed a memorandum of understanding with the US government to co-operate on managing its strategic petroleum reserves.

US Energy Secretary Ernest Moniz signed the agreement with NEA Chief Wu Xinxiong in Beijing, paving the way for the world’s two largest energy consumers to jointly deal with global oil supply disruptions and price volatility. Having overtaken the US as the world’s leading oil importer, China is increasingly vulnerable to supply shocks, although this concern has dissipated in recent months on account of the oil price collapse.

Part 3 coming soon!

Written by World Pipelines’ correspondent Ng Weng Hoong, and edited from a published article by Stephanie Roker

To read the full version of this article, please download a copy of the November 2015 issue of World Pipelines.

Read the article online at: https://www.worldpipelines.com/special-reports/28122015/cheap-energy-masks-downturn-part-2/