x Abu Dhabi, UAETuesday 25 July 2017

Old partner Japan back as sun rises on new day for oil

Japan is once again in the Gulf signing oil concessions, but the terms will be less favourable than before, writes Tom Ashby.

Japan first became a partner for Gulf oil producers in the 1950s, when this region was just breaking the stranglehold of the western multinationals on oil revenues.

Taro Yamashita, a politically connected entrepreneur, managed to secure Japan's first concessions in Saudi Arabia and Kuwait by undercutting the majors.

It marked the first time Gulf oil producers would receive a majority stake in their own natural resources, and was a sign that the forces of history were moving against the "Seven Sisters" towards the creation of Opec.

The contracts turned out to be a boon for Japan, which used decades of relatively cheap oil to fuel a post-war economic miracle.

Fast-forward five decades and things have changed quite a bit.

Oil prices are above US$100 a barrel. These revenues are helping to transform the Gulf, but are acting as a brake on economic growth elsewhere. Even so, companies from the East and West are queueing up for the few foreign concessions still available in the world's most prolific petroleum basin.

BP, Royal Dutch Shell, ExxonMobil and Total have concessions expiring over the next few years and all appear keen to stay on, even though they receive just $1 (Dh3.67) for every barrel they produce. New players such as Statoil from Norway, OMV of Austria and Maersk of Denmark are all seeking to gain a foothold.

For Abu Dhabi, the choice of partners in its economic mainstay reflects a range of interests. The emirate benefits if the world's military powers have a shared interest in the security of its land and sea; its markets are made more secure by allowing customers to join in production; and its industry is kept at the cutting edge of technology by choosing partners with a history of innovation and technical success.

But with 98 billion barrels in its underground bank, enough for more than a century of production at current rates, the emirate is expected to drive a hard bargain.

Japan is once again back in the Gulf signing oil concessions, but the terms will be less favourable.

tashby@thenational.ae