Japan’s biggest refiner Eneos on acquisition trail despite yen fall

Eneos is on the hunt for acquisitions in renewable energy despite the yen’s plunge as Japan’s largest oil group pledged that Russia’s invasion of Ukraine and the global energy crisis would not reverse its costly shift away from fossil fuels.

Eneos president Takeshi Saito said in an interview with the Financial Times that Europe’s U-turn in coal policy following the cut-off of Russian gas underscored the need for a more practical approach to the green transition.

“Europe had said no to coal [before the Ukraine war] but now Germany is burning it so they’re basically being opportunistic,” said Saito, acknowledging the need for countries to prioritise energy security.

“We believe there will be no change in the decarbonisation shift, but it’s a matter of whether a realistic approach will be taken or a dramatic transition is made. As things stand now, Europe is starting to think that it may be problematic to push ahead too rapidly,” he added.

In order for Japan to take a bigger role in the path to net zero, Saito said companies had to develop advanced technology for hydrogen and carbon capture and storage. “I’m concerned if Japan has that technology edge,” he added.

Eneos, which is worth $10.6bn, has spent the past 130 years selling fossil fuels. But since taking over as president in April, Saito has called for “the second founding of the company” by accelerating a shift towards cleaner sources of energy. Part of that transition also involves the group’s decision in March to stop purchasing crude oil from Russia.

The strategic shift by Eneos echoes ambitious strategies laid out by its European rivals such as BP and Shell, and to a lesser extent Chevron and Exxon in the US, to become green businesses but critics have said the world’s largest oil and gas companies are still spending only a fraction of their capital on renewable energy.

The yen’s fall to a 32-year low has made overseas acquisitions expensive for Japanese companies, but Saito said Eneos was still searching for deals to create new businesses that can serve as “a bridge” until it achieved carbon neutrality.

“With the weaker yen, we need to pay 50 per cent more than usual so it’s not an environment for merger and acquisitions. But we want to become Asia’s number one energy company . . . so we will push ahead as long as we have financial strength,” Saito said.

He pointed to potential areas such as Australia, south-east Asia and the Middle East to manufacture solar and other renewables, as well as hydrogen.

In Japan, Eneos has aggressively expanded the number of solar power plants and hydrogen stations, while announcing a plan to shut down one of its refineries in western Japan and offloading all of its British oil assets in anticipation of a declining demand for petrol.

The group has already spent about half of its ¥400bn ($2.8bn) M&A war chest for green transition to buy renewable energy start-up Japan Renewable Energy from Goldman Sachs in January.

But analysts had questioned the high acquisition price given that JRE only has ¥22bn of annual sales.

“In order to achieve our vision, we had to push into the renewable energy business but in reality, we weren’t doing much so we bought time,” Saito said. He revealed that the company had posted a ¥3bn writedown on two of the JRE windpower projects during the April to June quarter because of protests from local residents to setting up wind towers.

Eneos is one of Japan’s most aggressive energy companies in hydrogen and new technologies, but Daiwa analyst Shusaku Nishikawa said investors are unable to bet on its green transition due to the still large presence of its traditional oil business.

“The market has not highly evaluated the company’s efforts [in renewables and hydrogen.] That is because they can’t do so, as its stock price is greatly influenced by daily oil price and profit for oil refining,” he added.