Production halts and reductions, hot springs not so hot... Japanese giants are struggling to hold on.

► 文 Observer Online Wang Ruan Jiaqi

For Japan, which relies on the Middle East for more than 90% of its crude oil imports, whether the Strait of Hormuz remains open and passable could be described as “a matter of life and death.” Right now, from manufacturing plants to public bathhouses, businesses across the board are generally falling into difficulties procuring fuel.

According to a report by Nikkei Asia on the 24th, Japan is facing a serious energy crisis. Affected by both fuel shortages and a surge in oil prices, companies ranging from heavy industry to people’s livelihood services have all been under mounting pressure and have fallen into paralysis one after another. To deal with disrupted crude oil supply, Japan plans to tap into its petroleum reserves, but given the knock-on effects such as reduced power generation, factory shutdowns, and limited public transportation, this remedial measure has had limited results.

In mid-March, Japan’s second-largest steelmaker, “JFE Steel,” shut down directly a thermal power generation unit at a plant area near Fukuyama City in Hiroshima Prefecture due to a shortage of heavy fuel oil. The unit relies on blast-furnace off-gases from the plant area and generates electricity using heavy fuel oil as well. A person familiar with the matter said bluntly that as oil prices rise, “purchased electricity may end up being more cost-effective than generating our own.”

At the same time, the hot spring facility “Tanba Sasayama Warm-Hearted Home” in Sasayama, Hyogo Prefecture, announced that it will temporarily close on March 28. This bathhouse, popular in the Kansai region, heats the hot spring water using heavy-oil boilers, but the supplier has recently notified that it will stop delivering fuel.

“After operating for over 20 years, we’ve never encountered anything like this,” the bathhouse general manager said with concern. “With only cold water left, we can’t operate at all. Without heavy fuel oil, we can’t do anything.”

And this is only a small glimpse of the impact’s “iceberg tip.” The report said that so far, naphtha and heavy fuel oil are under the first strain; but if the situation keeps worsening, shortages will also appear in other categories such as kerosene and aviation fuel.

As of March 14, Japan’s aviation fuel and heavy fuel oil inventories can support about 60 days, gasoline inventories about 12 days, and diesel inventories about 14 days. Overall supply of core refined oil products has fallen by roughly 10% compared with before the conflict.

An executive at a petroleum company acknowledged that although Japan has long listed the Strait of Hormuz blockade as one of the worst-case scenarios, if the blockade lasts three to four months, Japan’s fuel supply system would suffer a severe blow. Another industry insider also noted that due to Japan’s insufficient modernization of oil refining equipment—such as limited room to adjust capacity structures, like “increasing gasoline output by cracking heavy oil”—the constraints remain very tight as well.

March 12, Japan’s national oil reserve base.

East IC

In Japan’s economic operations, heavy fuel oil and diesel—refined from crude oil—are widely used, covering multiple fields including factories, power plants, shipping, and bathhouses. As crude oil prices rise, the procurement costs for these two types of oil increase in tandem, and the amount circulating in the market is also continuing to shrink.

According to disclosures by Japanese media, due to the Strait of Hormuz being obstructed and the widening gap in oil products, many Japanese petroleum companies have begun implementing targeted supply, prioritizing core customers.

An executive at a fuel distributor in the Kanto region of Japan’s largest refiner “Eneos” said that traders currently holding refined oil inventories prioritize supplying old customers first. “Companies that frequently change suppliers are now finding it very hard to buy fuel.”

Japan’s second-largest oil company “Idemitsu,” which ranks just behind Eneos, has also reportedly received news of reduced fuel supply. A relevant executive confirmed that the company is dealing with supply tightness by planning its sales schedule in advance.

The transportation and logistics sector is also being hit clearly. After the escalation of the Middle East conflict, the price increase for marine fuel made from heavy fuel oil exceeded one hundred percent. Shipping firms pass part of these costs into freight rates, and the burden on cargo owners correspondingly increases. Japan’s largest shipping company, “NYK (Nippon Yusen),” said operations have not been affected at present, but “we can no longer carry out conventional flexibility measures such as preparing fuel in advance.”

