ADIPEC Energy Dialogue, Takayuki Ueda, President and CEO of INPEX Corporation

Thank you very much. I'm very happy to answer to your questions.

Well, my view is that COVID-19 has brought two major changes globally. The first change concerns the way we approach security, and the second concerns our lifestyle. There are many aspects to security like national security, financial security, and physical security. COVID-19 highlighted the challenges in maintaining security across supply chains. But from our perspective as an oil and gas company, the pandemic has particularly enhanced our awareness of energy security. While energy security has been talked about for a long time, we are now much more concerned about ensuring our energy independence. We are strengthening our resilience to contribute to this objective by maintaining stable energy production at home and diversifying our portfolio through securing energy assets globally. Of course, securing also extends to the health, safety, and well-being of our workforce to build our resilience and ensure business continuity. Meanwhile, COVID-19 has brought on major lifestyle changes. More people work from home and less people travel. These lifestyle changes have impacted the supply and demand for gasoline and jet fuel, not to mention oil prices, while promoting widespread automation and digital transformation. As an industry, we must address the medium-term and long-term implications of this and adapt our business accordingly. We will need to work on improving the efficiency of our operations, optimizing our portfolio, and strengthening our business partnerships.

Well, as you know, Japan currently imports one-fourth of its oil from Abu Dhabi, and the majority of the Abu Dhabi crude oil is destined for Japan. Abu Dhabi is of huge importance not just for us but for Japan as a whole, and Japan-Abu Dhabi relations are supported by strong academic, economic, and political ties. Since 1973, I believe, when we acquired a stake in the ADCOP concession, Abu Dhabi has always been a core business area for us, and we expect it will continue to be so for many years. In Abu Dhabi, we have five concession agreements, more than any other IOC anywhere in the world. There are Lower Zakum, the onshore concessions, and onshore Block 4. We therefore work very closely with ADNOC and send many of our employees to the operating companies led by ADNOC. We have clearly communicated, committed our human and technical resources to oil field development and production in Abu Dhabi, and this shows just how important Abu Dhabi is for us. As a result, our operations in Abu Dhabi contribute significantly to our net production, which was 581,000 barrels of oil equivalent per day as of the first half of this year. COVID-19 has further highlighted the importance of our assets in Abu Dhabi. Guided by the strong leadership of His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE, and His Highness Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi, Abu Dhabi has maintained its political stability as one of the region's leading powers. Meanwhile, Dr. Sultan has led efforts to ensure the cost competitiveness, profitability, and stable production of Abu Dhabi oil. In 2018, we were appointed asset leader of the Lower Zakum field, where we are working proactively with ADNOC and our partners to pursue greater production capacity growth and value creation.

We now have an even stronger partnership with ADNOC and are much more hands-on. Remember, we are the only IOC with concession agreements for both the Upper Zakum and Lower Zakum oil fields. This allows us to draw on the synergies generated by the knowledge and experience we have of developing the two oil fields, as well as the technical resources we have deployed. For example, we can promote the joint use of production facilities on the artificial islands that have recently been developed. These efforts have helped increase production capacity and lower production costs, allowing us to make an even greater contribution to Abu Dhabi's upstream industry.

Well, new technology and digital transformation are essential for the three things we need to do most under COVID-19 and beyond: improve efficiency, ensure security, and reduce cost. Considering the restrictions in travel and personal contact, perhaps the greatest impact so far has been made by technologies enabling remote and non-contact operations to prevent the spread of infections. Of course, you have the IT infrastructure enabling remote access to servers, allowing office personnel to work from home. But there are many technologies that are being developed and have the potential to support the more technical aspects of our industry in different ways. Well, drone technology, augmented reality, and the IoT system are some examples of technologies that we have deployed in field operations to keep our core business of oil and natural gas production running smoothly. These technologies can of course be deployed not just at our own upstream operations but across the entire supply chain, potentially contributing to climate response initiatives too.

