JIN 506--Cracks in a window of opportunity

[jin at mailman.japaninc.com]

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J at pan Inc Newsletter
The 'JIN' J at pan Inc Newsletter
A weekly opinion piece on social, economic and political trends in Japan.
Issue No. 506 Thursday April 09, 2009, Tokyo

An interesting article in the Economist this week shed light on one of
those windows of opportunity that the credit crunch and ensuing
economic downturn has provided for Japan.

Back in 2006, the government called for industry to shore up Japan’s
energy supply by increasing the ownership of foreign energy projects.
The government wanted the ownership to cover 40 percent of Japan’s
supply. At that point only 15 percent was covered.

But as China increased its demand and prices continued to soar, the
Japanese players found themselves effectively shut out of the market.

But things are different now.

Midway through 2008, energy became a buyers’ market again. After the
Lehman’s collapse, of course, there weren’t a lot of companies in a
position to do much buying. But with the yen remaining strong, and the
price of crude oil plummeting, Japanese firms found themselves once
again at an advantage.

The Economist article said that in January, Nippon Oil bought rights
to oilfields in Papua New Guinea. Meanwhile, the
Japanese-government-backed Inpex, (the nation’s largest
oil-development company), acquired rights to oil in South America and
Australia.

Also the Wall Street Journal published a report earlier in the week
stating that a consortium led by Nippon Oil and Inpex was vying for
Iraq’s Nassiriyah oilfield (Iraqi officials would neither confirm nor
deny that the Japanese companies were making a bid, according to the
report).

On top of all this, Venezuelan president Hugo Chávez, visited Tokyo to
sign energy deals.

So there has certainly been some activity.

But even with increased ownership, some say that this will still not
ensure supply. In the Economist report, Tadashi Maeda of the Japan
Bank for International Co-operation (JBIC) says that a stake in
revenue rather than supply is ensured. Ownership does however, help
absorb the shock of price hikes and provides a buffer for the
tightening of supply.

Yet, some analysts have stated they believe that the Japanese
companies are still missing their opportunity with, so far, only
relatively small purchases being made. Some executives from the
companies, meanwhile, have complained that government-backed Chinese
companies are bidding far too high for projects and so are keeping
potential Japanese buyers out.

Back in Japan, shareholders are to be answered to and so any purchases
that don’t prove viable in the short term for the private companies
such as Mitsui or Mitsubishi mean that credit becomes harder to come
by. Energy usage has dropped since the recession was declared.
According to some reports, Japan’s energy usage has dropped by 10 to
20 percent. Good news for the environment, at least in the short term.
Not such good news for the energy providers.

It must be a frustrating situation for the Japanese companies, who
find themselves in the position to make important strategic purchases
but have to make sure they don’t fall victim to the drying up of
credit. But the timing is important. Death and taxes may be certain,
but so is a rise in the price of crude oil.

Michael Condon
Editor-in-chief

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-- 
Editor-in-chief
Media Division
J at pan Inc. Communications, K.K.

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