Japan's Middle East Energy Dependency - and How it Mitigates Shocks

Around 95% of Japan's oil and 11% of its liquefied gas is imported from the Middle East. Around 70% and 6% of these imports come via the Strait of Hormuz which has been effectively closed by the Iran War.

Here's a breakdown of Japan's energy dependence on the Middle East and how it can reduce its import risk.

Around 95% of Japan's oil imports come from the Middle East.

In January, Japan imported an average of 2.8 million barrels per day of crude oil, of which 1.6 millions bpd were from Saudi Arabia, with additional supplies coming from Kuwait, Qatar, and the United Arab Emirates.

Japan has emergency oil reserves that are equivalent to 254-days of consumption. These are divided between the national stockpiles, which is 146-days worth; private sector stockpiles, which is 101-days worth; and joint stockpiles - with oil producing countries -which is 7-days worth.

Saudi Aramco has 13 crude oil storage tanks on Okinawa. This allows the Saudi Arabian state oil producer to store 1.3 million kilolitres or 8.2 million barrels, which is equivalent to three days' worth of Japan's oil consumption.

The lease contract for tanks has been in place since 2010, and is renewed every three-years. Japan receives preferential access to the stocks in an emergency as a result of Aramco providing it with free storage space.

Officials said this week that Japan does not currently plan to release its oil stocks.

In 2022, Japan released some of its stockpile following Russia's invasion in Ukraine. It did this in coordination with other countries and the International Energy Agency.

The government of Japan has implemented subsidies to protect the people from the rising prices of fossil fuels. This is because the country faces a particularly high risk due to the weakening yen and the rising costs for imports.

Japan imports 11% of all its LNG from the Middle East, specifically Qatar, Oman, and the United Arab Emirates. Australia is Japan's largest LNG supplier, with about 40% of its total imports.

On March 1, major Japanese utilities have increased their LNG stocks by 10%, to?2,19 million metric tonnes, or around 12 days' consumption.

Kpler reports that Japan has a total of?over 4?million?tons LNG stored in its storage facilities. Only 0.1 millions tons of Japan's weekly LNG supply is delivered via the Strait of Hormuz.

According to Kpler, in the event of "prolonged Strait of Hormuz interruption", Japan's LNG stocks would cover 44-weeks of consumption. If all Japan's imports of LNG were stopped, the country could survive for about three weeks.

Japan exports 40 million tons of LNG per year and could redirect some to its own country in an emergency. It has an agreement with Qatar for emergency supplies and is exploring similar arrangements with Italy and South Korea, including cargo exchanges.

JERA is Japan's largest LNG buyer and acts as the government agent to secure at least one LNG shipment - around 70,000 tons a month - to reduce supply risks. (Reporting and editing by Toby Chopra; Katya Golubkova)

(source: Reuters)