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The Daily Yomiuri Osaka, Japan) The Battle for Resources

Tuesday 3 April 2007

ECONOMIC FORUM / Energy strategy needs rethink / Battle to secure sufficient oil supplies requires new initiatives

By Yoshikuni Sugiyama

A series of articles titled “Shigen Sodatsu” (The Battle for Resources) that has been carried by The Yomiuri Shimbun on its business pages from January hogged the limelight on March 2, when the House of Councillors Budget Committee brought up contents highlighted in the series.

With the price of crude oil lingering at a high level and oil producing countries trying to corral their resources, the articles explored ways for Japan to come up with new energy strategies.

To secure stable energy supplies, Japan, which imports 99.6 percent of its crude oil, has to obtain energy rights overseas, but it has already lost some of the rights it once owned and is losing ground to China in the competition for energy.

The series portrays Japan as being driven into a corner.

China, which has become a net importer of crude oil, is making every effort to obtain energy to fuel its economic growth.

According to a Yomiuri Shimbun survey, since making inroads into Africa in 1995, China has secured 29 oil field-development contracts in 15 African countries. In contrast, Japan has lost its overseas oil field development rights one by one.

In February 2000, Japan was unable to renew a contract with Saudi Arabia over the development rights in the Khafji oil field straddling the border between Kuwait and Saudi Arabia.

Japan’s 75 percent development rights in Iran’s Azadegan oil field was cut to 10 percent in October.

The Russian government, meanwhile, is showing signs of corralling its energy resources in connection with Sakhalin-2, the largest resource development project in the world. The Russian government has succeeded in forcing investors Royal Dutch Shell, Mitsui & Co. and Mitsubishi Corp. to hand over their controlling stake in the Sakhalin-2 project.

The government’s lack of a comprehensive energy policy is behind these setbacks.

In the 1970s when crises caused oil prices to skyrocket, securing stable oil supplies were a categorical imperative. But when oil prices plunged to about 10 dollars per barrel in the early 1990s, the government changed its policy, saying it was not necessary to use funds to buy energy rights, as the government could buy oil off the international market.

The Economy, Trade and Industry Ministry and the Agency for Natural Resources and Energy, which are tasked with devising energy policies, made an about face.

Market fundamentalism has guided the government’s hand since the 1990s under the belief that the economy should be left to market forces. Energy diplomacy also reflected this course. But setbacks that have resulted from drifting energy strategies have been enormous.

To secure stable energy supplies, the government has to make securing energy the cornerstone of its national strategy.

It should bear in mind that oil producing countries can control supply for political motives and that oil cannot always be freely purchased on the market.

Just as major European and U.S. oil companies have played a key role in obtaining energy, Japan’s private oil firms and trading houses also are expected to play a similar role, but the government should build up an environment to help them.

Last spring, the government mapped out a new national energy strategy to revive this goal of independent oil development, raising the ratio of such development to 40 percent–a target higher than that set in the 1990s.

With the current independent oil development ratio at only 15 percent, the government needs comprehensive measures to attain the 40 percent goal.

Referring to the Yomiuri Shimbun articles, upper house member Tokio Kano called on the government at the Diet to strategically adopt energy and resources diplomacy.

Chief Cabinet Secretary Yasuhisa Shiozaki said there had been suggestions that the Prime Minister’s Office should play a leading role in mapping out energy security.

“We’ll make in-depth studies on the matter,” he said.

The government needs to devise sound energy strategies as soon as possible.

Sugiyama is economic news editor of The Yomiuri Shimbun.

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