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Energy Outlook in Japan and Implications for Saudi Arabia

Writer: Shahad Turkistani*

Saudi Arabia and Japan enjoy a strong relationship and have supported each other through many tumultuous developments since they established diplomatic relations in 1955. The first section of this paper touches on the current status of Saudi-Japan diplomatic, economic, and energy relations. The second section describes and analyzes Japan’s changing energy policy (renewable, fossil fuel, and nuclear) in the wake of the Fukushima nuclear disaster and, more recently, the Ukraine War. The paper also assesses the impact of each incident on Saudi Arabia, Japan’s biggest oil importer. Lastly, it concludes with future perspectives and policy recommendations.

Japan-Saudi Relations

Diplomatic relations between Saudi Arabia and Japan were established in 1955. Saudi Arabia was the first country in the Gulf Cooperation Council (GCC) to formalize ties with Japan, realizing its potential future importance. At the diplomatic level, both countries have consistently engaged in reciprocal visits, aiming to develop closer and more strategic ties. Even before 1955, Saudi officials made numerous visits to Japan, which constituted development of the relationship. Most important was the visit of the then Saudi Ambassador to the United Kingdom, Hafiz Wahba, to Japan in 1938, whom the late King Abdulaziz ordered to attend the grand opening of the Tokyo Mosque. A year later, the Japanese government’s envoy to Egypt visited Riyadh and met with King Abdulaziz. Both governments have since continued visits at all levels and at regular intervals. Table 1 shows the visits between the two countries from 1938 to 2020. 

Table 1: Saudi Arabia – Japan Official Visits 1938 to 2020

Economically speaking, Japan is one of Saudi Arabia’s most important partners. As of 2021, Japan’s imports from Saudi Arabia amounted to $27.51 billion, while its exports were $4.45 billion. About 70% of exports from Japan to Saudi Arabia are transportation equipment, mainly automobiles, while crude oil accounts for most of Japan's major import items from the Kingdom.

Recent decades have witnessed an increase in trade volume between the two countries, both in oil and non-oil products. The economic relationship between the two countries was reaffirmed with the establishment of the Saudi-Japan Vision 2030 Initiative in 2017, which opened the door for renewed cooperation and mutuality between Japan and Saudi Arabia. The Saudi-Japan Vision 2030 initiative aims to facilitate public and private sector involvement between the two sides by aligning and reporting on strategic initiatives that contribute to the objectives of each country's national growth and development strategies. This step has broadened the scope of cooperation to include a wide range of fields that were not considered in the past, such as renewable energy, climate change, infrastructure, entertainment, maritime security, and international cooperation. A key example of this is Japan’s eagerness to invest in Saudi Arabia’s proposed 2030 giga-projects.  Companies like Japanese conglomerate, Softbank, announced that it plans to invest as much as $25 billion in Vision 2030 projects in the Kingdom.  In 2021, SoftBank made its first investment of $125 million in Saudi based customer communication platform, Unifonic. The Unifonic deal is funded through SoftBank’s Vision Fund 2, and the company plans to start a listing on a global exchange within the next three years. This points towards a steady and continued increase in trade relations in various sectors between the two countries.

Regarding energy cooperation, Saudi Arabia has long been Japan's primary energy source. As of July 2022, Japan imported an annual total of 27.39 million barrels, of which Saudi Arabia provided the largest percentage at 40%.  Table 2 shows Japan’s 2021 oil imports from the GCC, with Saudi Arabia accounting for 39.1% of oil imports. Table 3 shows Japan’s Middle East oil imports from 1965 to 2015, highlighting that Saudi Arabia has maintained its position as the biggest importer over that period, while at the same time underscoring Japan’s continued dependence on Saudi oil. Additionally, the two countries recently renewed a joint crude oil storage scheme in Okinawa, providing quick and easy access to other critical customers of Saudi Arabia across the Far East. Tokyo has been paying for storing Saudi Arabian oil at leased storage tanks in Okinawa under the "Joint Crude Storage by Producing Countries" agreement with Saudi Aramco. In return, Japan prioritizes the crude oil stored at Okinawa for commercial purposes, which can reach 8.18 million barrels, in the event of an emergency.

