AN ADVERTISING SUPPLEMENT TO THE WASHINGTON POST08

BUSINESS & INVESTMENT

Friday, May 19, 2017

Japan seeks to build enerGYsecurity after the Quake
The Fukushima disaster once again called into question Japan’s energy security situation,with renewable energy becoming both a strategic opportunity and a practical challenge
Japan is the world’s fifth largest energy consumer. But as anisland nation located at the edgeof maritime East Asia with few
natural resources of its own, it isthe most vulnerable of all OECDnations in terms of energy security. Its geographic isolation means
prospects for importing electricity from neighboring countries arevery poor, and as a result, Japanrelies very heavily on imported energy resources to fuel its economyand society.

“At that time Astomos
Energy was part of a rescue
team in Fukushima and wehelped to rebuild the energy
supply. Everyone who could
was helping there and so
did we”
osaMu MasuDa,
President, Astomos Energy
Fortunately, until recently, thecountry was able to offset someof this external dependency as aresult of its extensive network ofnuclear reactors, which produced
around a third of its power generation needs and placed it third in
the world in nuclear energy production, behind the United Statesand France.
Then, disaster struck. In March
2011, a 9.0-magnitude earthquake
struck the country, rendering significant energy-related infrastructure
inoperable. Most notably, a 15-meter tsunami disabled the power
supply and cooling of the country’s
three Fukushima Daiichi reactors,
causing a nuclear accident.

The temblor and consequenttsunami took out 10.5 GW of nuclear power capacity and 12.4 GWof thermal power capacity. Shutdowns also affected nearly 1.5
million barrels per day (mmb/d)of refining capacity. Initially, 5.27
million households lost power.
The Fukushima disaster brought
into sharp focus the potential
risks of nuclear reactors in an
earthquake-prone country, andthe government moved quickly
to take the rest of the country’s
plants offline. Nuclear power generation soon tumbled to less than
1 percent of Japan’s energy mix,
replaced by imports of oil, coaland gas, mainly through the geopolitically unstable Strait of Hormuz and Strait of Malacca, which
exposed the country to potential
supply disruptions, weakening its
energy security situation. Fossil
fuels accounted for almost theentirety of the country’s energy
supply, leading to rising electricity
prices and a growing trade deficit.
“Japan can’t escape from natural
disasters but we did not expectthat this kind of incident would
have such an impact on a nuclear
facility. We were confident that
nuclear power was very safe. Nobody could have predicted such adevastating result,” says OsamuMasuda, President of energy firm
Astomos Energy.
“At that time Astomos Energy
was part of a rescue team in Fukushima and we helped to rebuild theenergy supply. Everyone who could
was helping there and so did we.”Following the election of Prime
Minister Shinzo Abe in 2012, thenew administration made clearthat the post-disaster energy
mix was untenable. It laid out aThe growth in renewable energy sources could comfortably be described as “booming” in Japannew vision for energy security in
its Fourth Strategy Energy Planin 2014, which aimed to reversethe nuclear shutdown and layout an alternative energy strategy. The plan emphasized safety
as a key component of nuclear
restarts, handing over power tothe newly-formed Nuclear Regulation Authority (NRA) to enforce
stringent regulations and carry out
extensive safety inspections before
clearing reactors to re-open.
“The Japanese energy structure needs nuclear and gas
energy within its mix,” says
Michiaki Hirose, President ofTokyo Gas. “One of the ‘arrows’of Prime Minister Shinzo Abe’s
Abenomics plan aims to conduct
strategic structural reforms. Inthe energy sector we saw thefull deregulation of the power
retail sector last year, and thisyear the one for the gas sector
will take place. I believe thatsuch energy reform is giving us
new possibility and opportunity

adding gas to the mix
Japan is diversifying its energy mix by increasing its levels of
consumption of LNG and LPG
The Japanese capital of Tokyo ishome to the world’s largest LNG –natural gas super-cooled into liquid
form at -260ºF – importing zone.
Japan is the world’s largest importer of LNG, swallowing up 35 percent of global demand every year.
Today, imported LNG accounts for
44 percent of electricity generation
after the Fukushima nuclear accident in 2011 meant nuclear reactors were taken offline, and most of
it comes from Malaysia, Australia
and the Gulf States. Thanks to theU.S. shale revolution, Japan has anunprecedented chance to diversify
even further its source markets,and lower its energy costs at thesame time.
For now, the country has agreements for at least 1.46 billion metrictons of supply up until 2040, according to Bloomberg New Energy
Finance estimates. As global supply of LNG increases as a result of
new U.S. supply, LNG buyers havegained bargaining power, and Japan is starting to take another lookat its existing contracts to check
whether the resale restrictions tied
up in some of them contravene fairtrade laws. Analysts predict that this
could lead to the renegotiation – inJapan’s favor – of more than $600
billion worth of agreements.
In order to maintain a healthy gas
market at home, the government isalso working on deregulating thesector. “Assuredly, [this] will open
the gates to enter the gas industry
to many other players and will increase competition,” says Michiaki
Hirose, President of Tokyo Gas, thecountry’s largest gas utility and thefirst to bring LNG to the country in1969. Since the 2011 earthquake,Japan’s increased focus on alternatives to nuclear fuel have seen thecompany put in place a numberof initiatives to enhance the LNG

