Oil: The Mideast and the East

We recently spent a week in Japan to attend the wedding of a former student. The wedding celebration included a formal dinner at which we were seated beside an English speaking Japanese businessman active in securing Japan’s future energy supplies. Naturally our conversation turned to his perspective on global energy and his efforts to secure reliable energy sources for Japan. We were surprised by his comment that he was not convinced the world was faced with an imminent shortage of oil or natural gas. He was most concerned with ensuring a diverse energy supply to lessen the prospect of suffering from supply disruptions.

Japan is the third largest consumer of oil in the world. Since 90 percent of its oil comes from the Mideast they would suffer intensely if energy supplies from there were disrupted.

Japan already buys oil from Iran. In 2003 three of its companies acquired a 20 percent interest in the development of an Iranian oil field which may contain a billion barrels of oil. A year later the contract was extended to recover natural gas and natural gas liquids from the same field and surrounding deposits. Iran has rich gas and oil deposits but lacks the infrastructure to bring those resources to the marketplace.

Iran has the world’s second largest known pool of untapped petroleum in the world—slightly more than its neighbor, Iraq. Currently producing four million barrels per day, it is estimated that over time its production could be increased to seven million. In addition to oil it has the world’s second largest reserves of natural gas. Only a small amount of its natural gas is now in production. It is one of the few countries in the world capable of a dramatic increase in production.

Its abundant supplies and need for infrastructure development have drawn the interest of China and India who are both eager to obtain future supplies. China already secures 14 percent of its oil from Iran, has negotiated deals to increase oil imports and expects to import large amounts of liquified natural gas supplies from there as well. India has similar interests.

Iran has potential control over the Strait of Hormuz through which 40 percent of the world’s oil is shipped. Sinking a few large oil tankers in the mile wide shipping lane would disrupt the flow of oil.

Iran, just as Iraq before the invasion, is developing energy projects with nations other than the U.S.

Japan and China both claim rights to the same natural gas field on the floor of the East China Sea; both have a military presence in the area. Both are courting Russia to have a new pipeline from Siberia bring oil to their countries. This could cut Japan’s reliance on Mideast oil by 15 percent.

Japan has also negotiated a deal with Brazil to buy ethanol to supplement transportation fuel needs. Having visited Brazil, the businessman commented that processing ethanol from sugar cane produces powerful odors. He also indicated that Thailand had been making ethanol to offset high gasoline prices but had shut down two ethanol plants and put plans to build another dozen plants on hold. Agricultural products diverted to ethanol production were producing food shortages and a threat of famine in the country.

Ironically the dramatic rise in the price of oil has had a limited effect on Japan’s economy. As one of the world’s most energy efficient countries, rising energy prices have less negative impacts on its economy than on ours. Additionally, energy efficient hybrid vehicle sales have soared in the United States adding to its revenue. As our major auto producers’ sales fell to an all time low of 56.9 percent of the U.S. market, the market share of Japanese auto manufacturers rose to an all time high of 32.2 percent.

As competition for global energy supplies intensifies, our inefficient use of energy continues to hurt us and our economy.

From the Feb. 22-28, 2006, issue

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