Terrie's Take 482 -- Methane Hydrate -- the Next Big Fuel Source? Ebiz news from Japan

Mon Aug 25 05:31:29 JST 2008

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, August 24, 2008 Issue No. 482

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

While the price of fuel continues to hover at record-high
prices, Japanese business and government agencies are not
sitting on their collective hands, but instead are deeply
involved in futuristic projects that border on science
fiction. Japanese trading houses have already cornered the
world's LPG and LNG transport and brokerage, Sanyo and
others are leaders in solar electricity, and Toto and others
are developing the world's most cost-efficient fuel cells. But
one form of energy we haven't heard that much about until
recently is Methane Hydrate.

Methane hydrate is a form of methane gas locked into an ice
matrix and held stable under pressure and cold in the
world's oceans and in permafrost. Scientists have known for
some years that Japan has a high volume of methane present
in this form, and the government has been funding
significant efforts to try to figure out how to safely mine
and process the stuff.

Methane, as you may recall, is the principle component of
natural gas, and amongst other things can be used to run
cars, fire power stations, and feed home fuel cells for
more efficient electricity and heat generation. Regular
Methane gas supplies are extracted from natural gas fields
that occur in pockets in the earth's crust, and which are
limited in occurrence. This is not the case with methane
hydrate, which is present in abundance.

The only trouble with methane hydrate is that it is hard to
get -- being located deep underwater or under permafrost,
and it is relatively unstable, becoming gaseous when
temperatures rise above 0 degrees C, or when atmospheric
pressure is reduced. This means that methane hydrate must
be mined carefully and in a controlled manner, in some very
inhospitable and inaccessible places.

New techniques are required to recover the methane
without significant wastage. One such method involves
lowering the pressure in the deposits and thus releasing
the gas. This process is already being used by Japan.
Another proposed method involves replacing the methane in
the sediment beds with Carbon Dioxide. This method gives
us a possible glance into the future, whereby companies
will not only sequester their CO2 underground for carbon
credits, but also at the same time be extracting more fuel
as well.

[Continued below...]

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[...Article continues]

Back in 2002, the Japan Oil, Gas and Metals National
Corporation (JOGMEC) teamed up with the US to embark on a
number of experiments off the coast of Alaska and also on
the permafrost in the MacKenzie River Delta in Canada, at
the Mallik field. The Japanese government has over 200
scientists working on methane hydrate extraction and joined
the Mallik project to learn how to extract the gas reliably. It
seems that the Mallik field deposits are similar in
composition to the large deposits spread around Japan.

In April of this year, at Mallik, the JOGMEC team had a
breakthrough when they were able to extract industrial
quantities of methane from under the permafrost, for six
days in a row. Apparently getting a consistent flow of gas
from hydrate deposits is very difficult to do. On the basis
that things seem to be moving forward well, the Ministry of
Economy, Trade and Industry (METI) is now saying that
experimental mining of Japanese methane hydrate resources
may start as early as 2012 and commercial mining by 2018.

The ability to mine methane hydrate is a tantalizing
possibility for the government, especially considering the
competition globally for other sources of fuel. Estimates
are that there is at least 7.4trn cu. m. of methane
hydrate, around 100 year's worth of natural gas at
Japan's current rate of consumption, in various deposits to
the North, East, and West of the main islands. JOGMEC and
the various energy/oil companies will probably start with
the politically safe South-East coast of Honshu (Shizuoka
to Wakayama) first, where METI reckons that there is about
1.1trn cu. m. of methane locked up as hydrate, equivalent
to about 14 year's natural gas supply.

Less politically attractive is the Takeshima Island area,
known as Dokdo Island to the Koreans, where it is believed
methane hydrate deposits could total a massive 600m tons.
This lends new weight to conspiracy theories about why the
Japanese are so insistent in not negotiating with the
Koreans over the disputed islands.

