October 5, 2015 3:20 pm JST
Crude oil

Low prices have Japan wheeling and dealing

 TOKYO -- Falling crude oil prices are benefiting resource-poor Japan as leverage slides across the negotiating table from sellers to buyers.

     Consider these episodes:

  • Robert "Doug" Lawler, chief executive of Chesapeake Energy, which triggered the shale gas boom in the U.S., came to Japan this summer to sell interests in the energy source.
  • Japanese energy industry officials were surprised by a bearish statement from Igor Sechin, president of Rosneft, Russia's largest state-owned oil company, and a close aide to Russian President Vladimir Putin, in Singapore, revealing the company's readiness to cut gas and oil prices on deals for which payments are made in advance.
  • The continuing oil glut is prompting energy companies in Latin America and Africa to send officials to Japan to seek buyers.
  • JX Holdings in July agreed to buy inexpensive oil from a Mexican company at a fixed price for six months, an unusually long-term deal in the energy industry.

     In fact, Japanese oil imports from Latin America have doubled from last year's levels, according to the latest data.

Pursuit of interests

Steep falls in crude oil prices are a boon to Japan, especially since the country became so reliant on fossil fuels after the devastating earthquake and tsunami that hit the northeastern Tohoku region in March 2011. High fuel costs have caused a flight of wealth from Japan in the form of trade deficits.     

     With all the cheap fuel out there today, Japanese businesses and households both are benefiting in a number of ways, including lower electricity charges. Even that flow of wealth could reverse itself, said Hiroyuki Takai, president of Sumitomo Corporation Global Research.

     The Japanese government is busy trying to take advantage of the situation.

     Daishiro Yamagiwa, state minister of  Economy, Trade and Industry, on Aug. 9 met Iranian Oil Minister Bijan Zanganeh in Tehran. He offered Japanese support in the energy field. The proposal was part of Japan's preparations for major countries lifting economic sanctions on Iran, imposed due to the country's nuclear development program. The sanctions are expected to be lifted by the end of this year.

     Japan is eager to pave the way for procuring oil under favorable terms from Iran, which has some of the largest reserves in the world. It will have to hope history does not repeat itself. A big Japanese energy investment plan in the Persian Gulf country once fell through.

     The ministry wants to strike while it can. It will support private sector energy development projects by setting aside 90 billion yen ($744 million) of its fiscal 2016 budget for tapping energy sources, up 40% from the previous year.

     Companies are poised to move in step with the government. "We will grab good deals," said an executive at Mitsubishi Corp., the big trading house. 

Double-edged sword

But falling oil prices are a double-edged sword. Toshiba is now concerned that the rights it acquired in 2013 to liquefy shale gas in the U.S. may become a financial burden, especially now that it is mired in an accounting scandal. Toshiba's plan to sell shale gas in combination with thermal power plants has backfired in the face of plunging crude oil prices.     

     Lower oil prices have also adversely affected big trading houses Sumitomo Corp. and Itochu. Sumitomo logged an asset impairment loss of about 200 billion yen for its shale development project in Texas in the year through March, while Itochu sold its entire 25% stake in an oil and gas exploration company at such a low price it might as well have been a gift.

     In the 1990s, oil, available for around $20 per barrel, was regarded as an article of trade rather than a strategic reserve. Japan National Oil Corp., which had played the central role in procuring the fossil fuel for the country, was abolished as part of Japan's privatization drive.

     Since then, Japan's energy policy has been shaken by market conditions and the trends of the times.

     Now that the world is in era of low oil prices, Japan needs to seek a balance between economic efficiency and stable procurement of energy.

(Nikkei)

 

JXTG Holdings, Inc.

Japan

Market(Ticker): TKS(5020)
Sector:
Industry:
Energy Minerals
Oil Refining/Marketing
Market cap(USD): 17,916.03M
Shares: 3,426.91M

Mitsubishi Corp.

Japan

Market(Ticker): TKS(8058)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 37,189.62M
Shares: 1,590.07M

Toshiba Corp.

Japan

Market(Ticker): TKS(6502)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 11,395.16M
Shares: 4,237.60M

Sumitomo Corp.

Japan

Market(Ticker): TKS(8053)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 18,311.86M
Shares: 1,250.60M

ITOCHU Corp.

Japan

Market(Ticker): TKS(8001)
Sector:
Industry:
Distribution Services
Wholesale Distributors
Market cap(USD): 27,847.29M
Shares: 1,662.88M

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