In a few weeks it will be the one year anniversary of the Fukushima Daiichi nuclear plant disaster, which had all but soured the Japanese public’s appetite for nuclear energy.

What once supplied 25 percent of the country’s energy needs, nuclear power plants are being decommissioned one by one. As of February 2011, only two of the country’s 54 commercial reactors remained functioning. While the disaster was a year ago, the Japanese economy is still feeling the after effects. Last month, Japan hit a record trade deficit at $18.59 billion, topping its previous record during the Asian financial crisis of the 1990’s. The primary culprit for the country’s lopsided import export balance is energy. Having weaned itself off of nuclear energy within a span of a year, Japan has ramped up imports of liquefied natural gas (LNG). As both an island and resource poor country, Japan relies almost entirely on energy imports and when it comes to LNG, Japan is the world’s largest customer.

Ranked as the world’s third largest economy, having a secure, steady, and reliable supply of energy is not only a matter of economic importance but of national security. As a result, Japan is willing to, and perhaps has no option but to, pay the premium price.

In 2011, to address short term energy needs, Japan dramatically increased LNG spot purchases, hitting record high levels of LNG imports. And with intensified interest in LNG, Japanese energy companies have taken the lead in transforming Japan from a major customer to an active player within the global LNG development and distribution market.

On July 2011, Tokyo Electric Power Company (TEPCO) and Chevron signed a long-term LNG deal that would supply 3.1 million tons of LNG for up to 20 years. During the signing of the deal, there were talks about TEPCO’s acquisition of a 20 percent share of the Chevron’s Wheatstone downstream processing facilities in Australia. Currently, Japanese gas companies are working with Russian gas giant, Gazprom, over a number of investment projects to develop and export natural gas from the Russian Far East. The focus has largely been on the construction of a LNG gasification plants in Vladivostok, which are due to begin production in 2013 with an annual output of 5 million tons per plant.

Last week, Japan’s Mitsubishi Corporation purchased $280 million worth of shares in nine of Talisman Energy Inc.’s natural gas blocks in Papua New Guinea. Mitsubishi is now the 20 percent owner of this Canadian company, a firm that has been actively developing the natural gas potential of Papua New Guinea, an estimated 3 million tons of LNG per year.

While LNG imports are up, Japan’s import of crude oil has slightly dropped in the last year due to a weaker than expected industrial production rebound. According to the Japanese Ministry of Economy, Trade and Industry, the country imported about 19 million less kiloliters in December 2011 (19,160,673 kl) than it did in December 2010 (20,233,483 kl). Furthermore, after pressure by the U.S., Tokyo has agreed to decrease 2o percent of its oil imports from Iran, which accounted for 10 percent of its imports in 2010.

An Opportunity to Liberalize the Energy Market?

Echoing public distrust of large energy firms like TEPCO after the Fukushima disaster, some have begun to push policymakers to liberalize the country’s entire energy industry. Dominated by regional monopolies, much of Japan’s energy development, management, and delivery is usually under the regime of a single company.

The push for liberalization would break apart these various responsibilities, thus increasing competition and efficiency and resulting in cheaper prices and energy conservation. By “debundling” these major energy giants, the customers would have a choice in supplier, thus increasing competition and efficiency. It is believed that a liberalized energy market is more receptive to and encourage development of low-carbon energy sources. Yielding to greater competition, the EU is currently undergoing its own liberalization process, where major pseudo-state energy companies are slowly being broken up, yielding to higher competition amid growing calls for cleaner energy.

The UK, which began liberalizing its energy market in the 1980’s, recently introduced a series of reforms to incentivize its utility companies to decarbonize its power supplies. For many advocates, including those in the Japanese Diet, restructuring the energy market is not a matter of when but how and to what degree. Nevertheless, the prospect of a high-yielding and economically competitive renewable energy market is still in the distant future. With public rejection of nuclear energy and carbon heavy alternatives like crude oil, LNG appears to be the only option for Japan to keep the lights on.