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Japan eyes oil diversification

Publication Date : 25-06-2012


The agreement between Japan and Russia to jointly develop a Siberian oil field is expected to accelerate expansion of crude oil procurement from that country and help diversify Japan's supply of energy resources.

Japan relies on the Middle East for more than 90 per cent of crude oil imports.

Japan Oil, Gas and Metal National Corporation (JOGMEC) and Russia's Gazprom Neft announced last week they would jointly develop an oil field in eastern Siberia, a region believed to have abundant natural reserves.

The oil field is expected to yield a daily output of tens of thousands of barrels, which is equivalent to 1 per cent to 2 per cent of Japan's total crude oil imports.

JOGMEC is conducting research in other mining blocs in eastern Siberia with the aim of reaching joint development agreements with other companies.

A pipeline connecting the eastern Siberian area with Russia's Far East will be completed in autumn this year.

If the joint development of the oil field accelerates in the wake of the agreement, it is possible the quantity of crude oil transported to Japan will rise significantly.

Another benefit of the agreement is that transportation from Russia to Japan takes only two days. "Japan will be able to import crude much more rapidly than from the Middle East, which takes about 40 days, and at a lower cost," an oil industry source said.

In past joint projects, Japanese companies have not had much luck.

Japanese firms in the Sakhalin-2 project, which started producing natural gas in 2009, secured only a 22.5 per cent stake.

In a project to develop Iran's Azadegan oil field, which has one of the world's largest oil reserves, the Japanese side initially took a 75 per cent stake.

However, Japan had to withdraw from the project after the international community strengthened sanctions against Iran over its suspected nuclear weapons development programme.

Under the agreement with Russia, the Japanese side will secure a nearly equal stake to that of the Russians in the project.

This means Japan will be able to exercise a certain degree of initiative in the project and obtain a stable supply of crude oil.

The Japanese government has tried hard to diversify crude oil supplies and secure reasonably priced natural gas.

As its relations with Western nations deteriorated, Iran threatened to block the Strait of Hormuz, through which much of the oil destined for Japan moves.

"This made us realise the unstable nature of Japan's crude oil procurement," a government source said.

In addition to Russia, Japan wants to strengthen ties in energy supplies with such countries as the United States and Australia.

Shale gas, contained mainly in bedrock strata, shows promise.

Mitsubishi Corp. and Mitsui & Co. plan to import 12 million tonnes a year of US shale gas to Japan in the form of liquefied natural gas starting in 2016.

Sumitomo Corp. and Tokyo Gas Co. also plan to import to Japan 2.3 million tons of US shale gas in the form of LNG starting in 2017.

In Darwin, Australia, INPEX Corp. is involved in the Ichthys LNG project, which aims to supply about 10 per cent of Japan's LNG imports in the future.

Japanese electric power companies have imported natural resources at prices higher than average world market prices.

If the eastern Siberian oil development project works out smoothly, a senior official of the Economy, Trade and Industry Ministry said, "Japan will be in a good negotiating position with oil-producing countries."


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