IEEJ: December 2011 All Rights Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (67)

November 28, 2011

Significance of Resources Development and Procurement Strategy for Japan
Based on International Situation
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn November 25, I had an opportunity to take part in a meeting that the Japanese Ministryof Economy, Trade and Industry held with natural resources and fuel policy experts. The meeting
consists of two sessions -- one on stable oil and gas supply amid disasters/emergency and the otheron the upstream development and procurement of natural resources and energy. I participated in thelatter one, which met for the first time on November 25.
It is needless to say that this meeting was closely linked to Japan's energy policy reform
discussions after the Great East Japan Earthquake and the Fukushima Daiichi nuclear plant accident.
While the Cabinet Office's Energy and Environment Council and METI's Fundamental Problems
Committee focus on the significant problem of Japan's future energy portfolio, the meeting plays arole in complementing discussions on the entire picture of Japan's energy policy by considering oneimportant particular. Given that Japan depends on imports for most of its energy supply and willcontinue to do so for a medium to long term, however, even the said “complementary role” may beconsidered very important.
The session on the upstream development and procurement of natural resources andenergy actually covers not only overseas upstream development but also a wide range of otherimportant issues including the promotion of Japan’s domestic energy development and stable energy
resources procurement involving quantity and prices. Among energy sources, the session that I
attended clearly gives a focus on natural gas. But it may also consider oil, coal and other fossil fuels,
as well as geothermal energy as a domestic energy source. Furthermore, our session covers key
mineral resources including rare earth metals that are indispensable for advanced strategic
technologies such as those for next-generation automobiles. It comprehensively considers how best
to secure stable supply of natural resources and energy.
At our session, in fact, many participants stated that discussions on the matter were very
timely and indispensable for Japan’s stable energy supply. I fully agree with such sentiment. This isbecause the domestic situation has turned around to require a drastic energy policy reform while theinternational situation has grown more severe for Japan with no optimism warranted. This meansthat the international environment involving Japan’s stable energy supply has grown more severe
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IEEJ: December 2011 All Rights Reservedand uncertain.
Representing the severity and uncertainty of the international environment are fears about
the immediate future of the world economy, global recession risks, medium to long-term growth indemand for energy and other resources in such emerging countries as China and India, enhanced
resources security strategies of major countries facing growing dependence on energy imports, thegovernment-led promotion of energy policy and diplomacy, the growing presence of powerfulstate-run companies linked to national resources and energy strategies, the emergence anddeterioration of geopolitical risks including growing tensions over the destabilization of the Middle
East and North Africa situation and Iran’s nuclear weapons development problem, the growing
uncertainties over international global warming negotiations, and the weakening or lack ofinternational governance for considering and solving these global problems. We thus are now seeing
a list of numerous serious problems.
Japan is now required to work out its international energy strategy to meet the severeinternational situation. Therefore, we must consider so many problems. But I would like this report
to focus on the significance of Asia. This means that it is important to build and implement a strategy
based on the context of the accelerating growth in the significance of Asia for natural resources andenergy problems. Energy demand has been leveling off or falling in OECD Europe and the UnitedStates. Particularly, the United States has reduced import demand thanks to the development of
unconventional oil and gas resources. Asia is thus growing more significant for resource-richcountries and is located in a strategically and geopolitically important position where national
resource supply and security strategies are conflicting with each other. Located in Asia, Japan isrequired to develop its energy strategies for Asia and resource-rich countries (including the Middle
East and Russia). At the same time, Japan must have a strategy based on Japan-U.S. relations as theworld’s most important bilateral ties in considering problems regarding Asia and resource-richcountries.
It is a hard fact that large Asian countries, where energy demand and imports have been
increasing, are competing with Japan for securing natural resources and stable energy supply. At thesame time, however, these countries and Japan, as energy consumers and importers, face somecommon challenges in securing stable energy supply. One such challenge may be theattention-attracting “Asian premium” problem for natural gas or LNG price, which means that LNG
prices in Asia are substantially higher than those in Europe and the United States. Japan and thesecountries, though being conscious of their competitive relations, should avoid excessive competition
nearing a “zero-sum game” between energy consumers, as much as possible, and pursue energy
security and stable energy supply for the whole of Asia. In this respect, strategies and efforts forNortheast Asia may be particularly important. This is because the conflict between resource-richcountries’ energy supply strategies and energy consuming countries’ energy procurement strategies
in the region, as mentioned above, is the most conspicuous in the world.
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In tackling these problems, the Japanese government should cooperate with the industry
sector to take full advantage of Japan’s technological and industrial capacity that resource-richcountries view as valuable. But the government has a major role to play in the international arena
where national strategies conflict with each other. Top government leaders may be required toimplement an integrated approach demonstrating the nation’s comprehensive power. In any case,
Japan may have to mobilize all available resources to build and realize its energy strategy
responding to the severe international situation.

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