With such a huge alternative energy source on Japan's
doorstep, what is stopping the government from moving more
quickly to mine it? Well, on the negative side, there are
two major concerns. Firstly, it is technically difficult to
extract ocean-based methane hydrate in a controlled
manner. Methane hydrate deposits only exist within a
certain band (about 500m-1.2km) of sediment depth, and
any deeper than this, the methane becomes gaseous
again due to its proximity to the earth's core. Thus it is
hard to know when drilling down into such deposits
whether they will be stable ice-based hydrates, or if
there is a large pocket of gas lurking underneath that
once disturbed might punch through the brittle hydrate
layers above in an uncontrollable eruption (of gas).

Secondly there are emerging environmental fears about sea
bed ecosystem damage which will be inevitable if there is
massive drilling and displacement of sediment. Particularly
concerning is the likelihood of sea bed subsidence after
large deposits of methane hydrate have been removed. A
sea bed collapse would distribute mud and particles across
a wide area and be very disruptive to sea life.

Then of course there is the greenhouse gas "potency" of
methane when it is released into the atmosphere. Methane
released from its hydrated form expands significantly to
about 160 times its original volume and is thought to be
around 25 times more impactful as a greenhouse gas than is
CO2. In the amounts Japan is contemplating mining, even
accidental releases into the atmosphere are likely to be
small -- but any further burdening of the global environment
is bound to attract significant international protest.

That said, we'd guess that it's the technical and safety
angles that are occupying most of JOGMEC's attention.

On the positive side, there is a lot of money to be made
and saved through extracting methane locally. One company
that is likely to do very well out of the JOGMEC program is
the Mitsui Engineering & Shipbuilding subsidiary, Modec.
This company is the second largest builder globally of
Floating Production, Storage Offloading (FPSO) sea-based
gas processing plants. FPSO demand is already climbing
because most recent energy recovery projects are in
difficult to access off-shore locations -- but investors
expect that orders from JOGMEC and other international
governments will really start to take off once experimental
drilling begins 1-2 years from now.

Other companies expected to do well out of the methane
hydrate bonanza include: Inpex Holdings, which has rights
to develop Japan's sea bed resources, Japan Petroleum
Exploration Co., which is involved in the Mallik project, and
of course the big trading houses such as Mitsui.

...The information janitors/

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+++ NEWS

- Illegitimate kids to get citizenship
- Japanese firms have JPY60trn in surplus cash
- Foreign dividends to be tax exempt
- Ongoing increase in mesothelioma cases
- Venture drug firm gets JPY200m on JPY10bn valuation

-> Illegitimate kids to get citizenship

The government has said that it will change the Nationality
Law to allow illegitimate children whose Japanese fathers
acknowledge paternity, to gain Japanese citizenship. The
move came after the Supreme Court said that denying
citizenship to illegitimate children was unconstitutional.
The legislation will be retroactive for those children
whose parents filed for citizenship from January 2003 or
later. (Source: TT commentary from yomiuri.co.jp, Aug 18,
2008)

http://www.yomiuri.co.jp/dy/national/20080818TDY02301.htm

-> Japanese firms have JPY60trn in surplus cash

The Nikkei reports that many Japanese listed companies are
still flush with cash and are on the M&A prowl both at home
and internationally. Many such transactions have started
hitting the headlines, such as Pharma company Daiichi
Sangyo buying India's Ranbaxy Labs, Kirin announcing it has
set aside JPY300bn for M&As, Sony taking over control of
Sony BMG Music Entertainment, etc. The Nikkei says that
such companies have more than JPY60trn of spare cash -- led
by such companies as Nintendo, which has 1.252trn of net
cash on its books -- no word as to whether they plan any
M&As, though. (Source: TT commentary from nikkei.co.jp, Aug
13, 2008)

http://www.nni.nikkei.co.jp/FR/TNKS/Nni20080813D11VS650.htm

-> Foreign dividends to be tax exempt

METI has said that it plans to put forward new legislation
which will make dividends submitted from overseas by
Japan's major exporting corporations exempt from Japanese
profits tax. The purpose for the move is apparently to
encourage the firms to release cash from their foreign
subsidiaries and repatriate it home. According to METI, the
retained earnings of the overseas affiliates of Japan's
major exporting firms was around JPY17.2trn in FY2006.
(Source: TT commentary from nikkei.co.jp, Aug 17, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20080816D16JFF04.htm

