Oil Diplomacy Editor
LOS ANGELES, Dec. 30 -- Nippon Oil Corp. and Nippon Mining Holdings Inc., which have announced plans to merge, expect to reduce the new entity's refining capacity while enhancing operations in alternative energy and increasing overseas oil and gas production.
Nippon Oil Chairman Fumiaki Watari announced the plans in a recent interview with the Nikkei Business Daily, which asked about measures expected to take place in the difficult business environment where Japan's oil demand is declining amid a deteriorating economy.
Asked about plans to cope with the current economic downturn, Watari said the financial situation is having a major impact because it is happening so rapidly and simultaneously around the world.
"It is more serious than economic crises in the past," he said, adding that Japan's oil demand is declining rapidly and that competition in refining will be more fierce.
"We needed to consolidate our management (with Nippon Mining Holdings) to survive," Watari said of the merger, which was announced earlier this month. "From now on, further consolidation in the refining industry is inevitable," he said.
Watari explained that in the long run, the number of cars in Japan will decline because of environmental issues and shrinking population. In addition, fuel efficiency will improve. The demand for oil is not likely to increase.
"The biggest issue for the industry is to solve the issue of excess capacity when the demand is declining rapidly," Watari said. "After subtracting the actual domestic oil demand from the overall domestic refining capacity, about 20% excess capacity will be left," he said.
"That is a big excess even after exporting a certain amount," Watari said.
It is difficult to consolidate excess equipment within one company, Watari said, adding that "we can expedite the process by the cooperation of two firms, and we can rebuild our stagnant domestic operations."
As for expansion plans, Watari said, "We first plan to solidify the management of our domestic oil operation by the merger, while we expand our natural resource business overseas."
He said the new firm aims to increase overall oil and gas production more than threefold from the current level to 500,000 b/d.
Noting that the trend of increasing environment consciousness is a negative factor for the existing natural resource business, Watari said "We are transforming ourselves from a company that only carries fossil fuels to a comprehensive energy company."
The firm's growth will be limited if it continues to depend on oil, he said. "We may not even see "oil" in our company's name in the future." It also is a major objective of the merger to develop new markets by new sources of energy, he said.
"We aim to make the annual current profit of 500 billion yen: 300 billion yen by developing natural resources overseas, 100 billion yen in the domestic oil business, and 100 billion yen in alternative energy business," Watari said.
Alternative energy plan
Regarding plans for alternative energy, Watari said "We will enhance our businesses in fuel-cell batteries, solar batteries, and storage batteries."
He said Nippon Oil's hydrogen production is the largest in Japan, and the supply of hydrogen for fuel cell cars will be a major business in the future.
"We will actively invest (in these businesses) while we look ahead to the recovery of the world economy," he said.
"As for solar batteries, we can create synergy effects by bringing technologies of Nippon Oil and Nippon Mining Holdings together," Watari said.
Watari pointed out that silicon is a raw material used in solar cells and Nippon Mining Holdings has a silicon production company, while Nippon Oil has a stake in a silicon wafer production company.
And, Watari added, Nippon Oil "plans to establish a production company of thin-film solar cells with Sanyo Electric Corp."
Contact Eric Watkins at email@example.com.