Japan sweeps the dust from its energy strategy

An old Japanese proverb suggests that even dust, when piled up, can become a mountain. For many years, Japan has allowed significant quantities of dust to accumulate across its energy landscape. However, a new broom is on its way – and could have important implications for the country’s oil refining industry.  

Japanese energy demand is falling – why? 

As in other developed nations, increased efficiency, deindustrialisation and a shift towards renewables are all impacting Japanese energy demand. However, in Japan a further factor is resulting in overall demand decreasing: the country’s declining population. In fact, Japan’s birth rate of just 1.14 children per woman is barely half the rate of 2.1 children per woman established as being necessary to maintain a stable population.  

Could the situation change? 

The Japanese government views population decline as a national crisis and has introduced reforms to try to increase the birth rate. However, other political and cultural currents – in the form of a new, more proactive approach to the country’s macroeconomic situation – may prove more important in shaping the Japanese energy landscape over the next decade. 

In February of 2025, the government approved the Japan’s 7th Strategic Energy Plan, with a key focus on achieving Net Zero by 2050. The cornerstone of this new energy policy is an ‘S+3E’ approach (Safety, Energy Security, Economic Efficiency & Environment). A huge portion of S+3E relates to power generation and innovation around renewables. 

Since the Plan was announced, a series of macroeconomic events have combined to boost the potential for a reset of Japan’s energy sector. Changes in the Japanese bond market in the first half of the year suggest decades of deflation are over. Meanwhile, July’s general election results indicate the electorate are in favour of Japan-first policies to improve the country’s situation. Then came the trade deal with the Unites States signed on 22 July 2025, which establishes a new relationship between the two countries  

Why should anyone outside Japan care? 

Japan’s approach to its energy needs matters to the rest of the world for several reasons. Firstly, Japan is the world’s fourth largest economy (arguably tied with India). Secondly, it’s home to the world’s third largest bond market after the US and China. Thirdly, it’s the world’s sixth largest consumer of refined products, competing with California (which considered on its own would be the world’s fifth largest economy) for exports from China and South Korea. 

What does Japan’s current oil and refining landscape look like? 

Japan’s existing oil infrastructure is well adapted to the country’s island geography, rugged terrain and frequent earthquakes. Japan has very few pipelines – instead, refined products are either produced locally or imported and distributed by ship.  

Effective evaluation of Japan’s oil and refined product markets therefore relies heavily on refinery monitoring and waterborne analysis. There are currently 20 operating refineries with a capacity of 3.3 million barrels per day serving Japan’s transportation fuel market – a figure that will fall to 18 by the end of 2025. Wood Mackenzie’s Refinery Intelligence solution currently monitors 10 Japanese refineries – and will expand to cover 16 of the 18 facilities remaining at the end of 2025. We also offer a VesselTracker maritime data solution to monitor waterborne flows. 

What are the current headwinds for Japan’s oil and refined products markets? 

Nearly 30% of the Japanese population are aged 65 or older and the death rate is more than double the birth rate. One consequence of this is that the Japanese are ‘ageing out’ of driving, with a consequent impact on demand for fuel for transportation. Based on current population projections, we anticipate a decline in demand of 0.5% a year for petrol and 0.3% a year for diesel through to 2030. 

How can the industry address lower demand? 

Refurbishing Japanese refineries to match the sophistication of newer facilities in neighbouring countries is financially unviable. The industry must therefore seek a balance between which refineries geographically have the economics to survive and which must either adapt or shut down.   

A key potential opportunity is to transform existing assets to produce renewable diesel and sustainable aviation fuel (SAF); these refined products have the best chance of being economically viable in a country that produces no oil and so must import every barrel it refines. Given what Japan has spent on fuel subsidies over the past few years, this would be the prudent path. 

WoodMac’s Japanese market intelligence solutions are uniquely placed to monitor the balancing of geographical refinery output, waterborne imports and national movements with the expected transition to biological-based fuels. You can visit our Refinery Intelligence and Vessel Tracker pages to find out more about these products. Or get in touch to discuss how our products and services can help you assess the Japanese energy market.