Just another Oil Shokku

It is widely assumed that Japan is better prepared than the rest of the developed world to accommodate rising crude oil prices. After all, didn't Japan wean itself away from imported petroleum following the first and second of the big oil shocks (or, as the Japanese say, "shokku") in 1973 and 1980? Hasn't oil consumption fallen steadily from its peak in 1996 even as gross domestic product has continued to rise?

All true, but in some ways it is irrelevant, as Japan remains dependent on imports for 80 percent of its energy needs and thus cannot avoid the consequences of US$100-plus petroleum prices, a fact now being reflected in its slowing economy. And Japan's experience carries an ominous warning for other nations, like the United States, that are years behind it in seeking so-called energy independence.. Japan, for instance, has turned to nuclear power with a vengeance, with 55 reactors providing 30 percent of its electricity. That is expected to increase to at least 40 percent over the next 10 years, according to the World Nuclear Association. But despite Japan's attempts to turn away from imported energy, it remains largely hostage to the supertanker.

Unlike earlier energy crises, not many in Japan today speak of an oil shock or even an oil shokku. Instead they do what they can to ameliorate the impact of the slow, grinding consequences of rising crude prices (coupled with rising food prices) which impacts almost everyone here.

In the first five months of 2008, Japan spent 5 percent of its GDP to pay for crude oil and other petroleum products, such as natural gas, compared with 2.1 percent in 2004. By comparison, the U.S. spent 4.8 percent of its GDP on imports, but these include manufactured goods from China and elsewhere, not just petroleum imports.

Throughout August the government issued a steady stream of gloomy economic assessments. On August 7, the cabinet reported that the period of growth that had begun in early 2002, the longest post-war expansion, had ended and Japan was on the verge of a recession. The following week the government said that the economy had contracted at an annualized 2.4 percent in the second quarter.

On August 20 the Bank of Japan described growth as "sluggish," using that word for the first time in 10 years. The previous month it had said that the economy showed signs of "further slowing down". All three reports blamed rising oil prices and declining exports as the reason for the slowdown.

"I will firmly take emergency measures for people who are seriously affected by abnormal oil prices," declared Prime Minister Yasuo Fukuda in a statement released shortly after he reshuffled his cabinet, bringing more of the ruling party's senior leaders into the government. Talk of a supplemental budget to stimulate the economy is in; thoughts of balancing the budget are out

In mid July the operators of 200,000 fishing vessels, each one a prodigious user of fuel oil, held a one-day strike to protest rising fuel costs. The month before the squid boat operators had held a two-day stoppage, which caused a spike in squid prices.

In Japan fish prices are not something to be trifled with, and the government promptly announced a 75 billion yen (about $7.5 billion) subsidy program for fishermen. Much of it is earmarked for outright purchases of fish and low interest loans, but 8 billion yen will go directly to fishermen who cannot recover their fuel costs from fish sales.

The Asahi Shimbun newspaper noted that if every fisherman used the fund, it would exhaust the 8 billion yen fairly quickly. It also flew in the face of the G-8 energy minister meeting in June in Japan preparatory to the G-8 summit a month later. The delegates had specifically denounced the widespread Asian practice of subsidizing petroleum prices.

Other signposts of an economy struggling to adjust:

  • Gasoline prices hit 185 yen ($1.65) per liter at most gas stations in the Tokyo area in August. Prestige Omni Service Station in Ota Ward reported a 15 percent decline in sales from May, partly reflecting the reinstatement of the 25 yen gasoline tax that had been briefly suspended due to a political impasse and rising wholesale prices.

  • Nippon Rent-a-Car, one of the capital's largest such establishments, introduced 400 hybrid cars into its rental fleet by April and was planning to double the number for 800 by the end of July to meet the growing demand for the fuel efficient cars.

  • Japan Airlines, constantly looking for ways to reduce cut fuel bills, instructed its pilots to throttle back to almost a glide path while descending to land at San Francisco Airport (the new procedure apparently would not work at busier airports), saving an estimated 2,500 to 3,000 liters of aviation fuel for each trans-Pacific flight.

  • Traffic on Tokyo's notoriously crowded expressways has lightened noticeably. An official at the Metropolitan Police Traffic Control Center said, "Our congestion warning signs, which used to be in the red all the time, have not been red for the past several months."

  • Owners of public bath houses are hastening to switch from heavy oil to natural gas to feed the furnaces that keep their bath water warm. "We have no other choice to survive," said one bath house owner.

  • Nippon Oil, Japan's largest refiner with seven plants in the country, said that the volume of gasoline that it shipped declined 20 percent in July from the previous July, yet profits increase by 11 percent for the second quarter.

It is true that some industries in Japan, such as steel, have made huge strides in energy efficiency and that the country as a whole has become less dependent on imported oil, allowing the Ministry of Economy and Industry to boast that overall energy efficiency is three times higher than the rest of the developed world.

But to a large extent Japan has not reduced its energy dependence so much as it has simply substituted other sources of energy for oil. In 2006 Japan generated 1073 billion kWh gross, 28% from coal, 23% from gas and 9% from hydro. Per capita consumption is about 7700 kWh/yr, compared to about 12,000 kWh/yr for the United States. Hence, it is still utterly dependent on imports for most of its energy and thus vulnerable to the vagaries of world energy prices.