Japan makes plans for energy and resources

Japan has a developed economy, ranking as the second largest economy behind the U.S., and the country is a part of the G-7 group of industrialized nations. According to the Organization of Economic Cooperation and Development, Japan’s GDP in 2007 stood at US$4,380 billion, while U.S. GDP was US$13,777 billion and Canada’s GDP was US$1,426 billion. Japan is sensitive to energy and resource markets, because of its situation as a resource-poor nation which is almost totally dependent on imported commodities. Japanese policy-makers are keenly aware of this dependency.

It is therefore particularly interesting to read a report entitled “Japan promotes new technologies and investment in energy and natural resource sector,” released in the March 2008 Focus Newsletter by JETRO, the Japan External Trade Organization, a government agency. The first paragraph of the report sets the tone:”The supply vs. demand situation for global energy and mineral resources has created new challenges for Japan in recent years. The government has responded with measures to increase access, secure supplies, and diversify energy, mineral and other commodity inputs. It has also strongly supported the development of renewable energy as well as domestic and international efficiency amid global warming issues. The Japanese private sector has also taken measures to address higher prices and heightened competition for natural resources and remains on the cutting edge of renewable energy development and energy efficiency. These initiatives are creating new opportunities for foreign firms and investors as the nation expands its efforts to seek new supply sources and to further develop the technologies and techniques that will maximize Japan’s ability to access and to efficiently use resources in a globally sustainable manner.”

Starting with energy, the report looks at worldwide consumption of energy in all forms, converting them to kilo-litres of crude oil equivalent. It estimates that consumption will grow from 11.19 billion kilo-litres of crude oil equivalent in 2002 to 17.83 billion kilo-litres of crude oil equivalent in 2030, a growth of 59% over 28 years. (The numbers are based on an International Energy Agency (IEA) report entitled World Energy Outlook 2004.)

Based on figures from multinational oil company BP (BP-N) and from the IEA, the report estimates that world oil reserves will last 40 years, natural gas 67 years, coal 164 years, and uranium 85 years.

Price hikes in different commodities are the result of rising demand while supply is constrained. For example, copper consumption over the decade 2000-2010 is estimated at about 6.5 million tonnes.

The Japanese recognize a consolidation trend among commodity producers, and they draw a remarkable conclusion:”This is requiring Japan and other nations to look at smaller, earlier-stage projects than they had in the past. It is also requiring that they consider a wider range of geographical locations, as well as a diminishing ability to focus one’s attention on larger scale projects alone – not to mention environmental concerns and the long time frame over which these projects need to be developed.”

If these words represent government policy, it can be expected that Japan will become increasingly involved as an investor in junior resource companies. There are already signs on the ground that this is indeed starting to happen.

The report predicts more efforts by consumer nations to secure access to resources, and says that these nations will continue to strike bold deals with producers to achieve this. (This prediction is not a surprise in light of continuing moves by China to secure resources in Africa, Canada and elsewhere.) There will also be initiatives to manage demand, for example by using more efficient lightbulbs.

The authors are particularly focused on energy security, not surprising for a country so dependent on imports. They outline a number of plans for Japan, including developing its own oil fields, developing and introducing diverse forms of energy, ensuring domestic supply, and promoting energy efficiency and renewable energy.

To facilitate the stated policy of developing its own oil fields, the government formed the Japan Oil, Gas and Metals National Corporation (JOGMEC) in 2004. JOGMEC will work with Nippon Export and Investment Insurance (NEXI) and Japan Bank for International Cooperation (JBIC) to support private sector investments in overseas resource projects.

JOGMEC facilitates private sector involvement in foreign countries by providing equity capital and liability guarantees for exploration, production and stockpiling, and by supplying technical support, information and data gathering. JOGMEC is now taking larger equity stakes than in the past. For its part, NEXI has announced in January that it would increase investment and loan insurance for natural resources and energy from US$3 billion to US$10 billion.

With respect to the policy of developing and introducing diverse forms of energy, the government is pursuing the development of nuclear power, making greater use of coal along with clean-coal technology, and promoting increased use of natural gas.

Turning from energy to minerals, the report states:”Japan believes the future of minerals is one involving increasing demand and competition for supply. It is also concerned about the effect of rising mineral prices on Japanese business and the Japanese economy. Thus, it is supporting policies that promote the development of new mines. These policies include assistance for exploration as well as the actual development of mines. Furthermore, they entail the development of mineral resource exploration technology, tax incentives, geological surveys, information gathering, and the establishment of national reserves of precious minerals.”

The report gives a number of examples where Japan invested in resource-related projects, some of which through JOGMEC, and others via private sector investments. It further quotes minister Akira Amari as saying that Japan is willing to actively engage in “natural resource diplomacy.”

The report says that Japan’s plans for energy and minerals present an opportunity for foreign resource firms to cooperate with the private or public sectors in Japan. They also present an opportunity for foreign firms in the energy efficiency and alternative energy fields to invest in Japan and introduce their technologies to a vast market that needs them.