Japan is keen to back oil investments in the Caspian states of Azerbaijan and Kazakhstan as it tries to reduce its reliance on Middle Eastern countries, particularly Saudi Arabia, the UAE and to a lesser extent Iran, Japanese officials.
S&P Global Platts reports in its article Japan sees further potential in its Caspian oil investments that Japan also aims to avoid a sharp drop in imports from Iran and to seek some form of exemption from the renewed US sanctions against Tehran, the principal deputy director of the oil and gas division at Japan's ministry of economy, trade and industry (METI), Daisuke Hirota, told Platts on the sidelines of a conference in Baku.
Japanese state-controlled company JOGMEC signed a memorandum of understanding Wednesday on cooperating in oil exploration at "promising" blocks offshore Azerbaijan, which is home to one of the world's oldest oil industries. The agreement also covered technological cooperation and training, notably in enhanced oil recovery techniques.
Japan's Inpex holds stakes in Azerbaijan's flagship oil complex ACG (Azeri-Chirag-Deepwater Gunashli) and the BTC pipeline, and in Kazakhstan's giant Kashagan field. Japan's Itochu also holds a stake in ACG, Daisaku Hiraki, parliamentary vice-minister at METI, noted in a speech to the conference.
Projects such as ACG and Kashagan "are extremely important for Japan's energy security from the viewpoint of energy diversification," Hiraki told the event. "Japan has been strongly tied to the Caspian region... Much potential of natural resources still exists in the Caspian region."
In March, state-owned JOGMEC provided Inpex with Yen 60 billion ($550 million) to support expansion of Kazakhstan's Kashagan field, which came on stream in 2016 after much delay.
Caspian oil accounts for only a small share of Japan's imports. Around 28,000 b/d was imported from Kazakhstan last year, compared with much larger amounts from the Middle East, and 185,000 b/d from Russia, the latter being mainly light oil shipped from the Russian Far East, Hirota said.
But Caspian oil projects provide an element of energy security through potential swap arrangements in emergency situations, and further increases in production could help restrain prices for the region's relatively pricey crude, Hirota said.
"In emergency these kind of oil assets are very useful," he added.
Hirota noted that roughly 40% of Japan's crude imports come from Saudi Arabia and the UAE combined, while about 5% is from Iran.
On US sanctions against Iran, Hirota said Japan was seeking clarification from the US and played down the prospect of reducing Iranian crude imports, something the Petroleum Association of Japan has said could happen from October.
He noted Japan had an exemption from the US and EU-led sanctions regime earlier in the decade.
"We continued to import about 170,000 b/d from Iran and now we continue to import from Iran at this level," he told S&P Global Platts. "We think to continue to get the exemption from the US to keep this amount of imports from Iran."
"Japanese companies don't want to stop imports suddenly," he said, adding the US position needed clarifying.
"The situation in the US government is drastically changing every day," he said. "Now we are collecting information and keep in touch with the US government."
"We need to continue to keep imports, and to keep imports from Iran we need to get information and communication with the US government," he said.
Iran's relatively low-cost crude is valued by Japanese refiners partly because of its heavier quality, Hirota noted.
