Japan began the new century on a sour note
when in February 2000 it lost its rights to the
Khafji oil field in the Saudi-Kuwaiti neutral
zone. Japan's Arabian Oil Company had held
exploration rights in that zone since 1957, and
the loss of such a long-term investment was keenly
felt.
The problem was that Japan, which is
among the world's most dependent countries on Arab
and Iranian oil, had lost all significant presence
in the upstream oil market. With the increasing
rivalry for energy resources between Japan and
China, as well as other countries, Japanese
government and business leaders now are making a
strong effort to gain a toehold in the region.
Most significant has been the Inpex
Corporation's agreement in February 2004 to
develop the massive Azadegan oil field in Iran.
However, this deal has faced increasing political
pressures as US-
Iranian relations continue to
spiral downwards and Iran faces possible UN
sanctions for its nuclear-power program. In
addition to the Azadegan deal, there have been
less-controversial agreements in recent months
between Japanese companies and governments such as
Egypt, Sudan and Iraq. [1]
However, the
most dramatic event involves Libya.
On
October 2, the results of the second round of
international bidding for exploration and
development rights in 26 Libyan oil zones were
announced. More than 60 oil companies from around
the world participated in a fiercely competitive
environment.
Libya is the world's
number-nine country in terms of estimated oil
reserves, and many of its rich oil fields remain
undeveloped. The results surprised many observers:
Japanese companies captured rights to six of the
most promising oil zones [2]. As one official told
Reuters: "It was quite a tight race, it was
cut-throat competition, but the Japanese were the
big winners."
But how is it that Japan
could beat out all of the majors and other
national companies to attain such an impressive
share of the spoils?
In the first round of
bidding in January, Japanese efforts failed
dismally. At that time, 15 zones were available,
with 11 going to American companies. All Japanese
bids were rejected. Some Japanese business leaders
were shocked at these results as they had
anticipated some degree of success. In wake of the
Japanese companies' failure, they reexamined their
approach and found new ways forward.
In
the January round the Japanese oil companies
tended to work separately and offered independent
bids. It is thought that by thus spreading
themselves so thinly, they gave Libyan officials
the impression that the financial resources behind
each bid were rather small, posing that
undercapitalized companies, if given the
development rights, would be unable to produce
results.
Also, the Japanese companies
conveyed the impression that they were only
interested in business deals and had no real
long-term commitment to the prosperity of Libyan
society. This was not conducive to creating an
atmosphere of trust.
However, the Japanese
companies in 2005 revised their strategies and
found new approaches that worked much more
effectively. Rather than operate independently,
this time the Japanese organized group bids. Some
of these partners were other Japanese and some
were European companies that also failed in the
first round. This gave the Japanese bids added
strength.
Japanese oil companies also did
a better job of assuring the Libyans that they
were interested in more than just oil, and were
committed to Libya's long-term development and
prosperity. An early milestone in this campaign
was the March visit of a group of Japanese oil
executives headed by a former foreign minister,
Kakizawa Koji.
Kakizawa is noted for
having championed Japanese business relations with
Libya even before the UN sanctions were lifted in
2003. Meeting with senior Libyan officials in
Tripoli, this delegation began the process of
putting Japan-Libya relations back on track. This
group met with Saif al-Islam Gaddafi, the leader's
second son and possible successor.
On
April 3, Saif al-Islam Gaddafi began a six-day
visit to Japan. The young Gaddafi met privately
with Prime Minister Junichiro Koizumi, Finance
Minister Tanigaki Sadakazu, Economy, Trade and
Industry Minister Nakagawa Shoichi, Communications
Minister Aso Taro, Education Minister Nakayama
Nariaki and House Speaker Kono Yohei.
Two
days later, Saif al-Islam Gaddafi opened an art
exhibition in Tokyo called "The Desert is Not
Silent", which included both archaeological
artifacts from Libya and the young Gaddafi's own
paintings. Present at this opening were Prince
Mikasa Tomohito, a former prime minister, Mori
Yoshiro (who is involved in Japan-Africa
relations), and Environment Minister Koike Yuriko
(a fluent speaker of Arabic).
Finally, the
young Gaddafi also participated in the Aichi Expo
where Libya had set up a national pavilion that
was drawing 12,000 visitors daily. The national
day events were held on April 6. The Japanese
oil companies were involved in some of this
diplomacy. For example, "The Desert is Not Silent"
exhibition, which was held in Akasaka, was 75%
financed by contributions from these oil
companies. Despite the young Gaddafi's busy
schedule, the oil companies also had some face
time booked with him. While Gaddafi holds no
official position in the Libyan government, the
importance of reaching understandings with him was
widely recognized.
The first official
high-level exchange soon followed. In June, Senior
Vice Foreign Minister Aisawa Ichiro traveled to
Tripoli and met with Libyan leader Muammar
Gaddafi. Aisawa carried with him an invitation
from Koizumi for the elder Gaddafi visit Japan
some time in the future.
All of these
efforts formed the backdrop to the startling
Japanese success on October 2. The oil-development
rights gained in Libya were shared by five
Japanese companies: Inpex Corporation, Japan
Petroleum Exploration Company, Mitsubishi
Corporation, Nippon Oil Corporation and Teikoku
Oil. For some of these companies, this was their
first successful oil bid in the Arab world. If all
goes well, actual oil production at these sites
should begin in 2011 or 2012.
The
acquisition is expected to provide a "stable oil
supply" for Japan, which typically "depends on
imports", during the current period where
increasing oil prices "could set off a fierce race
to develop oil fields", said a report from Kyodo
News. These five firms will reportedly spend about
US$175.52 million in the "exploration stage
alone".
With the rise in oil prices and a
competitive business environment for oil companies
globally, the Japanese success in Libya is an
impressive feat. It allows both Japan and Libya to
diversify their range of business partners. It was
also a success born of failure. This time, Japan
got it right.
Notes [1]
The Nihon Keizai Shinbun of October 4 offered a
convenient summary of current Japanese oil
projects in the Persian Gulf and North Africa;
here combined with information from other sources:
Libya: Six zones shared by
Inpex Corporation, Japan Petroleum Exploration
Company, Mitsubishi Corporation, Nippon Oil
Corporation, and Teikoku Oil.
Egypt: Four zones, of which
two are held by the Arabian Oil Company and two by
Teikoku Oil.
Iran: Rights to
the massive Azadegan oil field held by Inpex
Corporation.
Algeria: One
zone held by Teikoku Oil.
Sudan: One zone held by the
NGO Systems International Group. Iraq:
Japan Petroleum Exploration Company and
the Arabian Oil Company have signed technical
cooperation agreements with the Oil Ministry.
[2] Precise information on the zones won
by Japanese companies in the second round is
below. The zone won by Inpex is shared with the
French oil company Total.
Zone 40 (Offshore) Japan Petroleum
Exploration Company (42%: Operator), Nippon Oil
Corporation (38%), Mitsubishi Corporation (20%)
Zone 42 (Northeast) Total (60%: Operator),
Inpex Corporation (40%)
Zone 81 (West)
Teikoku Oil (73%: Operator), Mitsubishi
Corporation (27%)
Zone 82 (West) Teikoku
Oil (73%: Operator), Mitsubishi Corporation (27%)
Zone 176 (Southwest) Japan Petroleum
Exploration Company (100%: Operator)
Michael Penn is the executive
director of the Shingetsu Institute for the Study
of Japanese-Islamic Relations. He may be reached
at shingetsu_institute@hotmail.com