Table 2: Japan's Oil Import from the GCC in 2021

Table 3: Japan’s Oil Imports from the Middle East (million liters) - 1965-2015[1]

  • In addition to fossil fuels, the two countries have cooperated in renewable energy. Talks began when Saudi Arabia announced its Vision 2030, mainly aiming to diversify its economy and reduce economic dependence on oil. One of the most significant projects the two countries have been working on is the production of blue ammonia. Aramco and the Institute of Energy Economics, Japan (IEEJ), in partnership with SABIC, have successfully demonstrated the production and shipment of blue ammonia from Saudi Arabia to Japan with support from the Japanese Ministry of Economy, Trade, and Industry.  Jane Nakano, a senior fellow at the Center for Strategic and International Studies,  stated that this project “reaffirmed Aramco’s view that existing technology solutions (i.e., the extraction, processing, and conversion of natural gas into hydrogen and ammonia) can help provide cost-effective and scalable low-emission solutions."  This demonstrates that projects of this kind will continue to take place in the long run, demanding new, but needed, areas for cooperation.

    Similarly, Japan plays a vital role in the newly developed Rabigh Solar PV project. The Japan Bank for International Cooperation (JBIC) signed on March 2021 an extended agreement with South Rabigh Renewable Energy Company (SRREC) of Saudi Arabia in which JBIC will provide project financing amounting to approximately $78 million. The loan is co-financed with Mizuho Bank, Ltd and Al Rajhi Banking & Investment Corporation of Saudi Arabia, and the total co-financing amount is approximately $157 million. This project became the first to draw on financing from an export credit agency, and it is the first loan by JBIC for an Independent Power Producer (IPP).  The aim of this project is to build and operate a 300MW  solar PV plant in Rabigh, in which the electricity produced will be sold to Saudi Power Procurement Company over 25 years. Overall, this level of cooperation shows Saudi Arabia’s readiness to pursue various renewable energy options as part of its goal to generate 50% of its electricity from clean sources by 2030.

    Cooperation between Saudi Arabia and Japan is not limited to the oil sector. Instead, it is expanding to include areas like renewable energy, infrastructure, and trade. Based on current trajectories, the two countries will likely continue exploring new opportunities to strengthen their economic ties.

    Japan’s Energy Policy

    While the third largest economy in the world, Japan is also a resource-poor country. This means that the government will always depend on energy imports for its economy to grow. Japan is dependent on imports for 94% of its primary energy supply, which makes its energy supply structure extremely vulnerable. Japan meets less than 10% of its primary energy use from domestic sources. Adding to this challenge, Japan is particularly prone to natural disasters. Japan experiences extreme climatic variations, such as typhoons, seasonal rain fronts, and heavy snowfall along the coast of the Sea of Japan. Japan is also vulnerable to tsunamis, owing to the fact that it experiences countless earthquakes year-round.

    The large-scale negative implications of Japan’s harsh geography and climate on energy security were made shockingly clear in the aftermath of the 2011 Fukushima nuclear disaster, where flooded nuclear reactors led to deadly explosions and nuclear meltdowns. Subsequently, Japan’s Ministry of Economy, Trade, and Industry (METI) developed a Strategic Energy Plan that is updated annually to outline Japan’s energy policies by 2030. The main principles of Japan’s energy policy are “Safety,” “Energy Security,” “Economic Efficiency,” and “Environmental Protection” (S+ 3E).  Under this policy, Japan aims to reach carbon neutrality by 2050 and nationally determined contributions under the Paris Agreement (NDCs) by 2030. Japan has stressed its commitment despite some viewing the stated goals as ambitious, especially in reducing its greenhouse gas emissions compared to Japan's continued growing energy need.

    To achieve its climate goals, Japan intends to do the following:

    • Raise the reduction rate of the 2030 energy efficiency target by 20% and accelerate energy efficiency nationwide with the amendment of the Act on the Rational Use of Energy.
    • Utilize renewable energy as a top priority on the premise of S+3E. This includes doubling the ratio of renewable power generation by 2030 compared to 2019. 
    • Hydrogen and ammonia will achieve a 1% share in the power generation mix in 2030.
    • Inefficient coal-fired power will be faded out in 2030. In addition, the thermal power ratio in the power generation mix will be lowered as much as possible.
    • The necessary amount of nuclear power will be utilized continuously on the premise of safety while public trust is being ensured.


    Table 4 shows the energy mix in numbers:

    Table 4: Japan’s Energy Mix 2010 to 2030