Japan's MITI releases energy policy review

In what might well prove to be a portent for major change, the Japanese Ministry of International Trade and Industry (MITI) has released the preliminary results of a review of the country's energy policy. The final report, expected to be completed by late July, will call for, among other things, the abolition of targets for the percentage of crude imports that must come from the overseas projects of Japanese firms.


TOKYO�In what might well prove to be a portent for major change, the Japanese Ministry of International Trade and Industry (MITI) has released the preliminary results of a review of the country's energy policy. The final report, expected to be completed by late July, will call for, among other things, the abolition of targets for the percentage of crude imports that must come from overseas projects in which Japanese firms participate.

It also suggests a reduced role on the part of Japan National Oil Corp. (JNOC) in funding such projects. Instead, it says, Japan should aim to reduce its dependence on crude oil and encourage the private sector to play a greater role in the engineering and design of those projects through restructuring and consolidation.

Japanese project participation
Obsessed with a need to reduce its dependence on crude imports, Japan's long-stated policy has been that crude imports from overseas Japanese projects should account for 30% of total domestic crude demand, or around 1.2 billion b/d. However, MITI now says that such numerical targets are inappropriate, given the fluctuation in crude prices and the rising importance of natural gas.

For the past decade, around 15% of total crude imports have come from Japanese-owned projects, with a lion's share of it coming from Japan's Arabian Oil Co. (AOC). AOC's concession allowed it to produce some 300,000 b/d of heavy sour crude from its Neutral Zone concession between Saudi Arabia and Kuwait.

But earlier this year, the Saudis refused to renew the concession, largely because of Japanese unwillingness to inject substantial amounts of cash into local infrastructure projects. As a result, AOC's output from the concession has effectively been slashed in half, and with it, a considerable portion of Japan's 4 billion bbl of overseas crude reserves. Moreover, AOC's concession in Kuwait expires in 2003, and there is a distinct possibility that Kuwait, too, will refuse to renew the concession unless that Japanese are prepared to invest heavily in the sheikdom.

The failure on the part of AOC to renew its contract with the Saudis has galvanized the government into action. It is to send a high-level delegation to Iran�already one of Japan's top crude suppliers�in the coming months in an attempt to secure drilling rights in the oil-rich but economically impoverished Islamic state. However, it is questionable whether it will meet with much success: Iran's constitution forbids the granting of concessions to foreign oil companies, which means that the Japanese are highly unlikely to secure anything more than a buy-back deal.

The result, admits MITI, is that the government's long-held target of 30% is becoming increasingly meaningless. It also admits that the huge amounts of money the government has thrown at upstream activities have so far yielded very disappointing results.

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