Well Wishes From Alaska : Lifting Export Ban Could Make Japan a Big Oil Customer

Pressure to ease trade friction across the Pacific and a voracious appetite for imported oil make Japan a likely customer for Alaskan crude oil if the U.S. government, as expected, lifts a 22-year-export ban.

The likelihood of that move increased this week when the Clinton Administration endorsed the removal of the ban, which was imposed during the 1970s to ensure an adequate supply of domestic oil for the United States.

For years, Sen. Frank H. Murkowski (R-Alaska), the chairman of the Senate Energy and Natural Resources Committee, has urged Japan to buy Alaskan oil as a way of reducing its $60-billion trade surplus with the United States.

“Politically, whatever Japan can do that ends up saving them a little bit of money and showing not just the U.S. Administration but the American people that they’re interested in fair trade makes a lot of sense,” said Gerald Kepes, a senior economist for Petroleum Finance Co. Ltd., a Washington, D.C.-based consulting company.

On Friday, the Japanese government--citing economic disruption caused by the Jan. 17 Kobe earthquake--reported a dramatic drop in the nation’s January trade surplus to $3.69 billion from $6.97 billion a year earlier. But a Finance Ministry official said the country’s exports have already picked up again and he predicts the surplus will expand again next month.

In addition to buying political good will, Japan stands to benefit in other ways from buying U.S. oil. Asia’s leading economy depends on the Middle East for 75% of its oil, a situation that limits its bargaining power and leaves it vulnerable to regional conflicts such as the Persian Gulf War. Alaska would be a much closer, and politically stable, supplier.

“They like to buy their oil from an ally and they might perceive it at least in the short term as good PR,” said Richard Ellings, director of the National Bureau of Asian Research in Seattle.

In an ironic twist, however, Japan’s major supplier in Alaska would not be a U.S. company but British Petroleum, which produces 50% of the North Slope oil.

Oil has long played a key role in shaping Japan’s overseas agenda, particularly in the Middle East. Until recently, Japanese companies unofficially supported the Arab boycott against Israel. The Japanese government only donated money to the allied war against Iraq in 1991 after being sharply criticized for allowing others to protect its oil supply.

But oil executives and analysts warn against expecting a dramatic improvement in the U.S. export figures even if Japan purchases all of the Alaska oil sold on the export market. Of the 1.6-million barrels of oil pumped daily out of Alaska’s North Slope, only an estimated 150,000 to 250,000 barrels are slated for export, according to Alaskan state officials and oil analysts. At about $15 a barrel, that adds up to $1 billion a year in sales, a small dent in the U.S.-Japan trade imbalance.

Jon Choy, a senior economist with the Japan Economic Institute of America, a research organization funded by the Japanese government, said Japanese importers will purchase some Alaskan crude oil to diversify their supply. But he questioned how effective the U.S. political pressure will be in the long run.

“It is possible the Japanese might make some political calculation that if they buy some Alaskan oil it might mollify (Washington) to a degree,” he said. “But I don’t think that’s going to be a major consideration.”

Other possible customers for the oil include Korea and Taiwan.

An official for British Petroleum said the volatility in the oil market makes it difficult to predict how much oil it will be exporting or where. Tom Koch, a BP spokesman, said the company will continue meeting the needs of its West Coast customers but expects to export some of the crude oil to the Far East.

Atlantic Richfield Co. of Los Angeles, the other major Alaskan producer, said it plans to continue shipping its Alaskan oil to the West Coast where it has two refineries.

Independent refineries argue lifting the export ban will hurt their competitive position by boosting crude prices and reducing their crude oil supply. Environmentalists fear the changes in tanker routes will expose more of the West Coast to oil spills.

But supporters in California and Alaska hope a boost in crude oil prices will encourage expanded investments in oil production in both states and lead to higher employment, taxes and royalties.

Bob King, a spokesman for Alaska Gov. Tony Knowles, said the expanded production should eventually lead to much greater oil exports from Alaska to Asia. Currently, Japan is the largest foreign buyer of Alaska’s liquefied natural gas, ammonia products and light fuel oils, according to the Alaska Center for International Business in Anchorage.

“The state can’t run around and find customers for the oil companies, that’s up to them,” King said. “But I think removing this ban would be a sign of increasingly open markets and free them up to seek out potential markets for this oil.”

Oil veterans caution against placing too much faith in the numbers associated with the oil export ban battle, given the unpredictability of the global oil market. They point out that Middle East oil suppliers could lower their prices to compete with a new supply from Alaska, making it risky to predict potential export markets or revenues.

“These numbers being used are numbers that must face the test of the marketplace,” said Al Greenstein, an Arco spokesman. “This may not be as beneficial as some hope or as damaging as others predict.”

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Selling Alaskan Oil

Japan is expected to become a likely consumer of Alaskan oil if the U.S. government lifts its export ban. While oil production in Alaska has been decreasing, production is expected to go up once the ban is lifted.

JAPANESE OIL IMPORTS

In billions of barrels:

1993: 1.61

ALASKAN OIL PRODUCTION

In millions of barrels*:

1994: 598.6

* Based on average daily production.

Sources: Nippon Business Facts & Figures, State of Alaska