Iraq is a powder keg just waiting to blow once the Allied Forces leave that place. Why invest in a powder keg?
Japan Seeks Oil Security in Iraq, Indonesia After Iran Setback
By Hector Forster
Oct. 27 (Bloomberg) -- Japan, dependent on imports for 99 percent of its oil and gas, may turn to Iraq and Indonesia after it lost control of Iran's biggest untapped field.
Prime Minister Shinzo Abe's government promised this week to invest in Iraq's shattered energy industry in the hope that Japan will be able to tap the world's third-largest oil reserves. State-controlled Inpex Holdings Inc. may spend $4.2 billion to develop the Abadi gas field off Indonesia.
Iran's decision to strip Inpex of its majority holding in the Azedegan field has jeopardized plans to acquire overseas assets capable of meeting 40 percent of Japan's oil demand within 25 years. The country is competing for reserves with China and India as they try to meet soaring energy demand, bidding up the cost of assets.
``The fields that Japanese companies are currently invested in won't meet the target,'' said Lalita Gupta, an oil analyst at Morgan Stanley in Tokyo. ``It's not enough to invest in the fields, just thinking about the 40 percent target and overpaying for assets, they must have shareholder value.''
Japan, the world's largest oil importer after the U.S, needs to strengthen ties with oil-producing nations and give financial aid to Japanese explorers for developing overseas projects, the Trade Ministry's draft proposal on energy policy said on May 29.
Japanese oil and gas companies including Nippon Oil Corp. hold licenses to explore and develop deposits in countries including the U.S., Libya, Vietnam, Papua New Guinea and Canada.
Japan's government is lending Iraq $3.5 billion to finance three projects in southern Iraq aimed at helping the conflict- stricken country boost exports.
The yen-denominated loan will finance the redevelopment and upgrade of a refinery in Basra, improvements to oil export infrastructure and a project to produce liquefied petroleum gas, Shin Hosaka, director of the oil and gas division at the Trade Ministry, told reporters in Tokyo on Oct. 24.
``We don't want to miss a boat that leads to vast oil reserves in Iraq,'' Hosaka said. ``The next promising source of oil is Iraq.''
AOC Holdings Inc., a Japanese oil explorer and refiner, said on June 2 it had proposed a $3 billion plan to Iraq to upgrade war-torn oil export terminals. Japan Petroleum Exploration Co., the country's second-biggest oil explorer, has a contract with Iraq's oil ministry to assess four oilfields.
Oil production in Iraq peaked in December 1979 at 3.7 million barrels a day, according to the U.S. Energy Department. Iraq is producing almost 2.5 million barrels a day, Oil Minister, Hussain al- Shahristani said this week. That's close to output before the March 2003 invasion by a U.S.-led coalition.
Iraq, where insurgents have attacked pipelines and oil export terminals, plans to boost production to 4.5 million barrels a day by 2010, he said in Tokyo this week.
Inpex plans to drill four appraisal wells at the Abadi natural gas field next year, aiming to start production in 2015. Inpex is studying processing options including turning the Indonesian field's output into liquefied natural gas, spokesman Kazuya Honda said on Oct. 18.
The Abadi field, situated in the Timor Sea, may hold between 7 trillion and 10 trillion cubic feet of gas, Andrew Andrejewskis, Australia's Northern Territory's director of petroleum developments, said last year. Japan consumed 2.86 trillion cubic feet of gas in 2006, according to BP's Statistical Review of World Energy.
Developing Abadi including turning the field's gas into LNG may cost 500 billion yen ($4.2 billion) including a liquefaction plant in Australia, the Nihon Keizai newspaper said on Oct. 18.
At the same time, Japan's largest gas investment to date is under threat. The Royal Dutch Shell Plc-led Sakhalin-2 liquefied natural gas and oil project has been delayed after Russian authorities questioned the development's cost increase to $20 billion and its environmental impact.
Shell, based in The Hague, owns 55 percent of the Sakhalin- project, the largest foreign investment in Russia. Japanese trading company Mitsui & Co. holds 25 percent. Mitsubishi Corp., Japan's biggest trading company, owns 20 percent of the venture. OAO Gazprom is in talks with Shell and the two Japanese companies about acquiring a stake in the project.
On Oct. 8, Iran slashed Inpex Holdings Inc.'s stakes in Azadegan oilfield to 10 percent from 75 percent because the Japanese company delayed developing the field. Inpex, which hadn't managed to arrange financing for the project, blamed uncleared minefields in the area.
Inpex's loss of operator rights at Azadegan may not be bad for shareholders, Morgan Stanley's Gupta said. The terms governing the development of the oilfield wasn't economically attractive, she said.
``Its important for companies to think of net profit, shareholder value and quality of assets,'' she said.