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Japan’s Failed Energy Policies

Posted December 7, 2007

 
Japan has a checkered history securing its energy needs. The latest endeavor looks like another catastrophe in the making. Sara Nunnally of Material Profits explains.
 

The mystique of the samurai, of tea ceremonies and martial arts, gives Japan the feeling of a deep sense of honor and tradition that is well earned. But Japan is not all cherry blossoms and zen temples.

It has a violent side, too.

It’s the home of the shogun, head of the samurai class that had to earn his position by cutting through adversarial warlords; a brutal, aggressive consolidation of power; a bloody display of dictatorship.

And yet, through it all, there seems to run a strain of loyalty and duty… all the more so when those qualities happen to result in gaining power.

One such story lays in the legend of Toyotomi Hideyoshi, the peasant son of a foot soldier in the 16th century who rose to the highest rank bestowed by the emperor. Hideyoshi’s rise began when he avenged his old master’s death in a stunning four-day romp across Japan to that ended with the decapitation of his enemy, Akechi Mitsuhide.

Suddenly, Hideyoshi was the most powerful man in the country. The peasant boy from Nakamura had become the Imperial Regent.

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In modern-day Japan, just like when Hideyoshi’s Toyotomi held sway, there are only two classes: Winners and losers.

After an amazing post-WWII economic boom that saw Japan become the world’s most successful export economy, the nation entered a severe deflationary spiral that it’s only just starting to recover from.

Japan is on a shaky road. One that is overly reliant on external and growing powers. The problem? High energy prices and low domestic production.

Let me quantify what I mean by low. Japan imports 97% of its oil needs, and 93% of its natural gas needs. Japan knows that a stable, secure energy supply is a matter of life or death.

Yet endeavors to secure new supply have been fraught with difficulty over the years. Every attempt to boost energy supplies since the 1960’s resulted in embarrassing mistakes. The Japan National Oil Corporation racked up nearly 2 trillion yen in risky loan and investment debt and was eventually disbanded in 2005.

Now, Japan has created a new corporation to supply cheap money to energy exploration companies: Japan Oil, Gas and Metals National Corp., or JOGMEC. With JOGMEC’s complex government and private partnerships, Japan is investing billions of dollars on new international projects.

But it still has bad luck… Inpex Holdings, Japan’s largest oil and gas developer, invested $4 billion in a transportation system that would tap into Kazakhstan’s 13-billion-barrel Kashagan field.

Oil was supposed to be flowing in 2005. It wasn’t. That date was revised to 2008, and then pushed back again to late 2010!

I don’t think this bad luck will stay just in the energy sector, either. While the world’s second largest economy is shelling out billions upon billions for energy, the rest of the world is catching up. Japan’s slight grip on a growing economy could easily be ripped away, like Akechi Mitsuhide’s short-lived hold over the lands before Hideyoshi came to claim his head.

Consider that a warning.

 
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Posted by Sara Nunnally · Filed Under International Investing 

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