By OGJ editors
HOUSTON, Dec. 8 -- Troubled projects in Iran and Russia have set back the Japanese government's newly aggressive effort to secure international oil and gas supplies, reports Tomoko Hosoe of FACTS Inc., Honolulu.
Iranian and Russian production is important to a goal announced by the government in May to increase the share of oil developed and imported by Japanese companies to 40% of total imports by 2030 from 15% in recent years.
Hosoe noted in a FACTS report that the strategy included the first numerical targets set for the energy industry in many years and sharply increased the role of government.
Project problems
But the Iranian project central to the strategy, development of Azadegan oil field by Inpex Corp., has stalled.
Inpex, in which the Japanese government holds a 29.35% interest, agreed in October to cut its stake in the Azadegan buyback contract to 10% from 75% and to shift the role of operator to Iran's Naftiran Intertrade Co. The company had signed the contract for appraisal and development with National Iranian Oil Co. in February 2004.
Hosoe said the Azadegan project has suffered from slow mine-clearing from the oil field and consequent refusal by insurance companies to refuse coverage for contractors, cost increases that left the project "financially unfeasible," and geopolitical pressure related to Iranian nuclear ambitions.
While it represents a blow to Japanese supply goals, Hosoe said, Azadegan's foundering hurts Iranian interests even more because of the reduction in Japanese support and the trouble Iranian companies probably will have advancing the project.
In Russia, the East Siberia-Pacific Ocean oil pipeline is making little progress, Hosoe notes. And recent decisions by the Russian government about the Sakhalin-1 and 2 projects, in both of which Japanese companies hold interests, have conflicted with Japan's supply strategy.
Russia's Natural Resources Ministry and Audit Chamber have thrown Sakhalin-2 into doubt by revoking environmental licenses and questioning the need for spending increases. Mitsubishi and Mitsui are minority partners in the project with Royal Dutch Shell PLC.
Hosoe cited reports that Russia might divert gas from the Sakhalin-1 project, in which the Japanese group Sodeco holds a 30% interest, to China. And there are concerns that the project might fall subject to the type of environmental resistance that has stalled Sakhalin-2.
Japanese LNG buyers hope for Sakhalin-2 supplies to offset shortfalls in deliveries from Indonesia and to fill shortages that will develop by 2015 unless all existing contracts are renewed as they expire.
Effects on strategy
Although Japanese energy demand will remain unchanged or decline because of an aging and shrinking population, Hosoe said, "The change in the global landscape and the dramatic shifts in the LNG supply availability pose a serious challenge to Japan's energy security."
The "fierce competition from the emerging markets in the region" sets limits on what the government's new strategy can accomplish, the analyst said.
"To go forward and to defend Japan's stake, even more interventionist policies may well be needed—far beyond what the current Japanese system is willing to consider."