Earthquakes usually exact a limited toll on the global economy. The earthquake and tsunami that struck Japan in March 2011 was different, however, as energy markets across the globe felt the impact. Japan is a large player in world energy markets, including petroleum. The disaster occurred when Japan's liquid consumption was starting its seasonal decline. While most of the apparent liquids consumption decline that eventually occurred was seasonal, the earthquake and the tsunami exacted their toll as well: Japan's consumption level in May 2011 dropped to the lowest monthly level since recordkeeping began in 1984. However, as Japan's recovery has progressed, the direction of the disaster's impact on the nation's petroleum use has reversed. With only 10 of 54 nuclear reactors currently operating, liquid fuels and natural gas used for power generation increased to make up for the lost nuclear generation. According to the International Energy Agency's (IEA) Monthly Oil Data Service, Japan's average daily liquid fuels consumption in July and August was higher than last year.
Despite having few domestic energy resources, Japan plays a vital role in many global energy markets. It is the world's fourth largest energy consumer, and prior to the earthquake, the third largest producer of nuclear power. The country is one of the top five natural gas consuming nations and the world's largest importer of liquefied natural gas (LNG) and coal. Japan is also the world's third largest liquid fuels consuming economy, surpassed only by the United States and China, which requires it to be the world's third largest importer of crude oil.
Japan's nuclear power generation infrastructure sustained significant damage, mostly as a result of the tsunami. More significantly, undamaged nuclear reactors that were taken offline following the Fukushima incident accounted for the majority of the nuclear capacity that was shut down, leading to an increased demand for fossil fuels to meet base-load power generation needs. According to the latest information provided by the Japan Atomic Energy Agency, the shutdown capacity totals 40,276 megawatts (MW), while the 10 units currently operating account for about 8,684 MW of nuclear capacity. Other fuels were used to replace the lost nuclear generating capacity. This was mostly in the form of natural gas but also liquid fuels; some estimates reported increases as high as 200 thousand barrels per day (bbl/d). The Federation of Electric Power Companies of Japan reported that LNG consumption by power producers rose nearly 31 percent by June year-over-year, and by 23 percent by July. In fact, Japan's July LNG imports rose to a five-year high of 7.1 million tons, according to Deutsche Bank.
Petroleum infrastructure, including refineries, factories, ports, roads, and other transport logistics that directly affect the use and movement of crude oil and liquid fuels also sustained significant damage. In the tsunami's aftermath, six oil refineries with a total capacity of 1.4 million bbl/d (about 30 percent of Japan's total refining capacity) were shut down or had limited operations for a period of time. Since then, the majority of refineries have returned to pre-tsunami levels, with the only notable exception being the 145 thousand bbl/d Sendai refinery, which remains out of service.
Japan's oil consumption decreased following the earthquake and tsunami (Figure 1). Total consumption of liquid fuels dipped to 4.6 million bbl/d in March, about 10 percent lower than the previous month, and about 3 percent lower than total consumption for the same month during 2010. Liquid fuels consumption continued to decrease in both April and May, with the May level about 1 million bbl/d lower than consumption in the February preceding the disaster, which is a typical seasonal decline. However, the subsequent growth of about 666,000 bbl/d from May through August was substantially higher than the typical seasonal increase. With Japan's recovery well underway, consumption is expected to remain strong. According to the U.S. Energy Information Administration's Short-Term Energy Outlook, Japan's liquids fuel consumption may increase by about 1 percent in 2011 over 2010.