Discussion of Fukushima from a Global Point of View: From the Perspective of Energy Security Washington, D.C.

January 23, 2012 Overview: The speakers discussed energy security and policy and its effect on industries and the economy in Japan. Link: http://www.us-jpri.org/en/seminar_20120123.html Speakers: Guy Caruso, Senior Adviser for Energy and National Security, CSIS Jack Spencer, Research Fellow, Nuclear Energy, The Heritage Foundation Shoichi Itoh, Senior Researcher, International Strategy Analysis Group, Strategy Research Unit, IEEJ Commentators: Jane Nakano, Fellow, Energy and National Security Program, CSIS Atsushi Tago, Associate Professor, International Politics at the Graduate School of Law, Kobe University Summary: Guy Caruso Energy security should be high on the priority list for most nations. The global energy situation is changing, as investments are made and new resorces are being discovered and developed in North America. In addition, the global demand for energy is increasing, as India and China move to higher stages of development. There are several concerns affecting oil. First, volatile oil prices are likely to continue.because of tensions in the Middle East and North Africa threatening supply disruptions. The EU has plans to ban imports from Iran and is urging Japan and the Republic of Korea to do the same. While Iran probably will not disrupt oil transiting the Strait of Hormuz, the volatility in prices will continue as the sanctions take effect. In 2011geopolitical tensions and other concerns led to a $30/barrel difference between maximum and minimum price of crudeoil. The Fukishima accident, the situation in the Middle East, and uncertainty about the debt crisis also affected prices. Prices are a vital factor in energy and economic security and this volatile situation is unlikely to change. Two thirds to 70 percent of proved oil reserves are in the Middle East and North Africa. Oil from these regions will continue to dominate world oil markets because production costs are USJI 1 http://www.us-jpri.org/en/index.html

as little as $5 to $10/barrel. Production costs in Canada, Brazil, Angola, or other areas with more difficult geology can cost between $60 and $70. Therefore US forces are likelyto remain in the Middle East to secure the choke points, even if imports by the USA from this region are decreasing, oilbecause prices in this globalized market would soar if supplies were significantly disrupted. National oil companies will be required to make huge investments to meet increasing demand and to offset production declines in mature oil and gas fields. Iran, Iraq, and Saudi Arabia all have national oil companies that will be critically important if these investments are to take place at the scale and pace required . National oil companies often operate in a different business environment than international oil companies and can be affected by political developments which could affect the pace of investment. There is considerable investment uncertainty in some of the key low-cost, high reserve, oil exporting countires such as Iran and Iraq. The situation in North America is also changing. Shale gas and tight oil resources are being developed which will have an impact on the global supplies and prices. The Energy Information Administration (EIA) released their latest outlook this morning which projects that U.S. gas production will surpass consumption by 2020. This suggests that the U.S. will become a net exporter of gas and that global prices could decrease. In terms of nuclear energy, U.S. policy reiterated by both President Obama and Secretary Chu after the Fukishima tragedy is supportive of new nuclear capacity in the USA. Nuclear energy in the US, however, faces a difficult economic challenge because of high capital costs, continued controversy over nuclear waste storage and will have difficulty competing with lower cost natural gas fired electric power. Shoichi Itoh There are 4 questions that must be addressed: 1) What are the physical constraints addressing Japans policy options? 2) What are the new challenges Japan confronts? 3) What is Japans role in the international society? 4) How will the U.S.-Japan alliance change in terms of energy security? Japan has an extremely low rate of energy self-sufficiency. It can only provide four percent of their own energy without nuclear, and with nuclear energy it is still be less than 20 percent. In comparison, the U.S. produces more than 70 percent of its own energy. In order to maintain at least a limited amount of energy security, it is important for Japan to continue its nuclear program. Japans energy policy, as of June 2010, was to increase nuclear energy from 26 to 50 percent of supplies by 2030. However, this goal became no longer feasible after the March 11 accident at Fukushima. Debates on the new energy policy will continue until the early summer, at which point it will be announced to the public. Decision makers must also keep climate change and carbon dioxide emissions in mind when drafting a new policy. Before the Great East Japan Earthquake, 36 of the 54 nuclear reactors were in operation. Of these, ten were shut down USJI 2 http://www.us-jpri.org/en/index.html

