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| Japan Pumps Funds Into Energy Drive |
| [Commentary] Ambitious goal of boosting 'Hinomaru oil' pursued |
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Hisane Masaki (hmasaki)  |
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Published 2007-04-03 07:05 (KST) |
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Increasingly concerned about its medium- and long-term energy security amid stubbornly high prices -- and intensifying global competition -- for oil and gas, resource-poor Japan has set an ambitious goal of boosting the ratio of "Hinomaru oil." or oil developed and imported through domestic producers, from the current 15 percent to 40 percent by 2030.
To achieve that goal, the government has begun to pump no small amount of public funds into private-sector efforts to secure oil, gas and other interests abroad. Two significant public financial measures -- a new type of trade and investment insurance scheme and increased investment in private-sector projects -- are available from the current fiscal year, which started on April 1.
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| Ensuring stability of supply is a matter of life or death for the world's second-largest economy. Japan imports virtually all of its oil, with nearly 90 percent of that coming from the volatile Middle East. It also buys almost all of its natural gas from abroad, making it the world's largest importer of liquefied natural gas (LNG).
Highly alarmed by high oil prices and the red-hot global rush for energy resources led by China and India, Japan's Ministry of Economy, Trade and Industry (METI) adopted last May a new strategy aimed at ensuring stable energy-resource supplies in the medium and long terms.
The New National Energy Strategy calls for, among other things, securing energy resources abroad through the fostering of more powerful domestic energy companies, with the ultimate goal of boosting the ratio of Hinomaru oil to 40 percent by 2030. It also calls for strengthening relations with resource-rich countries through such measures as official development assistance and free-trade agreements.
To achieve the numerical target for Hinomaru oil, the New National Energy Strategy stresses the importance of "drastically strengthening the supply of risk money" related to the exploration and development of overseas oil and natural-gas reserves by domestic development companies. In this connection, the document specifically emphasizes the need for Japan Oil, Gas and Metals National Corp (JOGMEC) and other government-affiliated organizations to play the role of an effective risk-money supplier.
In line with the METI-adopted strategy, Prime Minister Shinzo Abe's cabinet approved a new basic energy plan early last month as a guideline for energy-policy implementation over the next decade. The new plan, which replaced the old one approved in 2003, calls for, among other things, greater government involvement in efforts to secure energy interests abroad and the promotion of nuclear power generation.
On Sunday, the government-affiliated Nippon Export and Investment Insurance (NEXI) began to accept applications for a new type of trade and investment insurance scheme to cover possible losses incurred in overseas energy-development projects by Japanese corporations due to natural disasters, accidents and political or terrorist acts.
The new product will be offered with much lower premiums -- up to 75 percent lower -- than ordinary trade and investment insurance to encourage the nation's private firms to undertake energy developments overseas and help them survive in the tough global competition for oil, natural gas and other energy-resource interests.
The government will act as the reinsurer for the new product, dubbed "comprehensive natural resources and energy insurance." With its involvement in the new program, the government hopes to protect domestic companies from being unilaterally stripped of their interests by host countries. The combined maximum amount of undertakings has been set at 300 billion yen.
Meanwhile, JOGMEC, another government-affiliated body, will raise, from the current fiscal year, its investment in promising exploration projects being implemented by domestic firms abroad to a maximum of 75 percent of the total investment amount from the previous 50 percent. Like NEXI's new trade and investment insurance scheme, JOGMEC's greater investment is designed to encourage often risk-averse domestic firms to venture into high-risk projects abroad.
Until last year, the government had shied away from getting deeply involved in risky exploration projects abroad, in the wake of its much-criticized blunder over now-defunct Japan National Oil Corp (JNOC). The government's recent strong backing for domestic energy companies engaged in foreign exploration and production of oil and gas marks a clear policy reversal.
JOGMEC was established in early 2004 as a successor to state-owned JNOC, which was set up in the 1960s to pioneer Japan's drive to boost energy security. JNOC was disbanded after piling up an immense amount of debt through loans and investments -- worth a total of about 2 trillion yen -- to help domestic firms participate in many wasteful exploration projects abroad.
Two years after JNOC was formally disbanded in April 2005 and amid growing national energy-security concerns, many Japanese government and industry people now ask: Was it really necessary to disband the organization, which played a key role in securing oil and gas interests for Japanese firms abroad?
Although JNOC was disbanded after racking up huge debts, internal government documents compiled last year show that because of current high oil prices, the national company now would have been a highly profitable entity, with more than 700 billion yen ($6 billion) in latent profits. JOGMEC inherited some operations of JNOC, but unlike JNOC, JOGMEC's functions do not include information gathering and intermediation for domestic firms. However, there is at least one thing JOGMEC will do more than JNOC. Even JNOC's investment in exploration projects being implemented by domestic firms was limited to 70 percent of the total investment.
Meanwhile, JOGMEC signed a basic cooperation agreement with Brazilian state-owned oil company Petrobras on March 20 for the joint exploration and development of oil and gas fields in Southeast Asia and South America. Special emphasis will be given to deepwater projects. JOGMEC and Petrobras agreed to hold annual meetings to exchange relevant information and identify international projects of mutual interest.
The government-affiliated Japan Bank for International Cooperation (JBIC), one of the world's biggest international financial institutions, is also revving up its energy-related business activities. In the past year, JBIC has signed comprehensive partnership agreements with the governments, state-run oil and gas firms or other related organizations of many resource-rich countries, including South Africa, Indonesia, Brazil, Oman, Qatar, Brunei, Uzbekistan and Kazakhstan, in hopes of ensuring stable supplies.
On March 26, JBIC also signed a loan agreement totaling up to $170 million with Inpex Offshore North Campos Ltd, a joint-venture firm among Inpex Corp, Sojitz Corp and JOGMEC, to support its development of the Frade Block off the shores of Campos, Brazil, in cooperation with Chevron Corp and Petrobras. The loan is co-financed with three of the biggest Japanese banks -- Mizuho Corporate Bank, the Bank of Tokyo-Mitsubishi UFJ, and Sumitomo Mitsui Banking Corp.
"This is the first oil-development project in which a Japanese firm has a concession right in Brazil and crude-oil production is realized," JBIC said in a statement. "The project will thus contribute, as an independent development project, to the securing and stable supply of energy resources to Japan."
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Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy. This is part of an article that originally appeared on Asia Times.
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©2007 OhmyNews
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