x Abu Dhabi, UAEMonday 24 July 2017

Japan seeks Saudi oil to fuel economic recovery

Prime minister seeks to ensure energy supplies as nuclear plants are shut off.

When Japan's economic miracle began in the 1960s, it depended hugely on shipments of Saudi oil. The country lacked any domestic fossil-fuel supplies to power its massive industrialisation drive.

Half a century later, Japan's new prime minister, Shinzo Abe, has turned to Riyadh again. Trying to lift Japan out of the economic doldrums and decrease its reliance on nuclear energy. Mr Abe flew to Saudi Arabia this week, where he signed a pact with Crown Prince Salman bin Abdulaziz Al Saud to strengthen energy, economic, and security ties.

"It's crystal clear what this visit is about: it's energy, energy, energy," said David Roberts, who studies Japan-Gulf ties at the Royal United Services Institute in Doha.

But Saudi Arabia also has something to gain. As North American supplies of shale gas come online, Saudi Arabia has been keen to firm up buyers for its crude elsewhere.

Meanwhile, the kingdom's demand for energy is growing also, and Riyadh is looking for alternative sources, from gas to nuclear to solar, which is where Japan has the expertise.

"The exchange is: 'We give you energy at a reasonable price, you help us build a prosperous developed society,'" said Michael Penn, founder of the Shingetsu Institute for the Study of Japanese-Islamic Relations in Tokyo.

The pillars of Saudi-Japanese trade have not changed greatly since it began half a century ago. Visiting Tokyo in 1974, the Saudi oil minister at the time, Sheikh Ahmed Zaki Yamani, announced: "In the future what we want for our oil is not the amount of money we get for that oil … it is the technology and industrialisation of Saudi Arabia."

The context, however, is newly urgent for both nations.

Japan is less energy secure than ever, even as it has grown into the world's third-largest consumer of oil. Its civilian nuclear capacity is facing new scrutiny after the 2011 earthquake and tsunami caused a meltdown at the Fukushima plant. Today, just two of the country's 50 nuclear reactors are operational, leaving a huge gap in energy supply that has been filled largely by fossil fuel shipments from the Arabian Gulf.

Natural gas from Qatar in particular has kept the lights on. Japanese imports from the emirate are up 60 per cent from 2010, according to the International Monetary Fund.

Japan is also the third-largest buyer of Saudi Arabian crude.

"Mr Abe sees the relationship with the Arabian Gulf as a strategic asset, and he wants to make sure that those relationships are kept warm," Mr Penn said.

For Riyadh, Tokyo is a welcome buyer. Some western buyers have shifted their energy purchases to shorter contracts, but Japan prefers to secure supplies for the long term. This is particularly stabilising since Saudi Arabia faces the prospect of the United States decreasing its imports as its new domestic supplies become available.

Speaking in Washington this week, the Saudi oil minister, Ali Al Naimi said the idea that the US could end its energy dependence on the Middle East was "a naive, rather simplistic view".

But he said Saudi Arabia was facing lower exports because of the strain its own consumption was placing upon supplies. Last year, Saudi Arabia consumed 3 million barrels of oil a day, just less than a quarter of its current production capacity. The government estimates that demand for electricity is growing at a rate of 8 per cent a year, and roughly half of power supply is generated using crude and fuel oil.

"Being so blessed with natural resources has, unsurprisingly, corresponded with a boom in [Saudi Arabia's] domestic consumption," he said, adding that his country was "conscious of the need to mitigate inefficient energy usage in the kingdom".

Japan could offer some relief. During a visit to the kingdom in February, Japan's trade and industry minister, Toshimitsu Motegi, suggested that his country could help transfer civilian nuclear technology to Saudi Arabia by helping to construct power plants.

It is not clear if this transfer was part of the agreement signed this week during Mr Abe's visit, but he did raise another alternative-energy proposal. The Japanese prime minister announced that he was eager to cooperate with Riyadh "in the field of solar panels made in Japan, which can bear sandstorms", the Saudi news agency reported.