JAPAN'S SHORT-TERM ENERGY OPTIONS LIMITED, FOCUS

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 002292

SIPDIS

E.O. 12958: DECL: 08/20/2013
TAGS: ENRG EPET ECON PGOV JA
SUBJECT: JAPAN'S SHORT-TERM ENERGY OPTIONS LIMITED, FOCUS
ON INCREASING EFFICIENCY

REF: TOKYO 2174

Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 b,d


1. (C) SUMMARY: Despite political pledges to relieve energy
price pressure on Japan's small and medium enterprises,
fiscal constraints and oil supply limitations leave the GOJ
with few near-term policy options. GOJ energy-related
economic stimulus measures will focus on targeted incentives
to boost energy efficiency in the medium to long term,
according to GOJ officials and energy economists. Japanese
officials argue, unconvincingly, that intervention to curb
speculation in commodities could also ease prices. END
SUMMARY.


2. (C) The outline of the GOJ's Emergency Economic Stimulus
Package released August 11 seeks to promote energy
conservation and assist small and medium enterprises to
adjust to higher prices for raw materials, including fuel.
While details of the plan have yet to be worked out in the
Government and would still need to go through the Diet, Japan
has few options to affect directly fuel prices in the near
term, according to senior Ministry of Economy, Trade and
Industry (METI) Agency for Natural Resources and Energy
(ANRE) International Affairs Division officials. These
officials report METI Minister Nikai has very serious
concerns about the impact of the high price of oil on
Japanese companies, especially small and medium enterprises.
After becoming METI Minister in early August, Nikai in his
first press conference called for a forum of oil producing
and consuming countries to deal with the high price of oil.
ANRE officials later explained Nikai was referring to two
meetings that are already planned, a G8 International Energy
Forum set for November and a meeting of producing and
consuming countries in December in London. The London
meeting is a follow-up to a similar meeting in Jeddah last
June.


3. (C) Beyond such meetings, however, officials argue the GOJ
can do little on the supply-side in the near term to reduce
fuel prices. A release of petroleum from Japan's strategic
reserve is not realistic for Japan because the reserve is
designed to counter acute cuts in supply. Instead, the focus
needs to be on incentives to improve energy efficiency and
reduce demand in the longer term, officials report.


4. (SBU) While public pressure for relief from higher energy
prices will continue to be a political issue, recent
movements in the crude oil market favor a gradual reduction
in prices, according to Institute for Energy Economics Japan
Senior Managing Director, Dr. Tsutomu Toichi. Toichi cited
three trends that favor a gradual fall in oil prices. First,
demand for oil, particularly gasoline, has already started to
drop. (Note: as one indicator of falling consumer demand, an
ANRE survey showed gasoline prices hit 185.1 yen per liter on
August 4 and that gasoline sales in July were down 8.9%
year-on-year. End Note.) Secondly, Saudi Arabia's
announcement in June that it will increase crude oil
production is helping tamp down prices.


5. (SBU) Finally, Toichi noted signs speculative activity in
commodity markets is decreasing with major institutional
investors shifting activity away from the crude oil futures
markets. (Note: METI's FY2007 White Paper on Trade linked
speculation, primarily among institutional investors, to
increases in the price of crude above the fundamental demand
price. Toichi's organization, which receives about half of
its operating revenue from METI commissions, performed the
analysis for METI's White Paper. However, CFTC market
monitoring shows net positions of short-term investors have
not grown relative to the overall market over the past two
years, precisely the time at which they are being accused of
causing the price of oil to soar. End Note.)


6. (SBU) Toichi also said the GOJ will face continuing
pressure to ease commodity prices from politically active
small and medium industries, such as the fishing industry
(reftel),that are unable to pass easily price increases to
consumers. Toichi discounted the likelihood of supply-side
intervention through releases from Japan's strategic
petroleum stockpile, saying that even were the GOJ to release
reserves, OPEC would act to counter any significant price
reduction by limiting production. Rather, Toichi predicted

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the GOJ will look to fund development and use of alternative
energy technologies, such as solar power for domestic
consumer use, to promote a reduction in energy demand as a
long-term sustainable policy option.
SCHIEFFER