-> Ongoing increase in mesothelioma cases

We missed this news story last month, but thought it was
topical in light of our expose on Oji Homes several weeks
back. According to Ministry of Health statistics, there was
a 15% increase in the number of people dying from
asbestos-causing mesothelioma lung cancer last year. The
total number of deaths was 1,050 people in 2006, a record
to date. This number is still lower than most European
countries, but is expected to keep growing at a high rate
due to the fact that asbestos import and processing in
Japan only stopped in 2006. (Source: TT commentary from
kyodo.co.jp, Jun 03, 2008)

http://home.kyodo.co.jp/modules/fstStory/index.php?storyid=381745

-> Venture drug firm gets JPY200m on JPY10bn valuation

The venture capital market in Japan may be waking up again
if an investment made this week is anything to go by. Drug
developer UMN Pharma Inc., received a JPY200m investment
from IHI Plant Engineering Corp. for a phenomenal JPY10bn
valuation. UMN Pharma has licenced core technology from a
US company and is making an influenza vaccine from insect
cells. The production time and cost for making the new
vaccine is about one third that of normal technologies to
do the same thing. (Source: TT commentary from
nikkei.co.jp, Aug 22, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20080822D22JFA05.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

=> LINC Japan Ltd., an affiliate of the LINC Media group,
is actively marketing the following positions for market
entry customers setting up in Japan, as well as other
employers of bilinguals.

** HIGHLIGHTED POSITION(S)

BiOS is now accepting resumes for the position of Software
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-----------------------------------------------------------

+++ UPCOMING EVENTS/ANNOUNCEMENTS

---------- International Business Awards Japan ------------

**J at pan Inc is pleased to announce the opening of nominations
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YMCA/FCSC 2008 Grand Gala Charity Ball:

One of the international community's most anticipated
social events of the year, the FCSC will hold their 2008
Grand Gala Charity Ball on October 17th at the Hilton
Shinjuku.

This year's event will feature Beatlemania as the theme,
with one of Japan's best known cover bands, the Beatle
Dollar Band. The evening also features fine wine, five
course dinner, dancing, and a grand raffle draw.

The highlight of the evening will be a Live Auction
including a guitar signed by Sir Paul McCartney and Ringo
Starr, other rare Beatles memorabilia, a guitar signed by
Led Zeppelin, photos of Tiger Woods, Harry Potter items,
and many more sports, cinema, and rock memorabilia.

All proceeds go to benefit the YMCA's Challenged Children
Project (CCP). Donations are 25,000 yen/per person, with a
10% discount for table reservations (10 persons). Special
overnight accommodation is available at the Hilton only for
YMCA/FCSC guests.

Attendance is limited so please contact the FCSC office;
03-5367-6640, fcsc at ymcajapan.org for tickets and more
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Title: 'Breathing New Life into an Old Industry'

Speaker: Daisuke Iwase
- Co-founder and COO of Lifenet Insurance Company

Lifenet, an online insurance venture was co-founded by
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Daisuke started his career at the Boston Consulting Group
and went on to work at Intenet Capital Group and Ripplewood
Holdings before starting Lifenet. He has a B.A. in Law from
the University of Tokyo, and MBA with High Distinction
(Baker Scholar) from Harvard Business School.

Please sign up early while seats are available.
Date/Time: Tuesday, September 2nd 7:00 pm
Location: Foreign Correspondents' Club of Japan
Language: English
Website: http://www.ea-tokyo.com
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-----------------------------------------------------------

______________________________________________________
Events announcements are priced at JPY50,000 per week.
For more information, contact sales at japaninc.com

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

No corrections or comments this week.

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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