Sumitomo Corp, Nissho Iwai plan to form LNG alliance
Sumitomo Corp, Nissho Iwai plan to form LNG alliance
TOKYO (Reuters): Japanese trading houses Sumitomo Corp and
Nissho Iwai Corp on Wednesday announced an alliance in the
liquefied natural gas (LNG) business in a bid to tackle
heightened global competition.
The firms said they will set up an equally owned LNG joint
venture, whose capital has not yet been decided, on October 1.
"The importance of the LNG business is growing, and projects
are becoming bigger in scale. It is difficult for us to undertake
these by ourselves," Shiro Yasutake, president and chief
executive officer of Nissho Iwai, told a news conference.
It has become harder to compete with foreign oil giants for
stakes in overseas LNG projects, he said.
The move is the latest in a series involving Japan's trading
houses, which are known for handling wide-ranging merchandise
from noodles to satellites.
With more Japanese manufacturers venturing out on their own to
procure goods, trading houses have found their once-cosy role as
international middlemen undercut, forcing them to undertake
drastic restructuring in the face of global competition.
Since the bursting of Japan's asset-inflated bubble economy in
the early 1990s, trading houses have seen their profit margins
plummet, with sluggish consumer spending and deflationary
pressure taking a bite out of sales.
Nissho Iwai has stakes in LNG projects in Indonesia and Qatar,
but the alliance would mark Sumitomo's first entry into the LNG
business, company officials said.
Nissho Iwai is the second largest LNG supplier in Japan,
having a market share of about 27 percent, second only to
Mitsubishi Corp It imports LNG and sells it to Japan's power and
gas utilities.
Nissho Iwai has been supplying about 15 million tons of LNG
annually to power and gas utilities in Japan, the world's largest
LNG importer.
About 100 employees from Nissho Iwai and 10 from Sumitomo Corp
will be transferred to the new venture, company officials said.
Sumitomo Corp's executive vice president, Naoki Kuroda, said
the new firm will be seeking stakes in overseas LNG projects.
Nissho Iwai's LNG sales for the year ended in March amounted
to about 469 billion yen ($3.82 billion).
Industry sources said LNG demand in Asia is set to grow
because the fuel emits relatively low amounts of carbon dioxide,
which is believed to contribute to global warming.
Slowing economies in Asia have also earnings of Japan's giant
trading houses, adding to the woes of an industry that is
painfully exposed to Japan's slumping property market and
buckling under the weight of excessive diversification.