Japan’s Nuclear Hangover

Japan’s Nuclear Hangover

Nearly three years after the nuclear meltdown at Fukushima, a cloud still hangs over Japanese energy policy, with dire implications for the country’s economy. Tokyo is unsure whether it can continue to rely on nuclear power — and in the meantime is searching for new energy opportunities from East Africa to Russia to the United States. If Japan can find the new supplies, it won’t just get the oil and gas the country needs. It could bolster its defenses against an increasingly assertive China, too.

The Japanese government has again delayed the release of its long-awaited energy plan, meant to point the way to a sustainable future in the wake of the accident that shut down all fifty of the country’s nuclear reactors in March 2011. Toshimitsu Motegi, the trade and industry minister, said the government was still studying thousands of public comments to the draft proposal, and is still grappling with how to get the energy that Japan needs without strangling its economy with high prices.

At the heart of the issue is the question of what to do with nuclear power. The current government, led by Shinzo Abe, wants to keep nuclear power in the mix, and called it an important source of energy in a draft energy plan released in December.

The Japanese public, in contrast, and a growing roster of big-name politicians, including a pair of ex-prime ministers, have grown increasingly cool toward nuclear power since Fukushima. Continued reliance on nuclear power, one of Japan’s biggest newspapers said, is "totally unacceptable."

"There’s still a huge discussion about how to treat nuclear power in the future, so it will take more time," to finalize the country’s energy plan, said Hidehiro Muramatsu, the U.S. director of Japan Oil Gas and Metals National Corporation, at an event in Washington, D.C. on Tuesday.

The problem: Without nukes, the country has little choice but to import very expensive natural gas in order to keep the lights on. Liquefied natural gas in Japan costs about $16 per million BTUs, or nearly four times what gas trades for in the U.S. That growing dependence on imported natural gas is battering the Japanese economy and has the country scrambling to line up cheaper sources of supply from all over the world.

To wit: The year before Fukushima, Japan ran a trade surplus of nearly $70 billion. In 2011, after Fukushima, it slipped into a trade deficit for the first time in 30 years. In 2013, as pricey energy imports piled up month after month, Japan’s negative trade balance topped $110 billion. About half of that is due to the need to import greater amounts of pricier fuel, Japanese officials said. More than 60 percent of Japanese LNG imports came from the spot market, rather than from longer-term contracts that usually offer better pricing terms.

That energy bill is taking a toll on Japanese firms and drawing a sharp contrast with the fortunes of companies in energy-rich countries, such as the United States.

"There is pressure on companies to move overseas as they are unable to endure rising fuel and electric power costs," Motegi, the industry minister, warned last fall. Firms in other places with expensive energy are also feeling the pressure. Many European and Australian firms are decamping for the United States, where natural gas as a fuel and a feedstock is cheap and abundant.

In response, Japan is turning over every rock in its quest to line up cheaper, longer-term energy solutions. That is deepening Japanese relations and trade ties with a spate of countries around the Pacific Rim, including the U.S., Canada, Australia, and Indonesia. Not coincidentally, those countries are all key to the U.S. rebalancing to Asia.

Japan’s quest for gas has also intensified relations with India; together they speak of forming a "buyers’ club" of big LNG importers to bolster their muscle in global energy markets. Abe is expected to visit India later this month.

Japan’s energy hunt is also opening the door to closer ties with Moscow, which is itself looking to find new Asian markets for its natural gas, given sluggish demand growth in Europe.

Japan’s need for energy is bringing it closer to Canada and especially the United States, after several years of tension over Okinawa. Japanese officials have been begging Obama administration officials to speed up the approval process for new LNG export terminals, which would offer Japan the opportunity to get cheaper natural gas. LNG shipped from the United States, including the cost of liquefying and transporting the stuff, could still be about one-third cheaper than what Japan pays today. Japanese companies have already secured the rights to about one-fifth of the natural gas the U.S. Energy Department has approved for export.

U.S. lawmakers have tried to help even more: Bills introduced last year in the House and Senate would have streamlined gas exports to NATO countries and Japan, with the explicit goal of helping U.S. allies diversify their energy supplies and strengthen their economies.

And Japan’s gas hopes aren’t just limited to the lower 48 states, but are focused on Alaska too, says Shoichi Itoh, a researcher at the Institute for Energy Economics in Japan. Alaskan officials inked a deal with Japanese development banks last fall to underwrite the development of new natural-gas pipelines and export terminals to replace the export capacity lost when Conoco Phillips mothballed the 40-year-old Kenai LNG plant last year.

Japanese firms are stakeholders in four new projects in Australia, including the first floating LNG terminal, as well as two new projects in Indonesia. Muramatsu of Japan Oil and Gas says that East Africa, especially Mozambique, will be a potentially crucial source of gas supplies for Japan in the future. China, of course, is also diving head first into sub-Saharan Africa’s newfound oil and gas riches.

But matching Japanese thirst for gas with Russian needs to find new markets may pay the biggest geopolitical dividends. Russia already provides about 10 percent of Japan’s LNG imports, but Moscow and Tokyo are talking about more investments to increase LNG trade between the two countries. Relations have been strained since World War II, which between those two, never formally ended.

"There is a window of opportunity that has opened for an historic rapprochement between Tokyo and Moscow," Celine Pajon, a Japan researcher at the Institut Francais des Relations Internationales, told Foreign Policy. She wrote about that rapprochement late last year, speculating that it could one day go so far as to resolve long-standing territorial disputes.

From a strictly energy point of view, deeper trade ties between Russia and Japan would give Tokyo access to more long-term gas supplies, which come cheaper than spot purchases. And it could give Moscow more leverage when it deals with other potential energy consumers. That’s no small matter when Russia and China, are still trying to settle the price for shipping Siberian gas to Northeast China after a decade of haggling.

But it’s not just about energy, especially when Japan is under the tutelage of nationalist premier Abe. Moving closer to Moscow provides another possible check to an assertive China that has increasingly raised concerns in Tokyo.

"Japanese diplomatic and strategic circles consider the current Sino-Russian relationship to be unbalanced and plagued by an ever-growing number of glitches, which seem to make it increasingly problematic for the Kremlin. By forging closer ties, Moscow and Tokyo can therefore diversify their diplomatic relations and provide a counterweight to Beijing. Geopolitical concerns and objectives are shaping to a large extent Japan’s energy diplomacy," she said.