Relying on coal-fired power generation, “Chugoku Electric Power” also said that while it is not directly affected at the moment, for Japan—a country that is “completely dependent on imports for resources”—what it faces now is a “crisis of life and death.”

The company’s president predicted that if the stalemate continues, the pressure on Japan’s winter power supply after November this year would rise significantly.

The impact of the diesel shortage is also continuing to spread. A passenger and shipping company in Nagasaki Prefecture, “Segawakisen,” due to a shortage of operating diesel, starting from this Monday will reduce the round-trip schedule between the West Sea and Sasebo from 11 trips per day to 9 trips per day, cancel midday services, and prioritize travel needs for students and commuters.

Last Saturday, “J-Power (Japan Power Development Co., Ltd.),” which relies on coal and diesel for power generation, cut the electricity generation output of two units at the Matsura Power Plant in Nagasaki Prefecture. This is a direct reduction of 1 gigawatt of power by Japan’s largest power wholesaler—an amount equal to the installed capacity of a nuclear power station.

The bus industry, which depends on diesel, is also filled with anxiety. In mid-March, Tokyo Metropolitan Government’s transportation bureau’s tender for diesel purchases for the second quarter ended in failure. To avoid interruptions to bus operations, the government is considering negotiating private contracts separately with suppliers. In Kawasaki City, diesel tenders in the same period also failed, leaving only the option to raise bid prices to match the market price.

As a key figure in Japan’s transportation and logistics industry, the president of the Japan Bus Association and president of the Iyo Tetsu Group, Ichiro Shimizu, recently said he is deeply concerned about the tight diesel supply and the phenomenon of suppliers hoarding and profiting.

“Panic over diesel supply is spreading nationwide. From frontline bus operators in multiple places, we’ve learned about all kinds of problems, including cases where suppliers have paused selling fuel.” he said.

Data from the Petroleum Association of Japan (PAJ) shows that as of March 14, Japan’s refineries’ weekly operating rate is only 72.5%, down 8.4 percentage points from the previous week. At the same time, refineries are cutting production capacity for surplus oil products that are normally sold at lower prices. From March 8 to 14, Japan’s refined oil inventories were about 6.82 million kiloliters, down about 6% from the previous week.

Local time Monday (the 23rd), the association president, Shunichi Kito, called on the Takaichi administration to release a second batch of strategic petroleum reserves. He suggested that the release size of the second batch should be about the same as the first batch. Previously, Japan’s government on March 13 announced the start of releasing the first batch of about 80 million barrels (equivalent to 45 days of consumption) from private reserves, setting the largest release record since the reserve system was established in 1978.

Kito is also the president of Idemitsu mentioned earlier in the above text. As an industry insider, he said he never expected the Strait of Hormuz to be closed.

At the news briefing that day, regarding supply diversification, Kito also argued for increasing investment in Alaskan crude oil, and listing Ecuador, Colombia, and Mexico as alternative supply locations.

The next day, local time on the 24th, Japanese Prime Minister Hayato Takase held that at a cabinet meeting on the situation in the Middle East, Japan will begin releasing a second batch of national oil reserves starting this Thursday (the 26th), equivalent to one month of consumption. At the same time, the plan is to use the “joint reserves of oil-producing countries” stored within Japan during March.

According to a combined report by Reuters, Saudi Arabia, the United Arab Emirates, and Kuwait have total reserves of about 13 million barrels of oil within Japan, equivalent to Japan’s seven days of consumption. Japan has priority access rights in an emergency.

And while it looks like allies are mired in an energy crisis and busy covering supply, the United States is taking advantage of the situation. According to CNBC, U.S. Interior Secretary Doug Burgum reemphasized on Monday that the U.S. can provide “reliable” alternative energy supply to Asia-Pacific allies.

“They want to buy more energy from the United States.” Burgum, who just visited Japan, said, arguing that the energy-led agenda pushed by Trump is intended to provide stable alternative energy supply for U.S. allies, so they “don’t have to be forced to import from those countries that wage wars or fund terrorism.”