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Cosmo targets right energy balance

Interview - September 12, 2016

Keizo Morikawa, the head of Japan’s Cosmo Energy Holdings Co. Ltd., explains how the company has its sights set on becoming a vertically integrated global energy company and striking the right balance between its upstream and downstream activities, as well as getting involved in wind power as a prime area for developing today’s and tomorrow’s energy generation.



What do you think has been the impact of Abenomics on your industry and on your business?

After the 20 years of economic recession, I think Abenomics was an effective solution. Without Abenomics, I believe the recession would have continued.

The previous policy has been emphasizing the results more than the opportunity. Right now, Abenomics has been distributing opportunities from small to big companies so they can grow as a whole. In terms of that, I believe Abenomics is a very good policy.

In terms of the energy sector, Abenomics has initialized the industrial competitiveness enhancement act. The Japanese government conducts operational reforms with fields that have excessive competition, and the oil industry was pointed out at first. Laws were made, we had to refine the overcapacity, and that has greatly affected our sector. The excess in production capacity has not entirely been demolished, but there will be capacity cuts implemented by March 2017. So I think that this has a good impact.


Your fifth mid-term management plan has been revised to enhance competitiveness. Could you outline the key aspects of the revised management plan, and update us on where Cosmo Energy now stands in terms of reaching those revised objectives?

The reforms that we have done in the fuel sector were very hard for the company. While thinking about the decrease of the fuel demand in Japan, we needed to imagine a new strategy for the company as well. There have been all these energy saving, fuel saving cars coming out. So we had to think about how we are going to compete with that. But if we look at foreign countries, fuel demand is still increasing compared to Japan. The main policy that we changed is to be going global. I believe that is definitively the key to the future and to adapt to this shift.

We are aiming to become a vertically integrated global energy company. At the core of our business is the fuel business; but thinking about the upstream sector, refining and also the marketing, we need to balance all these together in order to produce a good profit for the company as well. Of course, the demand in oil is decreasing in Japan, but we are working on developing crude oil exploration and production in Abu Dhabi and Qatar, which is the first pillar of our growth strategy.

Secondly, we are not only selling fuel, we also want to work in various fields. For this reason, we provide our customers with our total car business; dealing with car insurance, maintenance and car washing, tire changing, etc. All these things come together to create a total solution and we are planning to make a good profit out of it, while at the same time providing an essential 360° service to our clients. Since we have about 3,000 gasoline stations in Japan, we cannot just provide fuel, we also have to deal in car washing and maintenance services as well. From that idea, if you look at the Japanese industry now, there is not much car leasing business toward individual customers. Targeting the senior and also women drivers mainly, we wanted to offer that service to those specific groups.

In addition, there is another growth strategy of our company, and that is in wind power energy. It is of course environmentally friendly and energy saving. It also has to do with adapting to the environment, by law. There has been a feed in tariff, F-I-T, so we figured that this wind power energy business not only gets us profit, but also it is very friendly for the environment as well.


Focusing on this wind energy, of course we expect from a huge energy company like yours to create the energy of the future. Could you explain why is it so important for you to contribute to society in this way?

In terms of the fuel sector, it is true that the fuel sector is responsible with polluting the sky, the sea and the land, as well as the air and the water. It is the destiny of the fuel company. But on the other hand, it is also offering an indispensable service, such as providing convenience and comfort to people. We need this fuel sector in order for people to live in the society of today. That is why our policy, our main goal, is to decrease the negative aspects as much as possible.

We have been trying to offer and contribute to society and the environment for a long period. For example, we have the wind power energy business that is one solution to the C02 issue. We also conduct “Cosmo Earth conscious activities”, and picking up rubbish with our customers so that we can share awareness of environmental conservation.

Furthermore, we also conduct foreign environmental conservation. For example, we contribute to the Solomon Islands with the NPO, not only paying them but also in order to offer them to make rice instead of burning the lands to harm the environment. I have personally been there twice to the Soloman Islands. Of course, there are so many other activities that we do as a company to help the environment.


Could you tell us a bit more, to reassure investors, that the oil industry is prepared for the future and can adapt to this global shift? What is the situation of the oil industry today?

In the Japanese fuel industry, the products are almost the same and there are hardly any variations between them. They could be produced in the US or Japan; it would not matter, which is why the level of competition is very intense in the fuel sector. There are primary distributors. There are also the sub dealers in Japan. Because of that, there are so many gas stations in Japan, all over Japan, but I believe it needs to be decreased in order for us to have proper profit. We have been working on it and the number of refiners will be decreased in Japan from five to three. The problems the fuel companies are facing are the excessive manufacturing, excessive products and excessive gas stations.


As you said, it is a fiercely competitive world. Everywhere, countries are trying to reinvent themselves to find adapted responses to future needs. We know you are developing partnerships, joint ventures, to enhance your competitiveness, but why should potential investors choose Cosmo?

There are upstream and downstream reasons. The major solution I think is to balance both. Of course, for example, when the crude oil price is up, the upstream gets the profit and the downstream will go through a hard time, and vice versa. So, like I said before, the balance is very important. Currently, the downstream gets huge profits at the moment. It is important for us to adjust those profits, in both sectors.

We are already working on it. We are developing the Hail Oil Field in Abu Dhabi, a new concession area, and production is expected to start in the first half of 2017; after that we can increase profits in upstream, so they are comparable to downstream profits. And if we balance those two, upstream and downstream, we will make good profit and also stabilize our manufacturing service and the sales price as well. Take ExxonMobil for example; it is impressive to think about how they are trying to become more internationalized.


What final message would you like to send to our US and global readers?

Of course the Japanese are famous for the unique traditions and unique values. But it is very hard to understand those characteristics. I want to emphasize that Japan has very clean, very beautiful infrastructure and roads. If you look at the city, it is very beautiful with a lot of green landscapes, since we live on an island. We have four seasons, and very unique natural beauty.

Of course, there are stereotypes that the Japanese are very shy and very inward, but that doesn't apply to the younger generation; and on the other hand, Japanese are well mannered and polite. Also, we have this flamboyant side to us as well. I want people to discover that by talking and communicating. Of course, as politicians and CEOs, we don't sell individuality, so a lot of people think we are too shy. But, for example, Mr Abe is a challenger and Mr Amari was very aggressive in the TPP negotiations. We do have our shy side, but I'd like people to know that we also have this outgoing, very globally minded perspective as well.