JAPAN'S OIL DECOUPLING
November 21, 2007
It is hard to find good investment news from Japan these days. But in this gloom, it is easy to overlook one great strength: the country's immense success in reducing oil dependence, says Robert Alan Feldman, head of economic research at Morgan Stanley Japan Ltd.
Japan's oil consumption is especially dramatic when it is compared to gross domestic product (GDP) growth:
- During the booming 1960s, oil use grew at about twice the growth rate of inflated-adjusted, or real, GDP.
- But between the first and second oil crises in the 1970s, real GDP growth started to outpace oil usage.
- Then the trend reversed: From 1979 to 1989, oil use fell by 14 percent while real GDP rose by 27 percent; since 1989, oil use has risen, but not as fast as output.
Further, the country's efforts have saved immense amounts of energy, says Feldman:
- Today's GDP would require about 40 percent more energy per year than is actually used, if Japan had languished at 1975 efficiency levels.
- Converted to barrels of oil and valued at today's oil prices, this energy saving amounts to about 16 trillion yen (about $140 billion) per year.
Yet despite remarkable progress, Japan is not free of energy worries yet:
- Japan still imports 82 percent of its primary energy, down only five percentage points in 35 years.
- With oil hovering around $90 a barrel, there is likely to be another major shift away from oil.
- Since the end of 2003, retail gasoline prices are up by about 40 percent, and total passenger car sales are down about 6 percent, even though real wage income is up by about 2 percent.
Nevertheless, if history is any guide, Japan is likely to outperform other countries in adjusting to high oil prices, says Feldman. Japanese companies and the government have demonstrated their ability to pursue many technology alternatives.
Source: Robert Alan Feldman, "Japan's Oil Decoupling," Wall Street Journal, November 21, 2007.
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