Japan makes plans for energy, resources

Japan is highly sensitive to energy and resource markets because of its situation as a resource-poor nation, almost totally dependent on imported commodities. In view of the increased demand for commodities and the slow pace of supply-side response, the Japanese government has formulated a policy that combines “natural resource diplomacy” and investment in early-stage projects — among other strategies — to secure vital supplies of energy and resources.

The country’s resource policy is set out in a March 2008 report by the Japan External Trade Organization (JETRO), a government agency. The report outlines the challenge of rising prices and more competition for resources, as well as Japan’s response.

Starting with energy, the report looks at worldwide consumption of energy in all forms, converting them to kilo-litres of crude oil equivalent, the energy content of 6.3 barrels of crude oil. It estimates that consumption will grow by 59% between 2002 and 2030, to 17.8 billion kilo-litres of crude oil equivalent from 11.2 billion kilo-litres.

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

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 –no surprise in light of continuing moves by China to secure resources in Africa, Canada and elsewhere.

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

The authors are particularly focused on energy security, which is natural for a country so dependent on imports. They outline a number of plans for Japan, including developing its own oilfields, developing and introducing diverse forms of energy, ensuring domestic supply, and promoting energy efficiency and renewable energy.

To facilitate the development of its own oilfields, the government formed the Japan Oil, Gas and Metals National Corp. (JOGMEC) in 2004. JOGMEC will work with Nippon Export and Investment Insurance (NEXI) and Japan Bank for International Cooperation 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 announced in January that it would increase investment and loan insurance for natural resources and energy to US$10 billion from US$3 billion. Clearly, Japan is prepared to back its resource policies with hard cash.

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 that there will be more demand and more competition for available resources in the future, and rising prices could negatively affect Japan’s economy. Therefore, the country supports policies that promote new mine development.

“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.”

Japan assigns top priority to securing supplies of natural resources, and the country is involving its politicians and business leaders in this effort.

“Japanese leaders such as former prime minister Junichiro Koizumi, ministry heads, and the top management of groups like JOGMEC have visited countries such as Kazakhstan and Vietnam to support Japan’s access to coal, uranium, and zinc. Japan supplements these meetings with financial and technical support.”

The report continues: “As minister Akira Amari recently stated at a news conference, the Japanese government is prepared to actively engage in natural resource diplomacy.”

The report gives a number of examples where Japan has invested in resource-related projects, some through JOGMEC, and others via the private sector. JOGMEC, for example, has made a multimillion-dollar uranium exploration investment in Toro Energy (TOEYF-O, TOE-A); is spending at least $5 million to acquire a 51% interest in the Pashpap copper-molybdenum property in Peru from Northern Peru Copper; and is spending $9 million on exploration to earn a 50% stake in Titan Uranium’s (TUE-V, TUEFF-O) Virgin Trend uranium project in Saskatchewan.

Other overseas investments include: an oilsands investment in Alberta by INPEX, Japan’s largest oil explorer; a company formed by Sumitomo Corp. (SSUMF-O, SUO-L) and Strathmore Minerals (STM-V, STHJF-O) to develop a uranium deposit in New Mexico; a takeover of Primary Metals by Sojitz; a deal by Mitsubishi (MSBHY-O, MBC-L) to acquire a stake in Northern Dynasty Minerals (NDM-T, NAK-X); and a deal made with Franklin Mining (FMNJ-O) for a consortium of Japanese companies to buy 50,000 tons of zinc concentrate from mines in Bolivia.

The report says that Japan’s plans for energy and minerals present an opportunity for foreign resource firms to co-operate with the private and public sectors in Japan.

They also present an opportunity for foreign firms in the energy efficiency and alternative energy fields toinvest in Japan and introduce their technologies to a vast market that needs them.

With a population of 127 million, Japan’s economy ranks the second largest behind the U. S. It has a gross domestic product of US$4.4 trillion compared with the United States’ US$13.8 trillion.