Japan Energy Spending Cuts Add Urgency to Securing Future Supply
(Bloomberg) -- Energy companies in Japan, a country almost entirely reliant on fossil fuel imports, are slashing investments by more than one-third following the collapse in commodity prices, increasing pressure on Prime Minister Shinzo Abe’s government to supplement exploration budgets.
Spending will plunge 37 percent to about 1.2 trillion yen ($11 billion) in the year to March, the country’s Ministry of Economy, Trade and Industry forecast in a report Tuesday. The drop, just one slice of cuts globally, adds urgency to the government’s plans to sustain investment by the country’s explorers and accelerate efforts to get 40 percent of its oil and gas from domestic firms.
The world’s biggest consumer of liquefied natural gas and fourth-largest crude buyer relies on imports for 94 percent of its primary energy supply, according to the country’s Federation of Electric Power Companies. Japan may allocate 3 trillion yen over the next five years to help develop large-scale oil and gas developments with state-run Japan Oil, Gas and Metals National Corp. investing in projects, the Nikkei newspaper reported last month.
“The government must provide seed money through institutions like Jogmec” and Japan Bank for International Cooperation, said Nobuo Tanaka, former executive director of the International Energy Agency. “The government should do it as part of investment for the future to ensure energy security and reduce volatility.”
Inpex Corp., Japan’s biggest oil and gas explorer, will cut spending on exploration and development projects 28 percent in the current fiscal year. JX Holdings Inc., the country’s largest refiner, will reduce upstream spending by about 40 percent over the next three years as it shifts to focus on more mid- and downstream activities.
Brent crude, the global benchmark, has fallen more than 50 percent from two years ago when many Japanese companies invested heavily in metals and energy projects. The nation’s top two trading houses, Mitsubishi Corp. and Mitsui & Co. reported their first ever annual losses and are accelerating a shift away from energy and raw materials to businesses including consumer goods manufacturing.
“In the current price environment we are forced to suppress investment into exploration projects,” said Masahiro Murayama, managing executive officer of Inpex. “Since we are a publicly traded company, we have to carefully think about our investments due to the economic principles surrounding the drop in oil prices.”
The Group of Seven countries, which includes Japan, the U.S., and Germany, this month encouraged financial institutions to invest in energy projects to ensure stable future supplies. Investments in oil and gas production are forecast to fall 18 percent this year after dropping 24 percent in 2015, according to Fatih Birol, executive director of the International Energy Agency.
“We will support companies to the extent possible through measures including investment in projects and debt guarantees,” said Tomohiro Arai, a Tokyo-based spokesman for Jogmec, adding that he wasn’t aware of a government plan to expand its allocation to the agency as reported by the Nikkei.
JX Holdings, which has ownership stakes in oil and gas production in the U.S. Gulf of Mexico, Qatar and Papua New Guinea, is reducing capital expenditure on upstream projects to refocus on downstream businesses including power that can help the company weather the downturn in oil prices, President Yukio Uchida said May 11.
Japan is almost entirely dependent on fossil fuel imports, particularly after the March 2011 earthquake led to a meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant and the eventual closure of the country’s entire atomic fleet, said Amrita Sen, chief oil analyst at Energy Aspects.
So many exploration projects have been delayed that there will be a risk of price spikes by 2018, said Sen. “From an importers point of view, it makes complete sense to do what they are doing.”
To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at email@example.com; Stephen Stapczynski in Tokyo at firstname.lastname@example.org; Emi Urabe in Tokyo at email@example.com To contact the editors responsible for this story: Ramsey Al-Rikabi at firstname.lastname@example.org Aaron Clark
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Darwin Seeks To Shed Frontier Image To Become World-Class LNG Export Hub (Jul 27)
- Shell, Inpex Near Finish Line in Race to Export North Australian LNG (Apr 24)
- Australia's Ichthys Project to Import LNG to Cool Plant Ahead of Start-up (Apr 23)
Company: Mitsui more info
- Japan's Mitsui Chemicals Restarts Naphtha Cracker At Fire-Hit Plant (Aug 13)
- Japan's Mitsui OSK Targets 26% Stake In Swan's Indian LNG Unit (Sep 18)
- As Rivals Circle, Japan Boosting Firepower To Buy Global Energy Assets (Sep 23)
Company: Mitsubishi more info
- Japan Mitsubishi Corp To Acquire 25% Stake In Bangladesh LNG Terminal (Aug 17)
- Mitsubishi Heavy Bets on New US Turbomachinery Demand (Feb 17)
- Shell-Led Group Delays Decision On Canada Gas Export Plan (Jul 12)
Company: Japan Oil, Gas and Metals National Corp. (JOGMEC) more info
- JOGMEC Interested In Global Investments Including Rosneft (Sep 07)
- JOGMEC, Inpex, Marubeni Ink Exploration Deal with Rosneft (Dec 15)
- Inpex to Enter Production Phase at Russian Ichyodinskoye Field (Dec 14)