INTERVIEW: ENEOS Holdings explores oil, LNG assets as it scales back hydrogen plans

Japan's ENEOS Holdings is exploring acquisitions of oil assets worth around $1 billion overseas, along with upstream-to-downstream LNG assets over the next three years, while scaling back its hydrogen supply plans, a top official told Platts, part of S&P Global Commodity Insights.

"This is a return to the fundamentals of our latest mid-term management plan, focusing on the energy and materials sectors where we excel," Ryuta Hayashi, operating officer and general manager of the Corporate Planning Department, said in an interview at the head office in Tokyo on July 1.

"Our primary business has traditionally been oil refining and sales, and while we have not ventured overseas before, the reorganization of the domestic industry is nearly complete," said Hayashi, who is also chief of staff. "Therefore, we believe we can now turn our attention to overseas markets."

"Of course, we will consider geopolitical risks when selecting regions, but we are looking at areas with relatively stable demand as we expand our oil products business globally, including strengthening our trading operations," he said.

"The Asia-Pacific region is certainly where we are currently active, and it is also a destination for our [oil products] exports, so it is a key area we are considering," he added.

The move comes as ENEOS Holdings has earmarked Yen 500 billion-1 trillion ($3.48 billion-$6.95 billion) for selective investments -- including M&A and additional returns -- over the three years ending fiscal year 2027-28 (April-March), as outlined in its latest medium-term management plan released on May 12.

When asked about ways to enhance its oil products trading overseas, Hayashi said, "By acquiring assets overseas, we can further expand our trading opportunities through asset-backed trading."

"For instance, having storage facilities will make transactions easier," he said. "There are various types of assets, and by holding assets in the overseas supply chain, we can increase trading opportunities."

"If we aim to increase profit expectations, we might also consider acquiring overseas assets on the scale of, say, $1 billion," he added.

ENEOS Corp. -- the midstream-to-downstream arm of ENEOS Holdings -- currently has a combined refining capacity of 1.64 million b/d across nine refineries in Japan, accounting for 52.7% of the country's total installed refining capacity of 3.11 million b/d.

Low-carbon shifts

In addition to bolstering its overseas oil products business, ENEOS Holdings' three-year business plan underscores its focus on developing low-carbon fuels such as LNG and sustainable aviation fuel.

ENEOS Holdings has also delayed its carbon neutrality target by a decade, now aiming for FY 2050-51, as it reflects the current business environment and explores multiple scenarios.

"If carbon neutrality is delayed by 10 years, the low-carbon period will also extend by 10 years," Hayashi said.

"Therefore, how we promote low-carbon initiatives during this decade will significantly impact our decarbonization efforts and business management," he added, noting that LNG and biofuels will be among the key focus areas.

As part of its latest midterm business plan, ENEOS Holdings has earmarked Yen 740 billion for strategic investments, including Yen 310 billion for developing low-carbon fuels such as LNG and SAF, Yen 250 billion for decarbonization efforts in areas like renewable energy and carbon capture and storage and Yen 180 billion for foundation and materials businesses.

Asked to elaborate on its LNG business considerations, Hayashi said, "In terms of investments, we believe they will mainly be in overseas upstream and midstream assets," adding that the company would prioritize Malaysia, Indonesia and Papua New Guinea, where it already has a presence.

"We want to actively participate in expanding existing interests and consider opportunities in other regions, taking geopolitical risks into account without specifying particular areas," he said. "The US is certainly a major gas supply area, so we consider it in our scope of evaluation."

ENEOS Xplora -- the upstream arm of ENEOS Holdings -- holds a 2.58% stake in the Papua LNG joint venture, which expects to make a final investment decision in 2025.

Commenting on the expected FID for the Papua LNG project, Hayashi said, "We are positively considering it since we have already entered that area."

Scaling back hydrogen

ENEOS Holdings' latest carbon-neutral target comes as it revised its carbon neutrality road map set in May 2023, which had placed the development of hydrogen supply chains among the key steps for achieving carbon neutrality in FY 2040-41.

Under its May 2023 carbon neutrality road map, ENEOS Holdings, which had aimed to supply 250,000 mt/year of CO2-free hydrogen by FY 2030-31, is "no longer looking at a scale of 250,000 mt[/year] for hydrogen currently," President and CEO Tomohide Miyata said May 12.

Hayashi said that ENEOS Holdings' hydrogen businesses would likely be delayed compared with the company's initial plans.

"Regarding hydrogen, there is a chicken-and-egg situation; if we supply hydrogen, the necessary equipment and vehicles must also be in place," he said. "Therefore, even if we produce a lot of hydrogen, it won't be useful unless demand expands at a similar pace."

"If we can see that hydrogen demand is expanding economically within Japan, we will press the accelerator accordingly. However, this depends on whether costs can truly decrease to a level that users can bear, along with technological innovations," he added. "The final speed of development will hinge on these factors."

Nevertheless, Hayashi said that ENEOS Corp. is still considering developing about 90,000 mt/year of CO2-free hydrogen by 2030 in Sarawak, together with Sumitomo and Malaysia's SEDC Energy. This will use renewable energy from hydropower to convert the hydrogen into MCH (methylcyclohexane) and transport it to Mizushima in western Japan.

When asked about the FID for the Sarawak hydrogen project, Hayashi said, "This is actually related to the government's price-gap support, so it will be determined once that is confirmed."