Japan is finally entering the energy race — albeit a bit late.
Prime Minister Junichiro Koizumi will be in Central Asia, visiting energy rich Kazakhstan and then to Uzbekistan over the next few days, seeking new energy resources. The energy issue, as some tend to call it today, is in public domain now. While in Europe the previous week, writing this very column while at Frankfurt airport on way to the UK, in the aftermath of the “airline plot”, the question of continuous energy supplies to Japan and the West from the “instable Middle East” assumed still more importance.
In fact, earlier the week this very question was also posed to me during a talk show at the BBC. People in energy poor countries are vulnerable to any disruptions in supplies and cannot afford to stay without energy heating their homes and propelling the wheels of modern economy. Energy is not a luxury, it is a necessity today.
And it is in this perspective that one has to look at this very energy issue. Japan definitely could not have afforded to stay back and let things take their own course. Japan’s energized diplomatic drive in Central Asia comes at a time as Tokyo has embarked on its new energy strategy. The Japanese Ministry of Economy, Trade and Industry released its new national energy strategy at the end of May. It called for, among other things, strengthening of ties with resource-rich countries, promoting nuclear energy, and securing energy resources abroad. The new strategy specifically called for increasing the ratio of “Hinomaru oil”, or oil developed and imported through domestic producers, from the current 15 percent to 40 percent by 2030. This is significant and has greater ramifications.
Japan appears to be using free-trade agreement as a foreign-policy tool to beef up ties with resource-rich countries. Japan is also in FTA negotiations with the Gulf Cooperation Council. Tokyo currently imports almost all of its crude oil and nearly 90 percent of it comes from the broader Middle East, while the GCC accounted for more than 70 percent of the total Japanese crude imports. During the FTA negotiations with the GCC, Japan was reportedly seeking written pledge from the group to preferential crude supplies to Japan, even in emergencies such as war.
And Japan is definitely looking around too. It began to turn its eyes to Central Asia soon after regional countries became independent with the 1991 demise of the Soviet Union. Early June, Japan invited foreign ministers of Central Asian nations, often termed as the new energy frontier of this new world, for a meeting on the issue. And in a more significant move that highlights how passionately Japan is wooing the Central Asian nations, Koizumi, before stepping down in September, is undertaking the visit becoming the first Japanese premier to do so.
Tokyo now aims to build roads and pipelines from Central Asia to the Indian Ocean via Afghanistan carrying oil and natural gas into Japan. That’s why Tokyo invited Afghanistan also to the ministerial talks in Tokyo. The action plan adopted there called for enhanced cooperation, including Japan’s support for road construction to ensure a smooth route from Central Asia to the Indian Ocean. Interestingly, the new, upcoming port of Gwadar in Pakistan, often dubbed as the gateway to the Central Asian energy riches, is being aggressively promoted for the purpose by Islamabad.
During his discussions with his Central Asian counterparts, Koizumi would be focusing on working-level talks to flesh out the Japanese idea of a new oil-and-gas route from Central Asia to the Indian Ocean via Afghanistan. Japan is also reportedly exploring the possible first summit of leaders of Japan and Central Asia under the framework of the Central Asia Plus Japan dialogue.
Japan is also shoring up its stake in regional energy projects. Japan’s Itochu Oil Exploration and Inpex Corp. have 3.92 percent and 10 percent interest, respectively, in a production-sharing agreement for three fields in the southern Caspian Sea. The Azeri-Chirag-Guneshli fields are about 120 kilometers southeast of Baku, Azerbaijan. The Japanese government-backed Inpex also has an 8.33 percent interest in the Kashagan oilfield in Kazakhstan.
Itochu Oil Exploration and Inpex also participated in the consortium that built the Baku-Tbilisi-Ceyhan pipeline, with interests of 3.4 percent and 2.5 percent, respectively. Besides, Japan is also stepping up its drive to secure uranium supplies, as energy-hungry China, India, Pakistan, besides the US and the UK are also stepping up construction of nuclear power plants too, after many years of suspension
Japan has often competed with China over energy assets. Both have been competing for influence on Central Asia. Tokyo has frequently locked horns with Beijing over natural-gas reserves in the East China Sea. The Sino-Japanese rivalry over energy resources shows signs of spreading to the Middle East.
In early 2004, Japan and Iran signed a $2 billion deal to develop Iran’s massive Azadegan oilfield. But with international tension rising over Tehran’s nuclear program, there is a growing concern in Tokyo about how the nuclear crisis will play out. China won rights to the Yadavaran oilfield in Iran. Many analysts point out that should Japan be forced to give up the Azadegan project as part of international pressure on Tehran, Beijing could step in to replace Tokyo.
China is aggressively making inroads into Central Asia. China National Petroleum took over the Canada-based oil firm PetroKazakhstan, operating in Kazakhstan for $4.2 billion last year. China and Kazakhstan also inaugurated a 1,000-kilometer oil pipeline last December to send oil to western China. Eventually another pipeline will link up with this one from the Caspian region in western Kazakhstan, where the huge new Kashagan oilfield is being developed. However, in this fierce battle for supremacy and despite lacking in military muscle, the cash reserves of Tokyo could easily provide the country with substantial sway in tapping oil and gas reserves, analysts strongly feel. Koizumi’s Japan has some way to go still in this direction.