Japanese refiners plan to sell assets and speed structural reform and overseas expansion as fuel demand is expected to fall at a faster pace due to a prolonged impact from the COVID-19 pandemic and an accelerating global decarbonisation trend.
The dual headwinds of the pandemic and stronger pressure to cut carbon dioxide have forced Japan's top refiner Eneos Holdings (5020.T) and second-ranked Idemitsu Kosan (5019.T) to downgrade their profit goals for the three years to March 2023.
"There has been a significant environmental change since 2019, with the unprecedented coronavirus crisis, green recovery and Japan's declaration of becoming carbon neutral," Idemitsu President Shunichi Kito told a news conference last week after the company released its earnings.
"We have taken a much harder look at future scenario," he said, pointing to the revised estimate of domestic fossil fuel demand contracting 30% by 2030 from 2019 levels, instead of its 2019 assumption of 20%.
To get funds to realign its portfolio and trim CO2 emissions, Eneos will exit coal mining by selling stakes in mines in Canada and Australia, and scale down its upstream oil assets. Idemitsu said it will also downsize its coal assets by cutting out investments in new projects.
The two energy companies will also accelerate structural reform, they said, shifting away from coal and oil to renewable energy and cleaner fuels such as hydrogen, while beefing up their overseas operations in Asia.
The moves are similar to those of global energy majors such as Royal Dutch Shell (RDSa.L). Shell has said it plans to curb its emissions through the rapid growth of its low-carbon businesses, including biofuels and hydrogen. read more
"Our goal is to provide clean energy through a new energy management system using renewable energy with storage battery and electric vehicles (EVs), and to supply CO2-free hydrogen and synthetic fuels using cheaper renewable power to be generated abroad," Eneos President Katsuyuki Ota said last week.
Idemitsu will focus on low-carbon fuels such as ammonia and plant-derived black pellets - advanced wood pellets that can be used in place of coal - while expanding renewable energy projects, including geothermal and biomass.
Idemitsu also aims to turn its refineries into bases to recycle solar panels, make lithium battery materials and import and store ammonia.
Under its 2050 vision, renewable energy, clean fuels, ultra-compact EVs and advanced materials like lithium solid electrolytes will make up the majority of its business portfolio, Kito said.
To seek growth overseas, Eneos may raise its stake in Vietnam National Petroleum Group (Petrolimex) (PLX.HM), while Idemitsu will expand natural gas development in Southeast Asia, such as in Vietnam where it operates the Nghi Son refinery.
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