12.07.2016 Author: Dmitry Bokarev

Japan: in Search of Energy

nuclear-joe-zlomek-537x358Japan, the third world economy, has virtually no gas and oil reserves. The situation is somewhat paradoxical since no country can prosper without oil and gas. Thus, the Land of the Rising Sun has been successfully coping with the situation by importing oil in tankers from the Middle East, liquefied natural gas (LNG) from Australia, Indonesia, Malaysia and that same Middle East. Japan also needs coal for its CHP plants, which it purchases from Australia, Indonesia and China. Recently the country held its hopes high for nuclear power industry. After the tragedy at Fukushima 1 in 2011, however, nuclear power projects were under threat of suspension. The Japanese public shocked by the catastrophe demanded to close all Japanese NPPs. No less shocked Japanese government eagerly initiated the process.

Once Japan came to its senses and assessed the situation with a cool head, it realized that there was no way to be without the nuclear power program. Today Japanese NPPs are gradually restarting their operations after numerous rigorous checks and upgrades. The country, having learnt its lesson “the hard way,” has intensified the search for reliable, conveniently located new suppliers of hydrocarbons. Since the Middle Eastern countries are located far away from Japan, it costs more to deliver the precious goods from that region. What is more (as the experience of the recent decades shows), almost any Middle Eastern country is conflict- and revolution-prone, and if war breaks out, the fuel supply would inevitably dry up. Thus, Russia makes an ideal exporter of hydrocarbons to Japan.

Tanker traffic of LNG from Sakhalin to Japan by sea began in the spring of 2009 shortly after the Sakhalin LNG plant had been put into operation as part of the Sakhalin-2 project. This route of fuel delivery to the Land of the Rising Sun seems to be most viable. The RF also benefits from this cooperation as Japan is one of the largest global consumers of LNG. Moreover, Russia sells LNG to Japan directly, bypassing any intermediaries.

Despite beneficial Japan-Russia trade relations and the presence of an established diverse network of suppliers, Japan continues to search for new exporters, thus implementing its energy security strategy based on the principle “the more, the better.” That is why it has been assessing Central Asia as a prospective partner. Tokyo has been making every effort to reinforce its position in Central Asia since 2006. At that time the country adopted a national energy strategy aimed at the enhancement of cooperation with the countries rich in fossil fuel resources. The same year, in the course of the Central Asia Plus Japan forum, Japanese Foreign Ministry held negotiations with its counterparts from Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. The parties discussed the issues concerning their coordinated development and security of the region, including the security of fuel transportation. Japanese representatives also confirmed the country’s commitment to finance the construction of a network of roads and pipelines required for the transportation of oil to the shore of the Indian Ocean and further to Japan. (They have been talking about the construction of a pipeline delivering oil and gas to the Japanese islands since 1990s. For example, it was initially planned that the Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline would be extended as far as Japan, but either the funding dried up or China’s plans had changed). In the fall of 2006, the then Japanese PM Junichiro Koizumi visited Kazakhstan and Uzbekistan where he explicitly stated that Japan was looking to expand the network of its suppliers of oil and gas in order to reduce its dependence on the Middle East.

Despite Japan’s strenuous efforts to achieve the desired level of influence in Central Asia in the last decade, China still remains the region’s leader. Japan made another attempt to win the Central Asia over at the end of October 2015 when the country’s PM Shinzo Abe went on a high-profile tour of the region. He visited Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenia, Uzbekistan and Mongolia. Japanese mass media reported at that time that Shinzo Abe was escorted by a large delegation of Japanese businessmen. In the wake of the tour, large-scale high value contracts were signed. Japan committed to invest over $18 bn in the economy of Turkmenistan alone.

Perhaps, the visit of the Japanese PM to Turkmenistan deserves special attention. Turkmenistan has a reserve of gas sufficient to supply almost the entire Asia (and not only Asia, but also European countries are interested in the exports of gas from this country). Until recently, Russia was the main buyer of Turkmen gas, which was then sold to the European consumers. However, in a wake of a series of disagreements that broke out between the parties at the beginning of 2009, Gazprom slashed the volume of traded gas. As a result, Turkmenistan had no choice but to look for other partners. China was quick to jump at this new opportunity and offered to buy gas from Turkmenistan, but at a lower price than that paid by Russia. The Turkmen government, having no alternatives, accepted the offer. Though the Turkmenistan-China pipeline was put into service in 2009, Turkmenistan continued its quest for new customers. A Turkmenistan-Iran gas pipeline began operating in 2010, but its maximum capacity (12 bn cubic meters annually) is much smaller than that of the pipeline delivering gas to China. That means that Turkmenistan is not doing that great, especially since export of fossil fuel is its main source of revenues.

It would take the implementation of the TAPI project—a pipeline delivering Turkmen gas to Afghanistan, Pakistan and India—for the situation to improve. And Japan decided to lend a hand by de facto committing to funding for the project. The Asian Development Bank will also participate in the project as one of the TAPI’s chief investors and a transaction advisor. Despite ADB is an international institution, Japanese citizens have always been at its helm since Japan is the bank’s largest shareholder. The project is expected to be financed by other Japanese corporations as well. It seems that the idea of a gigantic pipeline able to replace oil tankers (or at least reduce their oil delivery routes) still incites the imagination of Japanese politicians, and they hope that their aspirations would come true with the implementation of TAPI. The problem, however, is that nobody knows when exactly that will happen. The pipeline has to be laid through the territory of Afghanistan, which would be impossible to do until at least the war in that country ends. On the other hand, it would be too unlikely for Japanese politicians and businessmen to act on a whim. Thus, if they had decided to invest in TAPI, they must have had good reasons to do so.

Meanwhile, the Turkmen gas is being delivered to Japan by tankers. This is more expensive and it takes longer to compare to the delivery through a pipeline. However, this is the only option presently available. Anyway, since in the wake of Shinzo Abe’s 2015 tour such Japanese giants as Mitsubishi, Chiyoda, Itochu, etc. joined the ranks of developers of the largest Turkmen gas field Galkynysh, Japan should be exporting more of the Turkmen gas. Some, however, hold an opinion that Japan will be selling the gas extracted in Turkmenistan to Gazprom and the latter will deliver a respective volume from Sakhalin by tankers. It would be sensible and beneficial for all parties involved. Implementation of this scheme could give Turkmenistan an opportunity to renew trade relations with Russia through the mediation of Japan.

In any case, it is clear that Japan has solidified in Turkmenistan, and the state could become the starting grounds for further spread of Japan’s influence in Central Asia.

Dmitry Bokarev, political observer, exclusively for the online magazine “New Eastern Outlook.

 


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