Japan a bigger player on global oil
stage By Hisane Masaki
TOKYO - The formation of a new Japanese
oil company, Inpex Holdings, was announced on
Monday. The result of a government-orchestrated
merger between Inpex Corp and Teikoku Oil, the new
firm appears to have been conceived as a "national
policy corporation" designed to secure supplies
for Japan from abroad. The government believes
that the combined firm's greater size will better
serve this purpose.
But strong government
backing could be a double-edged sword for Inpex,
because national policy does not always serve the
interests of an individual
private company, and there is a possibility that
the government's politically motivated wishes will
outweigh profit-and-loss considerations. The key
tests may come first in the East China Sea, where
the company has a concession to start drilling in
an area that is at the center of a simmering gas
dispute with China, and later Iran, where it has a
75% interest in the huge Azadegan oil project.
Inpex and Teikoku Oil are Japan's No 1 and
No 3 oil developers, respectively. On Monday, the
two launched a joint holding company to integrate
their operations ahead of their planned complete
merger in June 2008. Inpex Holdings was listed on
the First Section of the Tokyo Stock Exchange on
the same day. The newly launched entity is
expected to become a much bigger global player,
leveraging on the 100% interest it has in two gas
projects - one in the Masela Block in the Timor
Sea near Indonesia and another off Western
Australia.
But at the same time, Inpex
Holdings' other two major projects face
considerable potential risks. This includes the
massive Azadegan oil project in Iran, which could
easily be impacted by the growing international
crisis concerning Tehran's suspected
nuclear-weapons program, and also its concession
to start drilling in an area in the East China Sea
where Tokyo and Beijing have conflicting claims
over undersea natural-gas deposits.
The
inauguration of Inpex Holdings apparently reflects
the desires of the Japanese government, which is
the largest shareholder in the new entity with a
29.3% stake. Tokyo is in the final stages of
working out a "New National Energy Strategy",
which will call for various specific goals to
ensure the nation's energy security in the long
term. Among other things, it will call for
increasing the ratio of "Hinomaru oil" imports
from the country's independent oil resource
development projects abroad from 15% to 40% of
total imports by 2030.
Just a week before
the joint holding company was set up, Inpex and
Teikoku Oil announced that it would target group
revenue of 769 billion yen (US$6.6 billion) for
the fiscal year starting on April 1. They
announced a group net profit for the new fiscal
year - of 90 billion yen - that is 25% lower than
the combined net profit of the pre-merger
entities, based on conservative estimates for
crude-oil prices. Increased production will add
about 10 billion yen to Inpex Holdings' profit for
the new fiscal year, however.
The Ministry
of Economy, Trade and Industry (METI), which owned
36% of Inpex, played a key role in the marriage of
the two oil developers, hoping to foster a more
powerful entity to compete with foreign rivals.
Inpex emerged from another government-affiliated
firm, Japan Oil Development, in 2004. Teikoku Oil
was also originally established by the government.
Newly launched Inpex Holdings is expected to
pursue promising oil and gas fields through
mergers and acquisitions of foreign firms.
Inpex Holdings has been designated a
"national policy corporation" because the
government holds sway through the presence of
former officials in top posts, as well as through
its unrivaled equity stake. Chairman Kunihiko
Matsuo is a former chief of the METI-affiliated
Small and Medium Enterprise Agency, and its
president, Naoki Kuroda, is a former head of the
also METI-affiliated Natural Resources and Energy
Agency. Matsuo and Kuroda served as chairman and
president, respectively, of Inpex Corp.
Competition for energy resources has
raised tensions between China and Japan. The two
are at odds over Chinese gas projects in the
disputed waters in the East China Sea near the
"median line", which was drawn by Japan but is not
recognized by China. The line is meant to separate
the two countries' 200-nautical-mile exclusive
economic zones (EEZs). The disputed Senkaku
Islands, known as the Diaoyu in Chinese, are on
the Japanese side of the median.
Last year
the Japanese government decided to build the
country's first ship specially designed to survey
offshore oil deposits. The government also
earmarked 8.2 billion yen in its fiscal 2006
defense budget to increase the nation's ability to
cope with submarines and armed spy ships in seas
close to Japan. Also, in a move aimed at providing
a legal basis for protecting Japan's test-drilling
activities in the East China Sea, the diet
(parliament) has prepared a bill to protect
vessels used by marine-resource explorers and
fishermen in Japan's EEZ.
The bill
stipulates that the Land, Infrastructure and
Transport Ministry may create off-limits zones
near structures set up for resource exploration
and development in the EEZ. Trespassers would be
punished with prison terms and fines. The
legislation was prepared to support Teikoku Oil,
which was formally granted concessions last summer
to start experimental drilling in the East China
Sea, in an apparent bid to counter natural-gas
exploration conducted nearby by China.
The Azadegan project In early
2004, Japan and Iran signed a $3 billion deal to
develop Iran's massive Azadegan oilfield. The
project is expected to pump 700,000 barrels of oil
per day by 2010. But with international tensions
rising over Iran's nuclear program, there are
growing concerns in Japan about how the crisis
will play out. Many analysts point out that should
Japan be forced to give up the Azadegan project as
part of international sanctions against Tehran,
China, which recently won rights to the Yadavaran
oilfield in Iran, could step in to replace Japan.
Japan's oil diplomacy suffered a serious
setback when Arabian Oil Co, which has strong
backing of the government, lost its right to
operate the Khafji oilfield in the Persian Gulf -
in the Saudi-controlled portion of the field in
early 2000 and the Kuwaiti-controlled portion in
early 2003. But Japan has since regained lost
ground, securing oilfields elsewhere in the Middle
East.
After the Azadegan oil deal, Japan
scored another coup in its oil diplomacy. Five
Japanese enterprises won international tenders to
acquire the rights to develop six oilfields in
Libya. The deals involving Nippon Oil, Mitsubishi,
Japan Petroleum Exploration, Teikoku Oil and Inpex
mark the first oil-exploration concessions granted
to Japanese firms in Libya. Inpex joined hands
with the major French oil firm Total in the bid.
The oil projects are likely to be the biggest
involving Japanese companies since a group
acquired the concessions for the Sakhalin project
in Russia. The Libyan fields are estimated to have
the eighth-richest reserves in the world.
Through their marriage, Inpex and Teikoku
Oil hope to become a bigger player on the global
stage. The two oil developers have combined annual
sales of more than $4.7 billion. But as things
stand now, the new entity is still nowhere close
to becoming an oil major that can match the US -
or even Chinese - giants. The new entity produces
370,000 barrels of oil per day, an amount dwarfed
even by Total's 1.7 million barrels per day. The
new entity's production volume is even smaller
than the 380,000 barrels per day pumped by China
National Offshore Oil Corp (CNOOC).
Japan
still has a long way to go before becoming a major
player in global oil diplomacy.
Hisane Masaki is a Tokyo-based
journalist, commentator and scholar on
international politics and economy.
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