Oil Diplomacy Editor
LOS ANGELES, Dec. 6 -- Showa Shell Sekiyu KK expects alternative energy to become increasingly important in Japan and as such is ramping up its solar power efforts, according to Pres. Jun Arai.
Arai told The Nikkei Business Daily that his company will likely streamline oil operations in order to stay competitive in the stagnant market.
Asked if Japan's domestic gasoline demand will remain weak, Arai said the price of crude oil has fallen 60% from the summer peak, sending gasoline prices sharply lower, but demand for gasoline has yet to bounce back.
"I am afraid slowing demand can no longer be considered a temporary phenomenon," he said, adding, "I think it reflects fundamental lifestyle changes and a growing awareness of the need to conserve energy."
In connection with such lifestyle changes and needs, Arai said his firm shouldn't limit itself to the oil business alone, but must be ready to supply any form of energy required by society in order to ensure sustained corporate growth.
Solar power 'paramount'
Arai said "the jury is still out on what the dominant form of energy will be in the future, but we predict solar power to be paramount, given its steady technological development."
He said Showa Shell Sekiyu KK has already purchased a solar cell factory online in Miyazaki Prefecture, and plans are in hand to expand the firm's output capacity in the future.
Despite the deepening economic downturn, Arai said his firm has "no intention" of revising the plan to bring a 1,000-Mw solar power plant on stream by 2011.
"It is true that fund-raising is increasingly difficult, but our finances are strong enough to make an investment of about 100 billion yen," he said. "We will make a formal decision on the plan as early as the second half of next year."
Oil to remain essential
Regarding the firm's refining operations, Arai said domestic demand is not expected to grow greatly, but he believes oil will continue to fill a significant portion of Japan's energy needs over the next 20-30 years.
"Alternative energy's share will certainly grow," he said. "But unless oil refiners continue to sell gasoline and other petroleum products, neither Japanese society nor industry will be able to operate."
"If the market continues to shrink, however, we will not be able to remain viable by sticking to our current business model," he said.
Noting that there is excess refining capacity and a glut in sales outlets, Arai said that Showa Shell Seikyu KK has a network of about 4,300 gas stations now, but that this will eventually be scaled down.
"We will need to export more to resolve the problem of oversupply. To this end, we will boost our production efficiency to be more competitive with oil refiners elsewhere in Asia," he said.
Concerning possible industry consolidation, Arai acknowledged that Japan's domestic wholesale oil industry has undergone several rounds of consolidation in light of intensified competition stemming from deregulation.
"I don't think mergers will solve all problems," he said, "but we're not ruling anything out."
Arai also had specific comments regarding the future roles of his firm's leading shareholdersRoyal Dutch Shell PLC and Saudi Aramco.
"Royal Dutch Shell has an extensive international marketing network and will be an important partner as we look to increase exports. It also sees Japan as the most important market behind the US," he said.
"The Saudi Aramco relationship boosts our ability to secure a steady supply of crude oil. The Saudi company also considers Japan a stable export market. We intend to maintain these important ties, which no other domestic oil refiners have," Arai said.
Contact Eric Watkins at email@example.com.