TOKYO -- The Japanese government is planning to set aside about 3 trillion yen ($27 billion) over the next five years to encourage resource development by domestic corporations, an effort to prevent a decline in upstream investment that could cause an energy price surge down the road.
Plans call for expanding investments and loan guarantees by the Japan Oil, Gas and Metals National Corp., or Jogmec. Such spending by the government-backed entity would more than double to roughly 600 billion yen a year. The government will consider earmarking funds for increasing Jogmec's capital in the fiscal 2016 supplementary budget or the fiscal 2017 budget.
Under current rules, Jogmec can invest only up to 50% in natural gas and other energy development projects. The government will consider raising the ceiling and other steps to support such projects, such as lowering fees paid by companies for loan guarantees.
The government hopes to encourage oil companies and trading houses to pursue promising projects, such as oil and gas development in the Gulf of Mexico and gas development in Mozambique. With falling resource prices having made interests in projects cheaper, some see now as a good time to invest.
The drop in resource prices has slowed energy development. Global investment in oil and gas development decreased by about 15 trillion yen to roughly 65 trillion yen in 2015, according to the International Energy Agency -- the first decline for two straight years since the 1980s. Meanwhile, energy demand continues to grow in such countries as China and India, leading to concerns that the sharp drop in upstream investment will lead to a shortage within a few years.
"To a certain extent, the decline of upstream investment in oil and gas is a natural market reaction to excess production, as would be an investment upswing in response to rising prices," IEA Executive Director Fatih Birol said last Thursday at a meeting on international finance and the economy hosted by the Japanese government. "However, the volatility of the cycle matters from the macroeconomic and energy security point of view, and governments could contribute to smoothing it by implementing appropriate policies."
Motoo Hayashi, minister of economy, trade and industry, is expected to emphasize the importance of investment in resource development at the upcoming Group of Seven energy ministers' meeting in Kitakyushu, Fukuoka Prefecture.