Japan's oil refiners reduce decarbonisation and refocus on fossils fuels

Japanese oil companies have scaled back their decarbonisation projects, including ammonia and hydrogen, as the world shifts towards fossil fuels that are more cost-effective and stable.

This move is a reflection of the growing concerns about energy security and U.S. policies risks. It also reflects rising costs for materials due to inflation. All these factors undermine project profitability.

Companies that had reoriented portfolios in order to combat climate change, are now refocusing their attention on oil and natural gas. The returns from these fuels have increased since the price of fossil fuels has recovered from its pandemic lows.

Tomohide Miyata, CEO of Eneos Holdings, said at a press conference held this week that the trend towards a carbon-neutral world is slowing down. The full-scale division of the energy transformation, which was previously anticipated around 2030, could be delayed.

Miyata said that Japan's largest refiner has no plans to invest in capital projects due to the rising costs.

Eneos has removed its old target to supply up to 4,000,000 metric tons by March 2028 from its new business strategy for the next three years.

Miyata stated that the importance of stable, affordable energy sources, such as oil, is increasing due to the cost of decarbonisation. The company will increase its investment in liquefied gas.

Idemitsu, Japan's second largest refiner, has cut its decarbonisation plans. Its budget for initiatives like hydrogen, ammonia and synthetic fuels will be reduced from 6.99 billion yen to 800 billion yen from fiscal 2023 until 2030, said Noriaki Sakai this week.

He said: "We feel that the pace of decarbonisation has slowed... we believe it's necessary to take a flexible stance in terms of the timeline and the path to achieve a carbon-neutral world by 2050."

These remarks from Japanese oil executives are some of the most explicit ones to date in acknowledging the global slowdown on low-carbon solutions.

BP redesigned its strategy in February to reduce spending on renewables, lower-carbon solutions and increase annual oil and natural gas expenditures. Equinor, a Norwegian company, has scrapped its target of investing in renewables and carbon-free solutions by 2030.

Executives from fossil fuel companies and renewable energy companies argued that the term "energy transition" should be replaced by "energy addition".

(source: Reuters)