Business | Oil & Gas
Japan follows Korea's path to Middle East oil security
Japan's plan to lease out some of its oil storage facilities to Saudi Arabia and secure longer-term supply deals show Tokyo taking a page out of Seoul's book on how to cut costs in its quest for energy security.
- Reuters
- Published: 00:00 May 1, 2007
Seoul, Singapore: Japan's plan to lease out some of its oil storage facilities to Saudi Arabia and secure longer-term supply deals show Tokyo taking a page out of Seoul's book on how to cut costs in its quest for energy security.
After decades of attempting to protect itself from oil supply disruptions by buying overseas fields or spending billions on government and industry stockpiles, Tokyo appears to be taking a new, more commercial tack in an increasingly competitive world.
On Japanese Prime Minister Shinzo Abe's weekend trip through the Middle East, the world's number-two crude importer proposed to rent out some of its oil storage tanks to Saudi Arabia, offering the kingdom better access to Asian markets while retaining the right to draw on the reserves during an emergency.
A day later, the Japan Bank for International Cooperation (JBIC) agreed to lend around $1 billion to state oil producer Abu Dhabi National Oil Co. (Adnoc), with a view to extending the term on import contracts to 10 years instead of the normal one year.
Both struck a chord in neighbouring South Korea, which has for years leased out state-run storage capacity to state oil firms from producer nations such as Algeria and Norway and, in 2004, agreed on a landmark 10-year supply deal with Kuwait.
"It will cut cost for Japan in many ways, in terms of cost of maintenance and securing energy reserves, and Japan will also make profit out of renting out the space," Park Il-bum, director of the joint storage business division of state-owned Korea National Oil Corp. (KNOC), said.
Japan depends on the Middle East for nearly 90 per cent of its crude oil, and have expressed worries about rising competition for oil from rapidly growing China and India.
Country holds over 320m barrels in inventories
Japan holds more than 320 million barrels of crude in its stockpiles, a fifth of the world's emergency government reserves. But with domestic demand shrinking, it is required to hold 90 days worth of imports, giving it spare tank capacity.- China, which is halfway finished building its first 100 million barrel set of state-owned stocks, has mooted the idea of using Saudi crude to fill the reserves, but have instead leased out the tanks to state oil firms for commercial use.- Under the Abu Dhabi deal, JBIC will extend the low-interest loans through a syndicate with other Japanese banks, while Adnoc will enter a long-term supply contract with Japanese oil companies, possibly as long as 10 years, Japanese daily Asahi Shimbun reported at the weekend.
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