osaMu MasuDa,
President, Astomos Energy
value chain, including expanding its
source markets.
The country imported its firstliquefied shale gas cargo from theUnited States earlier this year, withJapanese Prime Minister Shinzo
Abe considering further increasing
American energy imports, including
LPG – liquefied petroleum gas, better known as propane.
“I see the LPG industry growing,”says Osamu Masuda, President ofAstomos Energy. Set up in 2006,
the company operates 23 LPG shipping vessels, and has grown into oneof the world’s largest LPG traders
and importers. “Historically, themain suppliers were Middle Eastern countries accounting for 90
percent of our supply. However,
now the Japanese import volume
ratio has changed and roughly 30
percent is coming from the U.S.” Mr.
Masuda adds that, in the wake of theshale gas revolution in the U.S., hiscompany is now building new partnerships. “With the recent openingof the Panama channels our supply from the U.S. has new options.

We have been able to diversify oursources and we are seeking new alternatives in Australia and Africa toreduce the geopolitical risk, giving us
an alternative supply and increasing
our bargaining power.”
The plan for the country is not only
to shore up its LNG supply, making
sure it gets the best possible deal at
the best possible cost, but also findnew ways to capitalize on low LPG
prices by increasing its share in theoverall energy mix. And its private
sector is hard at work making thishappen.
Astomos sees enormous potential
for growth in LPG, both at home inJapan and further afield. “[We are]planning to create new LPG demandin the shipping bunker sector. We
think LPG has incredible potential
as a shipping fuel because it will
reduce sulfur emissions by 90 percent compared with heavy oil, and it
requires less investment in creatingtanks, barges and terminals,” says
Mr. Masuda, adding that while LPG
is still somewhat of a niche market,
it has the potential to become a major energy source. “Industrial use of
LPG is very small in comparison toother alternatives,” he points out,
although he sees scope for power
generation using LPG to gain market
share in specific areas, for example
on islands where building fuel tanks
is not feasible.
Meanwhile, Japan Gas Energy isworking on boosting energy security
by replacing oil with LPG. “We arelooking into creating higher demandfor LPG especially in the industrial andcommercial sectors,” says Masatoshi
Yoshida, the company’s president andCEO. “The population has alreadystarted to look into new options andalternative sources of energy, hence,based on this movement we are aiming to educate and raise awarenessabout the benefits of LPG.”

for growth, hence we embrace itwith great expectations.”
Getting back to the status quo
won’t be easy. Naturally, there issome resistance to reopening reactors from a still-traumatized public. But if the country is to meet thecommitments it made at the 15th
Conference of the Parties (COP15)
in 2009, where it pledged to reduce its greenhouse gas emissions
by 25 percent from 1990 to 2020,
swift action must be taken to clean
up the fuels used in Japan’s energy mix. The East Asian nationneeds innovation to make up forthe electrical capacity it lost when
it switched off its nuclear power
plants, and for that reason, as wellas bringing some nuclear production back on line, the government
is aiming for an increase in renewable energy sources.
To do this, it introduced afeed-in tariff system in 2012, topromote the introduction of renewable energy to fill the gaps.
Generous incentives put in placeby the government helped attract
large investments quickly into Japan’s range of renewable energy
resources, including geothermal,hydropower, wind and solar energy as well as biomass. The feedin tariff makes it mandatory for
power companies to buy electricity
generated by renewable sources atfixed prices set by the government,
creating stable revenue for renewable power investors.
But for many in the industry,
more still needs to be done forJapan to meet its objectives.
The country’s dense populationand tricky, mountainous geography mean making land available
for developing renewable energy
projects is difficult, while the technical and regulatory structure ofJapan’s electricity system, divided
as it is into regional monopolies,
poses challenges to the integrationof variable renewable energy.
“There is quite a strong view
that, for the government toachieve the target of 22-24 per-cent of renewables within theenergy mix, certainly solar will
have to contribute more than 8percent, probably in the range of
12 percent. That will not comethrough extended feed-in tariff
schemes, but more via economically driven self-consumption
models, that will be reinforcedby policies like ZEH (zero-energyhouse) standards for example,”says Atsuhiko Hirano, CEO of
Solar Frontier. The world’s largest provider of copper/indium/
selenide (CIS) thin-film solar energy solutions, it has gradually
begun selling a larger proportion of its solar panels into its
domestic market as demand hasincreased.
Indeed, the growth in renewableenergy sources could comfortably
be described as “booming” in Japan. Recent data from the Ministryof Economy, Trade and Industry
show the share of solar photovoltaics in electricity production at
4.3 percent in 2016, up from 2.7
percent in 2015. As a whole, renewable energy sources made up
14.2 percent of production lastyear, with more growth expected,
as the planned liberalization ofretail supply and legal unbundlingof power generation, transmission
and distribution comes into force
by April 2020.
Through innovation and smart
policymaking, Japan is now wellon the way to restoring the energy
security it lost after the quake. With
the gradual emergence of a diverse,competitive, homegrown energymarket, it is reversing its relianceon imported fuel and going green
in the process, enabling it to meet
its international commitments toclimate change mitigation.