A drilling platform at the Kashagan oil field

The BTC pipeline (Suppliers of BTC Co.)

While oil reserves in the Caspian Sea region had previously received attention, their development activities have accelerated in the second half of the 1990s with inflows of international capital after the collapse of the former Soviet Union. A prime example is the Azeri-Chirag-Gunashli (ACG) Oil Field near Baku, the capital of Azerbaijan. Japanese companies acquired interests along with western oil majors and participated in oil field development. To date, the project has been steadily increasing crude oil output. Another example is the Kashagan offshore oil field located in the territorial waters of Kazakhstan in the Caspian Sea. This is a huge oil field, one of the largest discoveries over the last three decades. As in the case of the ACG Oil Field, Japanese companies have acquired interests and participated in the Kashagan oil field development project along with western oil majors.

Since the Caspian Sea is an inland lake, there are always geographical difficulties transporting oil to markets. Eventually, a pipeline route was constructed, starting from Baku, and via Tbilisi, the capital of Georgia, to Ceyhan, a Mediterranean city in Turkey, (called the BTC pipeline), and oil shipment began through this route in 2006. Japanese companies participated in the consortium for this pipeline project and supplied pipeline facilities as well. Traditionally, oil was shipped from the Black Sea through the Straits of Bosporus, which posed a bottleneck to heavy traffic of vessels. The completion of the BTC pipeline project has significantly facilitated oil supply to its markets, as it enabled direct shipment from a port in the Mediterranean Sea. Further, in preparation for the start of production at the Kashagan Oil Field, the progress has been made in the crude oil transport infrastructure development project.

To date, JBIC has financed a total of about US$2.7 billion for Japanese-participated oil field and transport infrastructure development projects in the Caspian Sea region, including the ACG and Kashagan oil field development projects and the BTC pipeline construction and operation project. JBIC provided a loan for the BTC pipeline project in project financing, thereby contributing to financial structuring by assuming the project/commercial risk.

In these and other projects, JBIC is financially supporting diversification of oil supply sources, while taking account of the project's geopolitical characteristics and the participation of Japanese firms.

Sakhalin II (Suppliers of Sakhalin Energy Investment Company Ltd.)

As a number of undeveloped oil and natural gas deposits yet to be developed are said to lie in the waters off Sakhalin Island just north of Hokkaido, they are drawing attention as a new supply source of energy resources. The Russian government has divided the waters surrounding Sakhalin Island into nine blocks. Currently, much progress has been made in the development of the Sakhalin I and II projects, with Japanese firms which hold interests in the projects participating in the respective projects.

Sakhalin II is a huge project where oil and natural gas off northeastern Sakhalin are developed and produced by the Sakhalin Energy Investment Company (Sakhalin Energy), a joint venture between Mitsui & Company and Mitsubishi Corporation, leading Japanese trading companies, Royal Dutch/Shell Group, an oil major, and Gazprom, the Russian gas company having the world's largest natural gas reserves. Phase I of the project is already in operation, producing and shipping oil only during summer. Currently, Phase II is underway. Upon completion of Phase II, annual LNG production will reach 9.6 million tons, of which upwards of 50% will be shipped to Japan. This will account for about 8% of the total annual LNG imports to Japan. Crude oil production is expected to reach about 150,000 barrels per day, of which a significant proportion will be supplied to Japan.

Considering its large-scale LNG and oil production, Sakhalin II is thus very important to Japan as a supply source of energy resources. The greatest advantage of this project for Japan lies in its geographical proximity. Whereas tankers take 33 days in a round trip between Japan and the Middle East, they take only 5-8 days between Sakhalin and Japan, which should be considered a key factor for energy security.

JBIC offered a US$3.7 billion loan to Sakhalin Energy in June 2008. The loan decision was made after a five-year period of careful consideration, since a loan application was submitted by Sakhalin Energy in 2003. During this period, JBIC has been assessing the changing external environment for energy resources.

This loan agreement was signed, but it did not end of the role of financier for the project. As a lender, JBIC now has to take responsibility for monitoring project implementation and especially environmental and social considerations. In fact, during the stage of considering financing for Sakhalin II, various views and concerns were expressed by an array of stakeholders, including fishers in Hokkaido and domestic and international NGOs, regarding its environmental and social impacts. In its position as a possible lender at the time, JBIC conveyed these views and concerns to Sakhalin Energy and requested appropriate environmental and social considerations. This has resulted in a series of measures taken by Sakhalin Energy, including the full use of double-hull tankers and relocation of pipeline routes to avoid effects on endangered species. Going forward, what is called for is to monitor whether these measures will be implemented as planned, and to hold the project company accountable to the stakeholders. JBIC has the important role of monitoring and confirming environmental and social considerations in the implementation of Sakhalin II, which will contribute to the diversification of and stable access to energy resources.