IEEJ: May 2011

Special Bulletin

A Japanese Perspective on the International Energy Landscape (43)

May 20, 2011

Japan at a Crossroad in the WorldKen Koyama, PhDDirector
Strategy and Industry Research Unit
The Institute of Energy Economics, JapanThe annual Group of Eight summit will take place in Deauville, France, on May 26 and 27,
following a Japan-China-South Korea summit in Japan on May 21 and 22. The Japanese, Chineseand South Korean leaders are scheduled to visit the Tohoku region including Fukushima City andsome areas devastated by the March 11 Great East Japan Earthquake, after their meeting in Tokyo.
These major diplomatic conferences are well expected to focus on nuclear power generation andother energy problems while dealing with various other major topics. At these conferences, Japan’s
present and future visions and policies are expected to attract global attention as the greatest matterof concern.

Japan’s presence in the world had been persistently declining until recently. While Japan
had remained in a prolonged economic stagnation or slowdown since the 1990s, China and otheremerging countries had been rapidly expanding their influences in all areas including international
politics and economy. The expansion had accelerated even further over the recent years. As a result,Japan’s presence in international politics, the world economy and the international energy situation
had apparently declined to a degree disproportionate to its real strength. Even after being replaced by
China as the second largest economy in the world last year, Japan has still maintained its position as
the third largest.

March 11 provided a turning point for the environment and situation surrounding Japan andthe world. The Great East Japan Earthquake killed or left missing about 25,000 people and inflicted
great economic and social damage on Japan, coming as one of the greatest shocks to the world.
Under this terrible situation, disaster-struck people have fought against hardships while expanding
self and mutual support and maintaining social order. Their efforts have become subject to global
commendation and respect, leading the international community, including from the United Statesand other foreign industrial countries to developing nations, to provide unprecedentedly great
assistance to Japan. The disaster hit key portions of Japan’s manufacturing industries, causing
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bottlenecks for automobile and other industries in the world. This demonstrated that Japan has held
the key to supply chains for the world’s industrial society. Through these developments, the world
has apparently reaffirmed Japan’s significance and its position in the international community.

Furthermore, Japan's significance in the energy area has attracted growing attention since
March 11, as the disaster has shaken the fundamental energy system of Japan, as the world's
third-largest oil consumer/importer and biggest LNG importer, and exerted a ripple effect on theinternational energy market. In "A Japanese Perspective on the International Energy Landscape (41)"on April 28, I estimated Japan's additional energy demand under the impact of the disaster at 110,000
to 140,000 barrels per day in oil and 6.2 million to 8.9 million tons in LNG for FY2011. Given thesuspension of the Hamaoka nuclear power station and other developments since then, I may have torevise the estimates upward to 120,000 to 150,000 bpd in oil and 9.9 million to 12.2 million tons inLNG. The additional LNG demand amounts to nearly 20% of Japan's total LNG demand, which isthe largest in the world.

Japan's nuclear power plant problem, which has led to the additional energy demand, is alsosignificant. Japan features the world's third largest nuclear power generation capacity after theUnited States and France and is positioned to lead the world as an advanced nuclear technology
country. The serious nuclear plant accident in a country in such position has exerted a global impact
on the future of nuclear power generation that is significant for energy security and global warming
prevention and has been expected to play a significant role.

While Japan's significance has been reaffirmed, however, media reports have indicatedgrowing critical views overseas against crisis management after the disaster, transparency andtimeliness of information and messages sharing, leadership for forming national consensus,
measures and visions for the immediate future, and specific plans in Japan. At a time when Japan's
presence has increased to an unprecedented degree even as a result of the tragic disaster, how Japan
responds to overseas attention and concern is very significant for Japan's reconstruction and itsfuture.

At the two diplomatic conferences cited at the outset and other bilateral and multilateraltalks, Japan is expected to offer its determination and vision for its reconstruction and a reasonable,
realistic roadmap for the implementation of the vision. As far as the energy and nuclear power
generation problems are the key for the vision, the preparation and implementation of domestic andinternational strategies for Japan's future target energy system represent the most important
challenge for the nation. The world might likely have understood this point. The United States asJapan's ally, France as the G8 summit host, Northeast Asian countries like China and South Korea,
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Russia and Middle Eastern oil/gas producing countries offering energy cooperation for Japan, andAsia-Pacific countries such as Southeast Asia and Australia may be deeply interested in whatstrategies Japan would come up with. Under such situation, Japan must collect the wisdom of its
people and make maximum efforts to develop and implement the best strategies. Through such
Japanese efforts, the world may look at Japan in a different way. If the world is disappointed withJapan's future performances, it may have grave implications for Japan.

Contact: report@tky.ieej.or.jp

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