Japan’s biggest oil refiner Nippon Mitsubishi Oil Corp announced yesterday a 50-50 joint venture with Teikoku Oil Co Ltd, taking its first formal step into the potentially lucrative natural gas sales business.
The 100 million yen ($885,800) venture, to be formed next April, marks the first time a Japanese oil refiner or distributor has entered the natural gas retail market since the government partially deregulated the retail gas sector in November 1999.
Demand for natural gas, environmentally cleaner and less expensive than crude, is expected to grow as regional power producers face pressure to cut pollutant emissions and firm crude prices force Asian oil consuming nations to consider natural gas.
Yesterday’s deal was born out of a broad alliance announced last February under which Nippon Mitsubishi became the top shareholder of Teikoku Oil, one of Japan’s few oil and natural gas producers, with a 16.47 percent stake.
News of the venture lifted shares in both companies. Nippon Mitsubishi closed up 5.4 percent at 566 yen, while Teikoku Oil finished 12.44 percent higher at 497 yen, the day’s high.
Both stocks have vastly outperformed the Tokyo market this year. Nippon Mitsubishi has jumped 23 percent in calendar 2000, while Teikoku Oil is up a hefty 57 percent, compared to a drop of 27 percent in the benchmark Nikkei average over the same period.
Some analysts say the strong performance partly reflects the view that the worst may be over for Japan’s oil industry, which has been suffering from poor profit margins, over capacity and a surge this year in global crude prices that battered earnings.
Crude oil prices have slumped recently, losing about 30 per cent in the past month alone, and many Japanese oil companies that have been pruning costs to stay competitive are expected to report steady profit growth this year.
Nippon Mitsubishi said in November it expects to chalk up a group current profit of 55.00 billion yen ($487 million) in 2000/01, a rise of about 65 per cent from last year.
The venture will use Teikoku Oil’s pipeline to supply natural gas to large-lot Japanese end-users such as hospitals and shopping centres, the two companies said in a statement.
It will also sell cogeneration equipment used to produce electricity and steam energy from a single fuel source.
Nippon Mitsubishi has been aggressively broadening its business base since it was born from a merger of two firms in April 1999.
“We see ourselves as a comprehensive energy company, and although oil is our main business we are involved in LPG, coal and LNG, as well as the sales of electricity,” Isao Kakefuda, Nippon Mitsubishi vice president, said.
Japan is the world’s largest importer of liquefied natural gas (LNG). Its LNG imports rose 5.1 per cent in 1999, up from rises of 3.9 percent and 2.9 percent reported in 1998 and 1997.
The aggregate LNG demand of Japanese gas utilities is projected to grow at 5.0 percent a year until 2005 from 2000.
Kakefuda said he could not yet provide a sales target figure for the new company, which will be capitalised at 50 million yen with 50 million yen in reserve funds.
February’s alliance called for Nippon Mitsubishi to buy new shares in Teikoku Oil, raising its stake to 16.47 per cent, and included plans for cooperation in the natural gas sector.
Since then, the Nippon Mitsubishi group and Teikoku Oil have agreed to undertake a joint exploration project in the US Gulf of Mexico.
Teikoku Oil has also decided to invest in two gas exploration projects conducted by the Nippon Mitsubishi group in the Malaysian state of Sarawak. – AFP
©--Agence France Presse.
