At the End of a Floating Pipeline

By John S. DeMott

An energy-poor country squeezes the most out of every drop of oil

Japan is the terminus for a floating pipeline, a long convoy of supertankers that stretches 6,500 miles from the Persian Gulf through the Strait of Malacca, into the South China Sea and finally to Japanese ports. From those tankers and others pour 99.8% of the country's oil and 70% of its total energy needs. Japan also imports 90.7% of its natural gas and 81.8% of its coal. The whole edifice of Japanese prosperity is built on those foreign energy sources.

As a result of that dependence, Japan is the wheeler-dealer of the world energy trade. Oil is oil to the Japanese; it matters not who sells it or where it comes from, so long as it keeps flowing. Though such an attitude can be partly excused because oil is Japan's lifeblood, it has sometimes offended Westerners.

The Japanese, for example, continued to buy oil from Iran at a time when Washington had requested that they stop purchases because of the 1979-80 hostage crisis. And they were among the first to start buying again after the hostages were released. More recently, the Japanese have been playing the world oil glut to their advantage in dealing with Iran. Several Japanese trading houses in May struck deals with the Iranians to get oil at 200 to 500 below OPEC's official price of $28 per bbl.

The Japanese are eager to reduce their dependence on Middle Eastern energy sources and are looking for alternatives. They would like to buy U.S. crude from Alaska, which is 2,700 miles closer than Iran. Mike Mansfield, the U.S. Ambassador to Japan, and oil-industry officials have been arguing that the Japanese should be allowed to buy Alaskan oil. That, says Mansfield, would help correct the balance of trade between Japan and the U.S. and also save transportation costs for both countries. But the proposal has been blocked by American laws that prevent the export of Alaskan crude.

Japan's aggressive activity in world energy markets reflects the country's experience in the early 1970s. Few nations went through a more wrenching readjustment after the 1973-74 oil shock, when the price of crude rose in less than a year from about $2 to more than $11 per bbl. Before those hikes, Japan's oil consumption had been growing at 15% annually, encouraged by a government policy that de-emphasized the use of coal. When the price of oil jumped, Japan's economy teetered. Factories closed, unemployment rose, inflation zoomed. The Japanese economic miracle appeared to be ending.

But when the second energy shock hit, in 1979, when OPEC increased prices from $13 to $24 per bbl. in the wake of the Iranian revolution, the Japanese had learned to deal with oil shortages. They not only survived that crisis, they prospered. Industrial production was up 10% during the second half of 1979, and oil consumption was down 2.8%. In the first two quarters of 1980, the gross national product went up 5.6%.

What had happened between the two oil shocks was the development of perhaps the world's most coherent and effective energy program. The entire thrust of Japanese energy policy starting in the early 1970s was to make less oil do more. Average annual oil consumption per person in Japan has declined about 20% since 1972. The Japanese pushed conservation by turning off electric lights, trimming back service-station hours, lowering commercial-building temperatures and shutting down escalators. Many other countries, of course, took the same measures, but the Japanese were more successful. Japanese refrigerators now use only about half the electricity of the 1973 models, and air conditioners 20% less. A 19-inch television set that used 140 watts in 1973 today needs less than 95. The government also started a new three-tier pricing system for electricity that puts a surcharge on the rate for heavy residential users.

The Japanese also used the oil shortages to make their industries more efficient. Large industrial firms in such sectors as cement, pulp and paper, and transit made major adjustments to comply with the government's demand for energy conservation. Many steel companies fitted blast furnaces with recovery turbines that use the pressure at the top of the furnaces to generate electricity for other steel-mill uses. Continuous casting, in which molten metal is formed directly into products for shipment and bypasses the cooling stages, helped decrease by 10% the amount of energy required to make a ton of steel. From 1973 to 1979, Japanese planners reduced the energy needed to make cars by 25% and the fuel necessary for chemicals by 23%. Total industrial-energy use has declined by about 8% since the early 1970s.

In areas where significant fuel conservation could not be achieved, whole industries shrank drastically. Aluminum smelting, which requires huge amounts of expensive electricity, employed more than 9,000 people in 1972, but today Japan imports almost all its aluminum. The Japanese petrochemical industry was severely cut back.

These efforts paid off handsomely.

The Japanese now use a greater amount of precious oil in industries that produce exports. Last year 53.5% of every barrel of oil went to industrial purposes (compared with 29.3% in the U.S.), while only 20.6% went to transportation and 22.2% to heating.

Even with that success, the government continues to press ahead with a policy to promote alternatives to imported oil, and it has not cut back on those programs despite currently lower world petroleum prices. Nuclear plants now provide about 12% of Japan's electric power. The country at present has 23 nuclear plants in operation, and it has 19 more planned or under construction. Liquefied natural gas produces about 18% of total energy needs, hydroelectricity 19.8% and coal 2.6%. Oil-burning thermal plants provide only 46.6% of electricity at present, vs. almost 100% a decade ago. The Japanese are determined to push their alternative energy program through to success, and so far they are right on target. The country has lowered its dependence on imported oil for energy needs from 80.3% in 1972 to about 70%. The new goal is to get it down to 56.5% by 1990. --By John S. DeMott. Reported by Edwin M. Reingold/Tokyo

With reporting by Edwin M. Reingold This file is automatically generated by a robot program, so viewer discretion is required.