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Helping to reduce the carbon intensity with CCS/CCUS technology

Interview - November 12, 2022

Created in a 2010 merger between Nippon Oil Corporation and Nippon Mining Holdings, Inc., JX Nippon Oil & Gas Exploration (NOEX) specializes in the development and production of oil and natural gas, currently operating more than 30 projects in nine countries worldwide. The Tokyo-based company, which has offices in Australia, Indonesia, Malaysia, the U.S. and Vietnam, is part of ENEOS Group, Japan’s largest energy, resources and materials conglomerate.


Can you give us a brief introduction to your firm and the role it plays in the ENEOS Group?

We operate our company as one of several operating companies under ENEOS Holdings. The biggest company is ENEOS Corporation, which is engaged in the refining and distribution of petroleum products. They also engage as a strong supplier of basic petrochemicals and export them mainly to China. Although they are facing difficulties due to the Covid situation now, they expect the demand for these products will recover in the medium to long term. ENEOS Corporation also focuses on the area of power generation. Currently their capacity for power generation is small, but they are trying to expand their capability. When it comes to renewable energy, ENEOS Corporation acquired Japan Renewable Energy, which is the leading renewable energy company, this January. Then, we, JX Nippon Oil & Gas Exploration, are engaged in the upstream business of oil and gas. Our size is relatively small, producing approximately 92,800 barrels of oil equivalent per day. Just last March, we sold our UK assets, however we generated about 23% of the net profit of the whole group last year. That is the overview of our group.

I would like to next explain the history of the Japanese oil industry. Japan’s oil industry began in 1888 with the establishment of the company Nippon Oil. Their first business was oil exploration and production in Niigata prefecture. Nippon Mining started in 1905 and they were engaged in the mining of copper in Hitachi, Ibaraki prefecture. It was from this company that the well-known electronics company Hitachi sprang from, as they were initially a part of Nippon Mining. Before World War II, the Japanese government decided to integrate the oil industry, especially when it came to the upstream business. Teikoku Oil was established which is now actually INPEX. From here, Toa Nenryo Kogyo was established, which was a refining company that specialized in producing gasoline for fighter planes. After World War II, everything changed. All Japan’s overseas assets were gone, and the GHQ of the United States prohibited us from doing business outside of Japan, especially in the oil industry. We had to give up the upstream business. However, after the oil crisis, some Japanese oil companies such as Nippon Oil and Nippon Mining re-entered the overseas upstream business in earnest. Japan’s oil demand topped in 1999, and since then, we have entered the integration period. In 1999, Nippon Oil and Mitsubishi Oil merged, and in 2010, Nippon Oil Group and Nippon Mining Group integrated and formed the JX Group. Finally in 2017, JX Group merged with TonenGeneral Group, to form the present ENEOS Group. That is the history of our company and the history of the Japanese oil industry.

I would like to now tell you about the location of our business areas. We currently have a joint venture in the UAE and Qatar with Cosmo Oil, however, our main area of operations is Southeast Asia especially Vietnam, Malaysia and Indonesia, as well as Papua New Guinea. We also have some projects in the Gulf of Mexico and Texas in the USA. As I have mentioned earlier, we recently sold our UK assets in the North Sea. In the past we also had projects in Australia, Canada, and Brazil.

I would now like to tell you about the essence of our project in Vietnam. This project was started by Mitsubishi Oil in 1992. At that time, there were huge risks involved in starting this kind of project in Vietnam. However, Mitsubishi was very strong. They found a great oil field which has allowed the project to continue for more than 30 years. Our product sharing contract (PSC) with Vietnam will expire in 2025. We are now trying to extend this contract, or enter into a new agreement. We have a very good business relationship with the Vietnamese government and PetroVietnam, the national oil company, and we would like to keep this operation for as long as possible.

The next operation that I would like to explain for you is our operation in Malaysia. We acquired our working interest in Malaysia in 1987, and in 1990, we discovered gas reserves there. Initially we believed that the project was not going to be successful, as it was mostly gas, and only a small portion of oil. However, the Japanese government changed its power generation policies. They wanted to reduce the dependence on oil for power generation, and transition towards gas and coal. Gas companies in Japan at that time were very helpful in joining this project, and they entered into a long-term commitment to buy our gas. This led to our project in Malaysia being successful.


Japan is unique in its facing of the so-called four-fold challenge; a lack of domestic energy resources, high dependency on the Middle East, high overall energy costs, and a significant barrier to reducing greenhouse gas emission. How do you believe that Japan can overcome these challenges, and increase its energy independence?

Firstly, there is nothing that we can do to overcome Japan’s lack of domestic resources. The high dependence on the Middle East is also another very challenging matter. In the past, our dependence on the Middle East was at around 80% with the remaining 20% mainly coming from Southeast Asia. However, due to the economic development of that area, especially Malaysia and Indonesia, their capacity to export to us got lowered, and this is one of the reasons why our dependence on the Middle East increased. The Japanese government tried to reduce this dependence by giving Japan access to Russia, which led to a slight decrease in our dependency on the Middle East. However, in recent years, China has aggressively bought Russian oil and gas, and this has led to our dependence on the Middle East increasing to around 90%, which is an ongoing problem. There is no clear solution right now as to how we can lessen this dependency on the Middle East. The Japanese government is shifting from oil to gas, because there are more alternative choices for procuring gas rather than oil.


