Japan's Energy Challenges and the Role of Gas *

With regard to energy security, crude oil prices have repeatedly hit new highs and the world oil market is expected to remain tight in the coming years. In Japan, oil accounted for 46% of the total primary energy supply in 2006 and almost 90% of its oil is imported from the Middle East. Therefore, the most important energy goal for Japan is to reduce its oil dependency by promoting energy conservation and developing alternative energy sources. Natural gas and nuclear power are major means of diversifying energy supply sources, and accounted for 16% and 12% of total primary energy supply in 2006, respectively. But unfortunately, due to the severe earthquake in Niigata prefecture last July, the operation of seven nuclear power reactors of Tepco is now suspended. As far as global warming is concerned, it is crucial for Japan to reduce CO2 emissions since the target years of the Kyoto Protocol have just started this year. According to this treaty, Japan is obliged to reduce its GHG emissions during 2008 to 2012 by 6% compared with the level in 1990. Frankly speaking, this is an extremely difficult target to achieve, because GHG emissions in 2006 were already 6.4% higher than in 1990, and it is not known when Tepco will be able to restart the suspended seven nuclear power reactors. Under these circumstances, LNG is expected to play an increasingly important role to improve energy security as well as to reduce CO2 emissions. There are three key factors that will drive the demand for LNG in Japan. The first one is the price competitiveness of LNG compared with other fuels; the second is future development of nuclear power; and