Energy and Natural Resources
Securing Stable Access to Resources: Oil and Natural Gas
JBIC has provided support in various ways to help secure long-term and stable supplies of resources amid increasingly intense competition for them. In this section, a classic example of what JBIC did to support this national effort is described respectively for oil and natural gas projects.
UAE: Realizing Stable Imports of Oil from a Major Oil-Producing Country
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The signing of a loan agreement with ADNOC
How can we acquire oil from foreign countries? One way to do it is "independent development" wherein Japanese firms acquire "interests" and participate in an overseas oil development project to have the right to purchase a pro-rata volume of crude oil. Its advantage is securing a stable supply based on acquisition of "interests" in the development project. On the other hand, this approach also forces firms to assume various development risks on their own. In addition, as skyrocketing resource prices have intensified competition for concession interests, their acquisition costs have continued to rise so much that it is by no means easy today to acquire interests in oil development. At present, crude oil acquired through "independent development" accounts for only 17% of the total crude oil imports to Japan (FY2005).
This means that the rest of the crude oil must be purchased from oil-producing countries. Generally, a crude oil transaction takes place in a "spot contract" or in a one-year "term contract." This happens because a seller does not want to sell oil to a fixed buyer on a long-term basis. Thus if Japan is to secure more long-term and stable crude oil imports, it is essential to have as contracts as that are as long-term as possible, in addition to pursuing oil from "independent development."
JBIC not only provides financial support for Japanese firms acquiring interests and undertaking development projects. It also supports long-term and stable crude oil imports by strengthening ties with resource-producing countries.
In December 2007, JBIC signed a loan agreement totaling up to US$3 billion with Abu Dhabi National Oil Company (ADNOC) of the United Arab Emirates. Its objective was to secure a long-term and stable supply of crude oil from ADNOC. Based on this loan agreement, Japanese oil companies signed crude oil off-take contracts with ADNOC, a five-year contract for taking delivery of 120,000 barrel of crude oil per day in total.
UAE is the second largest oil exporter for Japan, accounting for about one-quarter of Japan's total crude oil imports. The Emirate of Abu Dhabi accounts for over 90% of crude oil production in UAE, and is one of the few countries that allow foreign companies to participate in resource development. In addition, about one third of Japan's "independently developed" crude oil is being imported from the Emirate of Abu Dhabi.
This region thus has an extremely important place in Japan's energy strategy. During (then) Prime Minister Abe's visit to UAE in April, 2007, JBIC signed an MOU on comprehensive and strategic partnership with ADNOC and has since continued to have close consultations with the company. The signing of this loan agreement is a product of these consultations. The sense of trust and the spirit of partnership between JBIC and ADNOC have contributed to a long-term and stable supply of crude oil from Abu Dhabi.
Australia: Geopolitically Important LNG Supply Source
The global LNG market is projected to expand more than three-fold by 2020, due to robust growth of new emerging economies such as China and India. While Japan takes up a 40% share of the global LNG market today, there is a concern that its decreasing relative market position amid ever more intense global competition for acquiring LNG may lead to a decline in bargaining power. More worrying is that Indonesia, the largest LNG supplier to Japan to date, has a dwindling export capacity, constrained by rising domestic demand and the depletion of major gas fields. When its major LNG supply contracts with Japan are due for renewal in 2011-12, a drastic cut seems to be inevitable in import volume from Indonesia.
As a result, Japan is under pressure to find an alternative LNG supplier elsewhere. Among a number of potential LNG projects in the world, it is worth thinking about Australia's strategic importance to Japan as an LNG supplier.
Australia is one of the few industrialized countries with a mature market economy among major LNG producers, with a well-developed legal framework and economic infrastructure. Its geographical location is not so far from Japan, and LNG carriers do not have to navigate through relatively hazardous sea lanes, such as the Straits of Malacca and the Straits of Hormuz. Such geopolitical stability is a crucial factor to be taken into consideration for making investments totaling over \1 trillion in order to secure a stable supply of resources over the next few decades. To date, JBIC has continued to support crude oil and LNG projects in which Japanese companies have participating interests, such as the North West Shelf Venture LNG Project, building up close relations with resource development companies in Australia in the process. Building on this experience, JBIC approved loans in cofinancing with private financial institutions with the aggregate total of US$1.3 billion for the Pluto LNG Project in 2008. The project will be undertaken jointly by Japanese electricity and gas companies and an Australian firm. LNG produced under this project will be exported to Japan over 15 years. The project will thus become yet another link between Japan and Australia.
Scramble for Natural Resources: How Can Japan Tough It Out? --Supporting Efforts to Secure a Stable Supply of Natural Resources for Japan in a Turbulently Changing Economic Environment--