Can you tell us what your strategy has been to mitigate the impact of various events around the world, such as geopolitical issues, China's stagnation under zero-COVID strategy, the issue of Russia's invasion of Ukraine, etc.?

In my personal view, the overall risk is increasing in global society, so we shouldn’t depend on one solution or one initiative. Ideally, we have to look at the business in the long term, however, in the short term we have to be flexible to enable us to have multiple options when it comes to the procurement of oil and gas. This will allow us to quickly adapt if the situation changes.

Could you give us an overview of your CCS/CCUS initiatives and collaborations, as well as the other ways in which you are addressing sustainable development and increasing the yields of oil production in your projects?

We began CCUS project in Vietnam in 2011. It was our first project in Vietnam regarding CCS/CCUS, and it was the first pilot project of its kind. EOR (enhanced oil recovery) technology had actually been used for a long time, as it was started by EXXON in the 1970s. What was new about our operation was that we injected CO2 to increase crude oil production. In our pilot project in Vietnam, we tested to what degree we could increase oil production by injecting CO2. The characteristics of oil wells, as well as the geographic situation vary depending on each country, but as a result of the project, we knew that the COremained underground, which meant that we could store a certain amount of CO2 after injecting it. After obtaining the data from this project in Vietnam, we entered the Petra Nova project in the U.S. As I have mentioned, every oil well has different characteristics. The oil well in Texas is aging, which meant that initially we couldn’t increase the oil production there. However, after our findings in Vietnam, we injected CO₂, and this increased the amount of oil that came to the surface. We then repeated this cycle, which led to an increase in oil production from the well.

Going forward, especially when it comes to CCS/CCUS technology, we need to acquire the data to determine how much CO2 will remain underground. Once we obtain that data, we need to communicate with the local residents and explain our results to them. JAPEX is carrying out a similar project in Tomakomai in Hokkaido, but the size of their project is just one-tenth the size of our Petra Nova project in the U.S. However, it is important to obtain data. The Japanese government has started to focus on CCS/CCUS technology being integrated into the domestic market, and in May this year, they announced that large scale projects of this kind should be launched in Japan by 2030.

There is a strong need to reduce the carbon intensity of fossil fuel power generation.  CCS technology is one of the major ways in which this can be achieved. Other high carbon intensive industries such as the steel and cement industries need to reduce and eliminate their COemissions, or they will be unable to survive in the market.

There are no major oil fields around Japan. However, we know that we can accumulate and store CO2 in the seabed around Japan. By 2030, we would like to realize the storage of CO2 underwater, and by 2050, we would like to expand this business further. In order to carry out and expand CCS, we need to first recover CO2, then transport it, and finally store it. These are the three steps that are required.

I personally believe CO2 emitters should be the ones responsible for capturing CO2. They need to use their facilities to capture CO2 first. The second step pertains to transporting the CO2. I think that pipelines are the most cost-effective method, however, it is difficult to build this infrastructure in Japan due to the frequency of earthquakes. Therefore, we need to figure out a method to transport the CO2. The third step is storing the COunderground. The only companies who can do this are INPEX, JAPEX and our company.


Last year, Japanese government passed the strategic energy bill. They outlined their vision for the future of Japan’s energy breakdown as mostly being consolidated in renewables and announced plans to restart some nuclear power plants. What do you believe to be Japan’s ideal energy mix? Do you believe that 2050 is a realistic target for Japan to become a carbon neutral nation?

When it comes to the feasibility of Japan being carbon neutral by 2050, the government’s message has been that all sectors, including the energy producing companies as well as the energy consumers, have to make the utmost effort to achieve this goal. We have to strive to achieve that. Whether it is feasible or not, we first have to make all the efforts so that we can.

By 2050, the oil demand should be reduced by half. However, demand for oil as a feedstock for the chemical industry and other uses will continue. With regards to fuel sources, alternative energy sources are being explored. However, I think that the oil industry should be responsible for continuing to produce oil as a material for those industries and as a fuel in areas where it cannot be replaced. Electricity production from oil is foreseen to drop to 2% in the near future. However, we must continue to produce oil.


Can you tell us more about your strategy for international development? Are there any other markets besides Southeast Asia that you consider key?

We will keep our operations in the Middle East. As I mentioned earlier, we have our joint venture with Cosmo Oil in the UAE and Qatar, and we would like to continue that project while we will focus on Southeast Asia and Oceania.


What future projects are on the horizon?

We recently entered a joint study project with Pertamina, the national oil company of Indonesia, and we also entered a joint study project off the coast of Australia. And we are planning to do the same kind of joint study with Petronas, Malaysia’s state-owned oil company in the future.


We often hear about the importance of these kinds of collaborations especially in the energy field, to both understand the needs of the local market and to ensure a safe operation of your own activities. Can you tell us about the role that collaboration plays in your business?

In the upstream business, collaboration and relationships with national oil companies and governments are vital. In that sense, when it comes to our operations in Vietnam, we are very active in carrying out ESG activities, such as building schools. We have built 12 schools and hospitals so far, just in Vietnam. This is very important to us.


Mr. Nakahara, you were just named president in April 2022. Imagine that we came back five years from now and have this interview all over again. What would you like to tell us? What are your dreams for this company, and what goals would you have accomplished by then?

We have started allocating more resources to CCS/CCUS technology, and we have also been focused on research and joint studies. Five years from now, I would like to have launched a major project out of this research. That is my goal for the future.