Japan to Hit Record-Low Petroleum Consumption in 2024: Refinery Closures and Aging Population Blamed

 

Japanese refinery closures - 2024

The beleaguered crude oil markets that look forward to catching a glimpse of hope in the coming New Year, was dealt yet another disastrous blow last week, when the EIA, US Energy Information Administration, announced the refinery closures in Japan, coupled with a serious decline in petroleum consumption.

Adding insult to the injury, the report, published on December 13, says that the petroleum consumption in 2024 would be the lowest on record since 1980s.

Image: credit- the EIA

The development will reverberate in the markets even before the dawn of the New Year, 2024, causing further volatility in the coming weeks. Since the next OPEC+ meeting is a long way off, a temporary boost, even if it could  be short-lived, is not in the offing at present in these circumstances.

Citing the aging Japanese population that has long been in decline since 2009 as the primary cause, the EIA does not see any reversal of the trend in the near future. 

At present, more than 30% of its population are above the age of 65; the corresponding figures in the EU, US and China are 21%, 17% and 14% respectively.

The statistics are baffling, if not frightening, because, Japan is the fourth largest consumer of oil in the world: the petroleum consumption, for instance, fell from 5.2 million bpd in 1996 by 2% through 2022; in 2024, the EIA predicts that the consumption will fall by another 3%.

Top five consumers of oil in the world

Japanese refineries fall into the category of low-complex refineries: they have been developed for processing light, sweet crude that is much more expensive than the cheaper crude that is heavy and sour; refineries in the rest of Asia, especially, those from India, South Korea and China, by contrast, favour the latter that in turn robs Japan of a level playing field.

With the closure of a major refinery, ENEOS, in western Japan in October and another refinery being earmarked for closure in March, 2024, the loss of refinery capacity, according to the EIA, is estimated to be a staggering 7% of the total national capacity.

Japan, a nation once heavily reliant on petroleum for its energy needs, is at a crossroads as far as its energy trends are concerned: a combination of factors, including demographic changes, economic shifts, and the adoption of cleaner energy sources has pushed Japan into an unenviable position.

As for the demographic changes, as the population ages, they tend to travel less that leads to the fall in petroleum consumption. In addition, they tend to be more energy-efficient in their chosen life-styles, further reducing the demand for fuels.

Japanese economy, meanwhile, is rapidly evolving from heavy industry and manufacturing that it used to be, to a service-oriented economy, inadvertently handing down the former to its regional rivals; this trend accounts for the fall in demand for petroleum products such as diesel.

Japan has been a pioneer in adopting to cleaner energies, even before it became quite fashionable. In recent years, in order to meet the global goals, the country has invested heavily on wind, solar and even geothermal energy. These investments will inevitably reduce the reliance of fossil fuels in Japan even further.

There are risks, though. A heavy reliance on the renewables by a country that is prone to natural disasters, ranging from typhoons to tsunamis, means that Japan has to take steps to ensure the diversification is irreversible and will stand the test of time in proportion to the positive contribution it makes to improving the environment.