Japan – a resource constrained, island economy that has long been challenged by its lack of natural resources. Japan is a major importer of food supplies, basic commodities, and especially energy resources including coal, oil and liquefied natural gas (LNG).
Following the Fukushima crisis, which essentially eliminated Japan’s nuclear power production abilities, Japan’s use of oil has dramatically increased. According to data from J.P. Morgan Global Commodity Research, February saw Japan’s oil use (for power generation) spike by 520 kbd yoy; an amount roughly the equivalent to China’s projected 2012 oil demand growth (500 kbd).
Looking ahead to the summer months, Japan is making a concerted effort to prevent power shortages and blackouts. Will oil consumption rise as a result? Many analysts agree that oil use in power is the single largest demand-side uncertainty during the summer peak demand period of July and August.
Even though selected nuclear reactors are scheduled to go back into operation come summer, it is unlikely that the additional power generation will make a dent in Japan’s summertime oil consumption levels. It is estimated that only 6 of Japan’s 54 closed reactors will be opened by the summer. Japanese utilities could still burn up to 800kbd of oil for power generation during July and August, despite the inclusion of these reactors.
Furthermore, the Fukushima crisis has altered the way Japan structures its power production, particularly as related to oil. Prior to the accident, oil supplies were largely allocated for peak demand periods, when power plants had to ramp up to satisfy the highest levels of consumer electricity use. Now, oil is often utilized for peak and mid-range use, resulting in a larger, more consistent demand profile.
Oil’s involvement in this earlier process stage has kept demand levels up. Summer heat will result in heavy demand for air-conditioning, thus amplifying the daily demand peaks. Oil will be relied upon to meet demand and avoid power outages.
Many uncertainties remain. Weather patterns (such as major heat waves) could complicate matters or ease the burden. Implementation (or lack thereof) of power conservation measures may also have an impact on usage.
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