WATCHING THE WORLD: Japan employs energy choice

Oct. 23, 2006
Even in a world where energy sources are tight, there is still enough oil and gas in the ground to guarantee choices.

Even in a world where energy sources are tight, there is still enough oil and gas in the ground to guarantee choices. Consider the efforts of resource-poor Japan to secure itself a stable energy supply.

To win support for its nuclear ambitions, Iran has threatened Japan with the oil weapon on a number of occasions, perhaps most obviously by threatening-and eventually reducing-its 75% stake in development of giant Azadegan oil field.

No less worrying for Japan, the Russian government has halted the Sakhalin-2 project, claiming that the companies involved-Royal Dutch Shell along with Japanese partners Mitsui and Mitsubishi-have ignored environmental regulations and caused $10-50 billion in damage.

The market prevails

But the market appears to have prevailed as Japan has turned to Indonesia and Australia to fill a substantial portion of its future energy needs.

Indeed, Japan’s Inpex Holdings Inc., which had the Azadegan stake, now plans to invest about ¥500 billion ($4.22 billion) to launch natural gas production in Indonesia by 2015. The Japanese energy developer, which has a 100% stake in the project, aims to ship 3-5 million tonnes/year of LNG to Japan and elsewhere.

Inpex has a similar project under way in an Australian field, where it holds a 76% stake. There the firm is spending ¥700 billion, with plans to produce 6 million tonnes/year of LNG starting in 2012.

In fact, these two fields alone could jointly supply 15-20% of Japan’s LNG needs. In terms of percentage of energy needs, that 15-20% represents more than Japan imports from Iran now.

Inpex reportedly has found a gas deposit capable of supporting 3 million tonnes/year of LNG in Indonesia, where it will start drilling at four locations beginning early next year to confirm the reserves.

The next step will be to submit a production plan to the Indonesian government in 2008 for approval. According to one observer, negotiations with the Indonesian government hold the key to realizing gas production there. But unlike with Iran or Russia, the risk of falling victim to resource nationalism is low in the Indonesian project.

Conversion plans

Inpex is said to be developing plans to construct a facility near the city of Darwin in northern Australia for liquefying the Indonesian gas. The LNG will be shipped to markets in Japan and elsewhere. Undersea pipelines will transport the gas from Indonesia to Darwin.

Last August, Kon Vatskalis, minister for mines and energy in Australia’s Northern Territory, said Inpex is likely to reach an accord with Indonesia and Australia for processing gas from its Abadi field in Darwin.

At the time, Vatskalis said ConocoPhillips may already be designing an expansion of its 3.24 million tonne/year Darwin LNG plant, which currently liquefies gas from Bayu-Undan field in the Timor Sea.

One way or another, it’s a world of choice.