The Middle East accounted for 86 per cent of Japanese crude imports last year, equivalent to 3.7 million barrels a day (b/d). In the first nine months of this year, the region's share crept up by just over 100,000 b/d, accounting for almost 88 per cent of oil imported. Declining imports from Asia, and Japanese refiners' preference for the region's sweet crude blends, continue to drive the country's 5 million-b/d oil market.

'The Japanese government has tried to diversify away from oil dependence,' says Reiko Nakamura, oil & gas analyst at the Japanese Institute of Middle Eastern Studies (JIME). 'However, rising demand means that Japan will be forced to import more oil from the Middle East in the future. So the government is seeking stronger relations with countries in the region and is beginning to show an active interest in the area's political, economic and social stability.'

The UAE and Saudi Arabia are Japan's biggest suppliers, sharing just under 50 per cent of the market. However, Iran is closing in fast. Last year the Islamic Republic supplied Japan with more than 180 million barrels, an increase of about 24 per cent on the figure for 1995. The increased flow of crude reflected a warming in relations between Tehran and Tokyo, which has also seen Japanese oil companies being handed a role in the development of the giant Azadegan oil field.

Japanese oil companies, backed up by the promise of closer political and economic ties, are also pursuing upstream opportunities in Algeria, Sudan and Libya. The Algerian and Sudanese state oil companies, Sonatrach and Sudapet, are already shipping small quantities of crude east. And in Libya the Japanese are hotly tipped to take one of the National Oil Corporation's prized exploration licences. Securing the flow of oil from the Gulf remains Japan's number one priority, regardless of its long-term strategy to move away from oil as a primary energy source.

Prior to the first oil shock in 1973, oil accounted for more than 77 per cent of Japan's total energy requirements. However, it has been falling steadily over the past 25 years, standing at 55 per cent today. Further falls are envisaged; by 2010, its proportion of the total energy mix is targeted to drop to 48 per cent, due to higher consumption of natural gas, nuclear power and renewable energy.

Meeting the 2010 target will be a challenge, especially if Japan's underperforming economy grows at a faster rate than the projected 2 per cent a year. Without significant increases in energy efficiency in an already lean power generation system, oil demand will have to be restricted to just 0.2 per cent growth a year.

Uncoupling economic growth from energy demand is the only option. It is out of step with the country's long-held rule that demand tracks economic performance, although it did happen, briefly, following the oil price rise in the early 1970s. However, any sustained rally in the economy will inevitably lead to a rise in energy consumption.

'The government is sticking to the long-standing strategy of reducing oil's share of the energy mix. However, finding alternative sources of energy by building more nuclear power stations is becoming increasingly difficult. I am not sure whether oil dependence can be reduced in the medium term,' says Nakamura.

Gas has traditionally been the main alternative to oil. Unsurprisingly, Japan is the world's biggest importer of liquefied natural gas (LNG). Last year the Middle East increased its share of the market by 9.5 per cent, delivering 10.5 million tonnes of LNG, compared with 9.4 million tonnes in 1999. Shipments from the Qatar Liquefied Gas Company (Qatargas) and the Abu Dhabi Gas Liquefaction Company (Adgas) were joined by the first deliveries from Oman LNG, which contributed 61,400 tonnes to Japan's imports. 'Gas supplies coming from new LNG projects in Asia, Sakhalin and the Middle East will take more of oil's market share. However, any significant increase in LNG imports will take another decade to come on stream,' says Nakamura.

Andy Critchlow