Energy Deals With Japan

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During a recent trade delegation to Japan, the Abu Dhabi National Oil Co (ADNOC) signed a $3bn loan deal with the Japan Bank for International Cooperation (JBIC). The loan will be used to build infrastructure to boost crude oil output and fund oil exploration studies. This deal is the first solid agreement since the two organisations signed a strategic partnership this spring in an attempt to further bilateral relationships in the energy sector.

JBIC, a state-owned bank, raised the money from local financial institutions, with an estimated one third coming from Mizuho Financial Group. The loan to ADNOC has been described as an advance payment for crude oil sales to Japanese oil firms. Japan is the world's third largest consumer of oil after the United States and China.

Abu Dhabi and Japan have enjoyed good economic relations for many years. The MoU signed in April aimed to increase opportunities for business development between ADNOC and Japanese companies in the oil and gas sector. According to a press release the agreement "will strengthen the relationship not only between JBIC and ADNOC but also between Japan and the UAE."

The emirate is a key partner in Japan's energy landscape; oil purchases from the United Arab Emirates (UAE) accounted for 25% of Japan's total imports in 2006 and the UAE was the largest supplier of oil from 1984 to 2004, with Saudi Arabia taking over the lead position in 2005. Analysts believe that Japan is striving to secure its sources of oil as China and India continue to compete for energy supplies to fuel their economic growth.

Hidetoshi Shioda, a senior energy analyst at Mizuho Securities, told international press, "With the UAE's oil structured into the loan, crude supplies to Japan are more assured [...] It also benefits the UAE, as Japan will take steady supply for a longer period of time."

Abu Dhabi firms are now investing in the Japanese energy sector to reaffirm their presence in the market. Abu Dhabi's International Petroleum Investment Company (IPIC) bought a 20% share of the fourth-largest Japanese refiner Cosmo Oil for $776m on October 5, becoming the company's largest shareholder.

Cosmo has also entered into a strategic alliance with Masdar, the Abu Dhabi government initiative dedicated to developing clean and sustainable energy solutions. The contract signed between Cosmo, Masdar and the Tokyo Institute of Technology aims to research and develop 'beam down' technology, a design that improves the efficiency of solar towers.

The Masdar Research Network, the international research and development arm of Masdar, will oversee the project. Solar thermal technology is a key area of study for the network and the agreement stipulates that a beam-down pilot plant will be built in Abu Dhabi by the end of 2008.

Commenting on the agreement, Yaichi Kimura, president of Cosmo, said solar energy had the potential to play a major role in the company's non-oil business.

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