Energy Division– Main Businesses & Vision –

Business Overview

Engaged in the oil and gas businesses where Sojitz has interests in the United States, the British North Sea, the Middle East and Africa; the LNG business in Indonesia and Qatar; and the nuclear power business, serving as the sole distribution agent in Japan for Areva NC of France.

【Main Products】

Oil, natural gas, LNG, petroleum products (gasoline, kerosene and light oil, heavy oil and asphalt, etc.)
Nuclear fuel cycle services and nuclear-related equipment

Oil and Gas

Block 1SE, offshore Qatar
Promoting regionally-well balanced acquisition and development of upstream oil and gas interests
Expanding import, export, offshore/domestic trading of petroleum products as part of our petroleum/gas logistics and trading business.
[Major Business Activities] Oil and Gas Business
[Major Business Activities] Energy Trading Business

LNG

An LNG carrier
We will expand the LNG business throughout Asia and the Middle East through our associated company, LNG Japan Corporation (Sojitz ownership: 50%), and develop LNG spot imports and offshore trading.
[Major Business Activities] LNG Business

Nuclear Power Projects

GB-II uranium enrichment plant in France
Offering nuclear fuel cycle and related services.
Providing sales and services for nuclear equipment and materials through e-Energy, a fully-owned Group subsidiary
[Major Business Activities] Nuclear Power & Utility Business

Business Overview and Vision

Securing energy resources and establishing a multi-faceted energy portfolio

Countries like Japan that lack their own energy resources must rely on supplies from other countries to meet economic and industrial needs. It is thus the Energy Division’s vital responsibility to secure sources of primary energy such as oil and gas, LNG and nuclear power and to establish a multi-faceted energy portfolio. In the oil and gas business, we have built a balanced portfolio of resource interests in regions including the United States, the British North Sea, the Middle East and Africa. In the LNG business, we are a pioneer in Indonesian LNG trading. In the nuclear power business, Sojitz participates in all aspects of the nuclear fuel cycle business in Japan as the sole distribution agent for France’s Areva NC, the world’s top integrated nuclear fuel company.

Strengths That Drive Value Creation

Solid position as a pioneer in the LNG sector

The Sojitz Group has secured a leading position in the LNG market since forging a deal in 1973 for the biggest LNG importing project between Japan and Indonesia; the Company currently handles approximately 6 million tons of Indonesian LNG per year. We have acquired many other LNG interests since then to build a business model that encompasses operations from development and transport to supply. We strive to offer a stable supply of energy on the strength of our extensive experience and widereaching networks.

As a general trading company, we have a variety of networks and business portfolios. Moreover, we have extensive experience in the energy business, from upstream to downstream operations. As a result, we have earned solid trust for contributing to the development of both supply and demand regions.

Operating Environment and Value Creation Strategy

The external environment remained very unclear during the year ended March 31, 2016. The Energy Division was unable to achieve its profit targets for the first year of Medium-term Management Plan 2017 due to the sudden drop in market prices. As we expect oversupply in the oil and gas markets to persist, we will continue working to shift to a business structure that is more resilient to the impact of market changes. To achieve this, we are placing priority on creating businesses with stable earnings by maximizing strengths cultivated in the LNG business.

Changing our perspective to set up two business networks: one for supply regions and one for consumer markets

We do not anticipate a sharp price upturn in the LNG market. While market conditions have deteriorated when seen from the perspective of suppliers, we think the decrease in fuel costs could provide opportunities for enduser markets. In addition, as their economies grow, emerging countries such as Indonesia are assuming the role of energy consumers as well as suppliers. For these countries, we can make the most of the strengths we have acquired through building value chains. We can create new value by offering them our expertise in supply systems that connect LNG receiving terminals to power plants, and in boosting efficiency, thereby branching out our business network. Also, for countries that rely solely on petroleum, we could offer new value by establishing the concept of energy security through the addition of an LNG portfolio. If we make full use of not only this division’s networks but also those of the entire Sojitz Group, we can increase business with other countries that are facing the same sort of problems with respect to building their energy portfolios. If we change our perspective, there are still plenty of opportunities to be found in the energy market. We therefore plan to proceed proactively.

Expanding the value chain to downstream business

Moreover, we think the LNG value chain itself could be developed further. We will pursue new opportunities in building a value chain that connects North America, which is a supply source, with Asia, which is a region of emerging demand. At the same time, we aim to create a supply structure that can meet demand in Asia by building a network linking it to South America, where the demand season is the opposite of Japan, and Europe, where the gas market is liquid.

We also have experience in handling helium, which is extracted as an associated gas during the LNG production process, and we recognize its rarity. In the history of energy, the industry structure and market prices have changed in response to the advent of alternative energy, such as when LNG first hit the market as an alternative to petroleum. As the second smallest molecule in existence, helium is establishing a presence in niche markets as a non-substitutable resource. The Energy Division is already involved in a helium manufacturing project in North America, and plans to launch a new business in this area in the future.

Future Initiatives

Changing our perspective to provide solutions that leverage energy’s infinite possibilities

The environment for energy resources will change going forward, but the demand for energy for economic growth will be ceaseless. Therefore, this division’s responsibility to supply energy to meet that demand remains unchanged. It is possible also to maintain a certain level of earnings in the future by providing services to end-user utilizing the infrastructure associated with receiving and distribution of energy in a demand region. We must therefore build a strong business portfolio with mid-and downstream businesses that will ensure stable earnings in addition to upstream business.

Al-Karkara Oil Field, offshore Qatar

Vesta, an LNG tanker partially owned by Group company LNG Japan Corporation

Furthermore, as the Energy Division of a general trading company, we should not limit ourselves to only one course of action. Changing our perspective can expand our opportunities. Instead of focusing only on energy, we also need to take note of the potential of energy handling technologies that we have accumulated. For example, the paint and coating removal technologies handled by Sojitz’s Nuclear Energy Department involve electromagnetic induction heating (IH). This method can be used for maintenance work on large bridges and other structures, as it offers advantages in terms of both cost and safety. It thus represents a new area for which market growth can be expected in the future.

In this market environment, it is important to develop human resources to enhance our communications capabilities by building an effective human network to complement the high level of management competence we have cultivated in our resource development activities. By changing our perspective and recognizing the new environment as an opportunity to transform our business model, we will endeavor to provide solutions for the many problems that exist today.

Opportunities

▶  Growing demand for energy in emerging countries
▶  Increasing diversification of domestic energy needs
▶  Expanding markets for LNG-related businesses due to growth in LNG supply and demand
▶  Shift to LNG and other clean energy amid increasing attention to environmental issues

Risks

▶  Market price fluctuations and possibility of impairment losses

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