Japan homeowners swapping oil for electricity

By Osamu Tsukimori -Analysis

TOKYO (Reuters) - A rush by Japanese homeowners to convert their houses to run solely on electricity has put them in the vanguard of efforts to cut back on oil use, but also risks driving up coal and gas imports if nuclear generators falter.

Utilities such as Asia's biggest Tokyo Electric Power Co. (TEPCO) (9501.T) have seized on high fuel prices and concerns over gas safety to push the idea of the "all-electric home" that requires no oil for heating or gas for cooking or hot water.

While the drive is aimed mainly at taking market share from city gas firms, it will also hasten the drop in oil consumption from the world's second-biggest importer after the United States, an often overlooked factor that could temper oil prices that have trebled on the back of strong global demand.

"Over the next 10 years, Japanese oil demand will lose 1 million barrels per day," Fereidun Fesharaki, Chairman and CEO of consultants FACTS Global Energy, said recently. "The losses in Japan are probably bigger than the gains in India."

That contraction is the result of many factors, including a shrinking population and more fuel-efficient cars. Oil product sales fell 5.2 percent in the fiscal year ended in March, partly thanks to the warmest winter in decades.

But analysts say a part is shifting demand from households, which burn as much as 1 million bpd of kerosene in the winter and use about half as much liquefied petroleum gas (LPG), accounting for up to a quarter of the country's total oil demand.

Amid an advertising blitz that promotes a savings of one-third on energy bills, the number of "all-electric houses" in Japan has more than doubled in the last three years to around 2 million, or about 4 percent of all households, utilities say.

And the pace is quickening.

Power firms aim to boost the number of households that get all of their energy needs through electricity by around 30 percent in this business year from April, a Reuters survey of 10 Japanese utilities found.

Of the 10 utilities, Hokuriku Electric Power Co. (9505.T), based in the mid-Japan prefecture of Toyama, which usually sees heavy snowfall, is leading the charge with 8 percent of its customer households having switched to all-electricity, undermining wintertime use of kerosene for home heating.

Growth is also much faster in the country, where access to city gas is limited and reliance on LPG is greater.

"The impact is likely to be felt more in LPG demand, rather than city gas," said Shigeru Suehiro, senior economist at the Institute of Energy Economics, Japan.

The flip side of the trend is continued steady growth in demand for power. To accommodate the rise, Tokyo hopes to lift the share of nuclear power, now nearly one-third of all its electricity, and keep a lid on coal and liquefied natural gas (LNG), of which Japan is the world's biggest importer.

The increased burden on utilities also carries oil risks that could partly offset the declining direct use by homeowners.

If generators fail to keep pace with demand during peak periods, or safety concerns force more nuclear plants to shut, the increased reliance on electricity could force utilities to burn more fuel oil, trading one type of oil demand for another.