ENEOS to reach 2023 renewables target with Japan Renewable Energy deal

Japan's ENEOS Holdings is splashing out nearly $2 billion to acquire a compatriot renewable energy project developer, a deal that would help the country's largest oil firm reach its renewable target earlier than scheduled.

The Tokyo-listed company 11 October agreed to acquire Tokyo-based Japan Renewable Energy (JRE) for ¥200 billion ($1.76 billion) from US investment bank Goldman Sachs and Singaporean sovereign wealth fund GIC.

"ENEOS aims to become a leading renewable energy company in Japan by combining JRE's development capabilities in the renewable energy business with expertise that ENEOS has accumulated as an energy company," the company said in a statement.

JRE, 75% of which is owned by Goldman Sachs and 25% by GIC, had renewable assets totaling 877 MW as of 30 September in the solar, onshore wind, and biomass sectors in Japan and Taiwan. These included 419 MW that is operational and 458 MW under construction.

With a target to achieve carbon neutrality by 2040, ENEOS was planning to expand its total renewable power generation capacity to more than 1 GW by the end of fiscal 2022, or 31 March 2023. The company's capacity is expected to exceed 1.22 GW when the JRE transaction is completed in January.

"While maximizing cash flow from its core businesses, including petroleum refining and marketing, the group is driving strategic investment in growing businesses," ENEOS said.

In its last Medium-Term Management Plan, unveiled in May 2020, ENEOS said it planned to spend ¥620 billion on domestic and overseas renewable projects, diversifying energy generation sources, and new business development between FY 2020 and FY 2022.

JRE, which will become a wholly owned subsidiary of ENEOS, said it expects to further accelerate its expansion by leveraging its new owner's knowledge and networks in the energy industry.

ENEOS' net assets reached ¥39.7 billion as of 31 December. It recorded a net loss of ¥156 million in 2018, profit of ¥251 million in 2019, and loss of ¥912 million in 2020. It expects the transaction to have minimal impact on its FY 2021 results.

Green push

With domestic oil demand falling and the central government honing in on decarbonization, Japanese oil firms are seeking to develop low-carbon operations and expand their renewable businesses.

Analysts widely expect Japan—the world's fifth-largest oil consumer and in many years the largest LNG importer—to face a long-term, irreversible decline in domestic petroleum consumption due to a shrinking population and the transition to a low-carbon economy.

According to data from the US Energy Information Administration, Japanese oil demand has already fallen by more than 2 million barrels per day (b/d) after hitting an all-time high of 5.74 million b/d in 1996.

The Petroleum Association of Japan (PAJ), a trade body representing Japanese oil refiners, has suggested that its members' future lies in hydrogen, synthetic fuels, and carbon capture and storage (CCS) technology.

In a presentation in March, PAJ chairman Sugimori Tsutomu said new technologies will help realize the goal of carbon neutrality in 2050.

"We will work on innovative technology development and shift the products we produce to carbon-neutral products," said Tsutomu, who is also chairman and chief executive of ENEOS. "We will contribute to the realization of carbon neutrality in society as a whole by reducing the carbon content of the products we supply."

Idemitsu Kosan, Japan' second-largest oil refiner, in May established targets to reduce its Scope 1 and 2 CO2 emissions by 4 million metric tons (mt) by FY 2030 relative to FY 2017 levels of 13.6 million mt, and to achieve carbon neutrality by FY 2050.

The company said it would shift to using more green energy for its plant and offshore operations, expand biofuel supplies, develop CCS projects, and increase its renewables capacity from 200 MW in 2019 to 4 GW in 2030.

Those pledges came after the Japanese government set a goal of reducing nationwide GHG emissions by 46% from 2013 levels before 2030 and reaching carbon neutrality by 2050.

Tokyo wants renewable energy to account for 36-38% of Japan's electricity mix in 2030, compared with 18% as of 31 March 2020.

Leading its peers

Before the JRE deal, ENEOS had 18 solar power plants in development with a total capacity of 46 MW, two onshore wind plants totaling 4 MW, and biomass power plants totaling 68 MW across Japan. It also holds a 6.75% stake in the Yunneng 640-MW offshore wind farm off Yunlin, Taiwan.

The company, born of the merger between JX Nippon Oil and Energy and TonenGeneral in 2017, is Japan's largest oil refiner and fuel seller. It will become one of the largest Japanese renewable power generators following the acquisition.

In June, ENEOS won the rights to develop a 16.8-MW floating wind project off Goto City in Nagasaki Prefecture in a government auction via a joint bid with Toda, Osaka Gas, Kansai Electric Power, INPEX, and Chubu Electric Power.

The company in July signed an agreement with French engineering firm BW Ideol to develop a site-specific, commercial-scale floating offshore wind farm in Japanese waters. The two firms did not specify the site location, but said the project will use floating barge technology patented by BW Ideol, part of the Singapore-headquartered BW Group.

ENEOS said it plans to develop a green hydrogen business with the renewable power capacity it is amassing.

"ENEOS will establish a system that stably and efficiently supplies CO2-free electricity to customers by combining fluctuating renewable energy power supplies with an energy management system that optimally controls electricity by utilizing battery storage and electric vehicles," the company said.

"As CO2-free electricity will play a key role in the production of CO2-free hydrogen, this initiative will contribute to the development of a CO2-free hydrogen supply chain, which ENEOS is currently pursuing," it added.

IHS Markit figures show ENEOS operated 45 hydrogen refueling sites in Japan as of the end of 2020. ENEOS has been studying on how to transport hydrogen produced overseas to Japan, including using methylcyclohexane as a hydrogen carrier.

In August, the company signed a memorandum with Origin Energy to look into the potential for producing green hydrogen via electrolysis in Queensland but did not disclose capacity details.

"This will be achieved by utilizing Australia's excellent potential for cost-competitive hydrogen production due to its favorable climate conditions, including wind and sunlight, and expansive land," ENEOS said.

Outside of Japan, a wide range of alliances in Australia, the Middle East, and Asia are being utilized to realize large-scale supplies of cost-competitive hydrogen, it added.

Posted 13 October 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability