December 1, 2004｜China
Assistant Director, Business Planning Department, Japan-China Economic Association
Recently, the newspapers have been filled with stories about skyrocketing world oil prices. The root causes of this runaway growth are thought to include such short-term issues as the situation in such parts of the Middle East as Iraq and Palestine, and internal strife in Nigeria, but in the medium to long-term, the grim outlook for future oil demand and supply resulting from rises in global demand, particularly in such Asian countries as China, is also believed to be a factor.
Various problems have become apparent with regard to the energy supply and demand situation in China in recent years, such as serious electricity shortages centered in country’s eastern and southern regions, a sharp rise in oil demand resulting from motorization, restricted coal supplies and soaring coal prices, all of which have been the focus of attention in the Japanese newspapers as well. Such problems have begun to cast a shadow over Japan, which has – until now – been importing oil and coal from China.
One problem has been the cessation of imports of Daqing crude. Daqing crude is crude oil from the Daqing oilfield, which is China’s largest oilfield; trade with Japan in this oil began in 1973. Although trade in this oil had continued for 30 years, China ceased its supply in January 2004, as the increase in domestic oil demand meant that the country no longer had any export capacity. As Daqing crude is characterized by a low sulfur content and high residue levels, it has mainly been used in Japan as fuel for generating electricity, but demand for oil has been declining due to the recent situation with regard to power generation, so the impact of the cessation has not been as great as it might have. However, the ending in this way of the trade in Daqing crude, which had symbolized the friendship between Japan and China, was a shock to everyone with an interest in this field. In addition to the official position that this was due to a sharp rise in Chinese demand for oil, there is also the view that it was a reprisal on the part of the Chinese for the Japanese government’s proposal, subsequently announced, regarding the Pacific route for the East Siberian crude oil pipeline, although this is merely conjecture.
In addition, there is conflict between Japan and China surrounding energy resources, with regard to the issue of natural gas resources in the East China Sea. The problem is further complicated by the fact that it involves political and diplomatic issues, such as exclusive economic zones and the territorial dispute regarding the Senkaku / Diaoyu Islands.
With regard to energy resources, Japan currently imports from China a small quantity of crude oil from the South China Sea and 30 million tons of coal annually. The trade in coal has been relatively stable in quantitative terms until now, but domestic supplies began to be restricted last year, leading to a situation in which it was in breach of some of its contracts with Japan with regard to the export of certain types and brands of coal. The state has imposed stringent export curbs on energy resources such as coal and crude oil, in the form of items for which export permits are required, and there is potential for this to have an impact on exports to Japan in the future, depending on China’s domestic situation. At the moment, there are not so many political factors involved with coal as there are with oil, and problems relating purely to trade have been resolved relatively smoothly up to now. However, in the future, if political factors become involved, as in the case of oil, then the problems may become increasingly complex.
Japan is almost entirely reliant on other countries for its energy resources, while China’s degree of reliance on overseas sources is also increasing rapidly. Amid this situation, China is formulating a clear national strategy on energy resources and we are seeing moves towards companies uniting with the government, such as in the case of China’s oil company, which has actively acquired rights to foreign oil resources, with powerful backing from the government. I wonder whether Japan’s energy policy was formulated with such strategic considerations in mind and whether it is linked with companies’ actual activities?
Even when problems relating to China’s development of the East China Sea gas-field emerge, the Japanese side has no accurate geological data or materials that would allow it to argue logically against China’s actions and is asking China to provide it with such materials, which could not be said to be a particularly impressive way of doing things. Leaving aside the rights and wrongs of China’s actions in this area of sea, the fact that the government has not conducted a geological survey of the East China Sea, due to “diplomatic considerations” with regard to China, can only be seen as evidence of Japan’s “lack of awareness” and “absence of a strategic mind-set” with regard to energy resources.
This does not apply to the East China Sea issue alone; more generally, one receives the impression that both Japan’s public and private sectors have little awareness of their own country’s national interests. In future, when we enter an era in which energy security issues must be considered in terms of Asia as a whole, rather than merely bilateral issues involving Japan and China, action based on a strategic mind-set will be required in order to conduct discussions on an equal footing with China and other Asian countries.