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Japan s Economic Bad Mix : Yen, Oil and China

( From​ EIA, Egypt Oil Gas, FRED, BarChart, Trading Economics, 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.

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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.

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​​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.

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​​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.

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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.

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​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.



​​The 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. And we I will explain why Japan is in jeopardy and that all that jawboning about extra liquidity will not change anything ...

​( 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.

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​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 ¥93.5 ( a 16.7% 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 89.14 and closed on march 4 at 90.25 for an 1.3% 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 : 1.3% increase of crude oil in US dollar plus 16.7% for the Yen devaluation ( for a total of 18% ). Success ?

Below, you can find more detailed information about the Japanese Energy 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 )

And since the beginning of november 2012, the price of oil in US Dollar traded at 89.14 and closed on march 4 at 90.25 for an 1.3% price increase.

And some consequences of the rise of oil price and dependency of Japan on energy has been a quick reversal of the current account since Fukushima from a positive to a negative current account.

And exports especially to China has been under pressure since the battle for the Senkoku Islands ...

And growth has been affected tremendously since 2011...