because of the earthquake. In addition, there has been no restart of nuclear reactors which went into regular mandatory inspection since last March. If the government makes a decision, at this rate there will be no nuclear energy produced by April 2012. Without nuclear generation, Japan is estimated to increase spending on energy imports by two trillion yen, further hurting the economy. Japans geography severely impacts its energy security. First, it has no access to international oil and gas pipelines. Nor does it have connected with a transnational transmission grid. While Germany has plans to shut down nuclear plants by 2022, they have the option of transporting energy by land. In addition, their coal production makes their self-sufficiency much higher than that of Japan. Finally, Japan, being highly dependent on energy imports, has to take into account a variety of geopolitical flashpoints, such as uncertainty in the Straits of Hormuz, East China Sea, South China Sea, theKorean peninsula, etc. Nuclear energy was one of the key joint research projects between the U.S. and Japan. Japan must consider short and long term goals and how their policy will affect global energy security when deciding on a new policy. Jack Spencer As mentioned earlier, the EIA announced that the U.S. will become a net exporter of gas by 2020. However, this goal is optimistic as regulations prevent the exploitation of shale and nationalistic and protectionist lobbyists will thwart exports. In order to achieve energy security, we must rid government subsidies and let investments go towards energy sources that promise security. We have seen from Fukushima and geographic choke points that the energy market is not nimble in adjusting to problems. Relying on market forces is the best way to achieving energy security. Japan attains 30 percent of its energy from 54 nuclear reactors in comparison to 20 percent from 104 reactors in the U.S. Before the earthquake, Japan had 12 more reactors in the planning process and two in construction. There are currently only five reactors operating in Japan, causing an increase in oil imports. The cost of shutting all of these down will have a big economic impact on Japan. While many are calling for the switch to renewable energy, subsidies will not be enough to cover cost of solar energy, which can be up to ten times more expensive than nuclear energy. The Japanese economy will stop expanding without a stable supply of energy because industries will leave the country. Japan cannot use the March 11 accident as an opportunity to stop using nuclear energy. The accident merely showed that there was inadequate planning, communication, and training. The Three Mile Island accident showed that every one of these problems can be fixed. Japan can overcome these problems as well. The accident at Fukushima did not have as much of a global impact as originally expected, as seen in countries having chosen to continue using nuclear energy. It did emphasize

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the importance of nuclear regulation and a properly established industry. Japan will lose credibility of nuclear technology exports if they shut their plants down. Jane Nakano Three points must be raised in response to the previous speakers. First, Japan must balance multiple objectives, such as economic, geopolitical, and environmental matters when reformulating its energy policy. Since it is an island country with limited energy resources, Japan does not have the luxury of other countries in choosing from a wide range of policy options or energy sources. Next, there must be a realistic range of pathways to transition to reduce or phase-out nuclear energy. An energy system transformation requires large investments and will have macroeconomic implications. As for renewable energy, it will be an important component of the energy mix, but there must be realistic expectations in its role in transition pathways because the technology is not yet mature and still expensive. The pace of renewable technology commercialization and the size of global renewable energy technology market will be driven by large domestic markets like Chinas. Finally, the U.S.-Japan alliance has a long history of cooperation in commercial arenas and nuclear energy research and development. The Fukushima accident should be an opportunity for U.S.-Japan cooperation in these areas to be taken to the next level, perhaps by advancing decommissioning and decontamination technologies through closer collaboration. Atsushi Tago Energy is important to Japans foreign relations. Tensions with China, especially regarding the Senkaku islands, are related to energy. Japan must discuss energy in their alliance with the U.S. even before the base issue at Okinawa is resolved. Japan needs a contingency plan to help the U.S. in the Middle East, and especially in securing the Strait of Hormuz. It needs to help secure energy instead of free-riding off the U.S. Finally, Japan must also place importance on its relationship with Australia.

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