An Outline of Petroleum stockpiling in Japan October 2001

1. Current status of reserves in Japan(1/2) Notes 1 ; Government and private sector stockpiles are calculated according to the inventory of oil products. Notes 2 ; Reserve days figures are calculated according to the Petroleum Reserve Law. First oil crisis Second oil shock Gulf war Major events Inauguration of IEA Introduction of oil reserve law Enactment of oil reserve law Government stockpiling Private sector stockpiling 30 millions kl policy(78) 50 millions kl policy(89) Set-up to 70 day reserve policy plan(89) Set-up to 90 day reserve policy plan(75) Set-up to 60 day reserve policy plan(72) As of the end of calendar year

Reserve Policy 1971Call for 60 day private sector stockpiling by Consolidated Energy Assessment Association 1974Call for 90 day private sector stockpiling by Consolidated Energy Assessment Association 1975Achievement of 60 day public sector reserves 1978Call for start of government stockpiling by Consolidated Energy Assessment Association Official name JNOC decided Begin government stockpiling [tanker reserves] Consolidated Energy Assessment Association sets 30,000,000 kl government stockpiling guide line 1981Achievement of 90 day private sector stockpiling 1983National oil storage bases [partial completion] 1985End tanker reserves 1987Consolidated Energy Assessment Association, Petroleum Reserve Review Committee sets 50,000,000 kl government stockpiling guide line 1989Achievement of 30,000,000 kl government stockpiling 1996Completion of national oil storage bases [ten bases] 1998Achievement of 50,000,000 kl government stockpiling 2. Current status of reserves in Japan(2/2)

3. Outline of petroleum stockpiling system Target of 50 million kl reached in Feb Petroleum Stockpiling Stockpiling in national oil storage bases Government Stockpiling Private Sector Stockpiling Private sector tanks leased by JNOC Stockpiling by private oil companies Obligatory inventory 70-day consumption Joint reserves Private oil refineries

4. The current state of Japan‘s national and private reserves Authorized by Current reserve days ( As of the end of Dec.2000 ) Current reserve volume (As of the end of Dec.2000) Holding make-up (As of the end of Dec.2000) Existing reserve goal Storage place Holding format Maintenance etc. Petroleum stockpiling Law 77 days 43,535,000kl (product base) Product oil 55%, Crude oil 45% 70 days of domestic consumption Refinery, private tanks, oil tankers Held in the distribution process Crude, gasoline, kerosene, gasoil and fuel oil are held by type in accordance with standard holding volume criteria. But, with the Minister of METI’s approval, the types of oils held may be substituted. Private sector stockpiling The JNOC Law 84days 47,210,000kl (Product base) 100% Crude oil 50,000,000kl (achieved Feb. 1998) National stockpile base, private tanks The “Sealed method” After the oil has been separated by type, the tank is sealed, and managed as property. Government stockpiling

５.Implementation system of Government Stockpiling METI JNOC 8 National Oil-Stockpiling Companies (Headquarters) Equity capital: 70% JNOC and 30% private company (*Note) Construction of oil-stockpiling bases Management of implementing oil stockpiling Planning of each fiscal year’s stockpiling activities Meet with JNOC, to get approval for the companies’ budget and activities each fiscal year Management of national oil-storage bases Stockpiling policy formulation Coordination within the government Decision making of draw down Ensuring budget for stockpiling Planning of implementation of government stockpiling Management of 8 national oil-stockpiling companies Coordination & consultation with METI 10 National Oil-Storage Bases Management of stockpile oil Management & maintenance of oil-storage base facilities Inspection of oil-storage tanks Safety & disaster prevention training Note: In order to achieve completion of reserve bases In the shortest time possible and to achieve maximum utility and functioning of the bases by efficiently utilizing public refineries' human and technological resources, petroleum refineries were selected to be the central stockholders at JNOC.

６. Petroleum storage method Storage methodAdvantages Disadvantages National bases Above ground tanks- Low construction cost - Technically simple to construct - Compared to above ground tanks, construction costs are high. - Takes up space/ A large amount of land is necessary - Compared to above ground tanks, construction costs are high. - The risk of large scale leak seepage is low - Because the distance needed between tanks is minimal, a more efficient use of space is possible. (Since there are no depth limitations, they can store 3 times the volume as above ground tanks) - Extremely earthquake resistant. - Blends into the landscape. - Underground temperatures stabilize at 9 ℃, so that there is no need for humidification, thus saving energy (costs). - Very little land is necessary. - Very resistant to natural disasters (earthquakes, lightening etc.) - The risk of large scale leak seepage is low. - Blends into the landscape. - Land acquisition is unnecessary. In ground tanks Underground tanks Floating tankers Mutsu-ogawara, Fukui, Tomakomai-tobu, Shibushi Akita Kuji, Kikuma, Kushikino Shirashima Kamigoto

７. Financial figure of petroleum stockpiling * Shifting of energy source consumption Account Principal payment Leasing fee for land Special account of METI * Capital financing Capital financing Interest subsidies Commercial banks Loans Capital financing Loans Land leasing Base usage fee National petroleum and petroleum gas stockpiling companies JNOC Downstream companies Loans National Reserves Government fund Principal and Interest payment Principal and Interest payment

８. Concrete Methods of Oil Reserve & Drawdown (1/2) (1) First Use National Reserve should be Carried Out by JNOC Can Expect an Announcement Effect, Especially in the State of Pre-Emergency or CERM 1st Stage2nd Stage3rd Stage Drawdown of National Reserve Reduction of Private Reserve Obligation Drawdown of Private Reserve Massive Drawdown of National Reserve

９. Concrete Methods of Oil Reserve & Drawdown (2/2) (2) Drawdown Objectives: Oil Refiners (3) Drawdown Proceedings: Bidding is the Standard Procedure (4) Drawdown Manual: METI/JNOC have Created a new Drawdown Manual Prevention of Speculation Use of Market Mechanism