Uncertainty over the global energy supply, heightened by Russia's invasion of Ukraine, could continue to keep energy prices high for a while, according to Japan's annual energy report released Tuesday.
The latest white paper on energy also stressed the need for Japan to retain interests in oil and gas projects in the Russian Far East island of Sakhalin, despite a slew of sanctions Tokyo has placed on Moscow, on the grounds they are vital to secure a stable energy supply for the energy-poor country at a reasonable cost.
The report described the fiscal year through March 2022 as a period during which the world faced fundamental challenges, pointing to the possibility that a prolonged war in Ukraine and new investments in decarbonization efforts could push up energy costs.
"The priority for the Japanese economy is to improve energy productivity while containing energy import prices (at a certain level) through efforts such as diversifying energy sources and suppliers," the report said.
As the primary factors driving an increase in fossil fuel prices, the white paper cited unusual weather, including a cold snap in Europe, as well as natural disasters and a lack of investment in developing fossil energy sources at a time of economic recovery from the coronavirus pandemic.
The report added that the energy price surge has accelerated in the wake of Russia's invasion of Ukraine in late February.
The report made clear Tokyo's plan not to pull out of two major energy projects off the Russian island north of the Japanese archipelago, called the Sakhalin 1 and 2 oil and liquefied natural gas projects.
Russian oil and LNG imports account for 3.6 percent and 8.8 percent, respectively, of the total imports of oil and LNG, while the country imports 91.7 percent of its oil from the Middle East, according to the white paper.
Noting that LNG imports from the Sakhalin 2 project account for around 3 percent of the electricity generated in Japan, the report called the projects "indispensable" for electricity and gas supplies in the country.
The white paper also said a withdrawal from the projects could weaken the impact of sanctions against Moscow if Russia or a third country close to Moscow acquired the interests given up by Japan.
In response to Russia's attack on Ukraine and atrocities against civilians, the Group of Seven industrialized nations -- Britain, Canada, France, Germany, Italy, Japan and the United States -- plus the European Union pledged to ban or phase out Russian coal and oil.
The report said that while it was a "very difficult" decision, Japan intends to ban Russian oil "in principle" as coordination among G-7 members is paramount at the moment.
Japan, however, cannot ban the oil immediately, the report added, saying the country will reduce its reliance on Russian energy over time by diversifying energy sources, including renewables and nuclear power, as well as by investing in LNG projects outside Russia.
The report, submitted to the Cabinet on Tuesday, also highlighted measures taken by various economies to achieve carbon neutrality, such as those of Japan and Britain that oblige large companies to disclose climate-related financial risks.
To achieve net-zero emissions by 2050, Japan and the EU need to focus on reducing carbon dioxide emissions in the industry sector on top of reductions in the power sector, while the United States needs to focus on cutting CO2 emissions in the transport sector, the paper said.