Well, first, let me briefly talk about the backdrop of the energy transition. There are many scenarios being floated. Some say oil demand peaked in 2019, others say that oil demand will continue to grow for another two decades or more. I suspect that peak oil demand will fall somewhere in between. But the important thing is to make plans around projections that are based on reality. One of my peers recently joked that more and more companies are doing it the other way around—in other words, making plans first and then making projections to suit those plans. And the reality is that oil and gas demand will continue to grow, especially in Asia. There is a danger that a lack of investment in upstream will create a supply bottleneck and eventually increase prices dramatically in the medium to long term. Therefore, we feel that E&P continues to be a key industry, and we will continue to focus on this, our core business. Having said that, however, we fully understand that climate change response is a critical business issue for IOCs and determines our social license to operate. Like many of our peers, we aim to proactively contribute to the realization of a low-carbon society based on the long-term targets outlined in the Paris Agreement. This will involve managing and reducing greenhouse gas emissions across all sectors while promoting renewable energy initiatives. We will also continue our work on carbon dioxide containment and pursue the practical application of carbon capture and storage as well as carbon capture and utilization technologies like artificial photosynthesis and methanation. Another area we will be looking closely at is hydrogen, which is of course a zero-emission energy solution. Hydrogen production takes many forms, but we believe we are in a good position to apply our existing resources and capabilities to produce so-called blue hydrogen derived from natural gas. Our experience in carbon dioxide storage and gas liquefaction, transportation, and distribution could also allow us to contribute widely across the entire hydrogen value chain.

Well, yes, as you say, our production ratio stands at about 60% oil and 40% natural gas since the startup of our Ichthys energy projects in Australia. But prior to that, the ratio was 70% for oil and 30% for natural gas, and eventually we plan to bring the ratio closer to 50-50 with the startup of the Abadi energy project in Indonesia as part of our gas shift-up policy. Natural gas is the cleanest-burning fossil fuel and is widely expected to play an important role in the transition to a low-carbon society. The various decarbonization scenarios all project strong demand for natural gas. In terms of Japan's energy mix, LNG is expected to be a key component even in the medium to long term. Demand for natural gas in other parts of Asia is expected to continue to increase until at least 2040 or 2050. We mainly supply our natural gas to these markets, and we are also working on building a gas value chain business including gas infrastructure across the regions. Therefore, to ensure stable supply of energy to Japan and the Asia region, we will continue to develop our gas energy business centered on projects such as Ichthys in Australia and Abadi in Indonesia. Of course, crude oil will also continue to be an important source of energy for some time, and we will continue to work towards helping increase the production capacity of Abu Dhabi oil fields.

Well, looking ahead to 2040 and 2050, we'll continue to make the appropriate investment decisions at the appropriate time with the goal of sustainably expanding our corporate value and building a portfolio that can flexibly respond to our changing business environment. As we have laid out in our long-term vision, we plan for renewable energy initiatives to make up 10% of our portfolio by 2040. Geothermal is an area in which we can make use of our vast experience as an E&P company. We are now implementing multiple projects both in Japan and Indonesia, and we plan on further expanding this business. In terms of wind, we are, as you say, involved in an onshore wind power generation project in Japan. We see a lot of potential in this area too, and we are especially keen on offshore floating wind power generation opportunities. As an island nation, Japan has one of the world's largest territorial seas with considerable long-term potential for offshore wind energy projects. Prime Minister Suga recently announced that Japan would aim to be carbon neutral by 2050. We aim to play our part in contributing to Japan's net-zero ambitions.

Well, as many experts have said, Asia is expected to lead global economic growth, and we are carefully monitoring market developments. We believe that the demand for hydrocarbon-based energy, especially natural gas, will continue to grow until at least 2040, and we are poised to fulfill our mission of ensuring a stable supply of energy to our customers across the region. And as I said earlier, we must be realistic about oil demand projections, and excessive optimism about oil's future may perhaps be a little bit misguided. Therefore, we'll make investments in E&P as needed to ensure we can continue to meet demand. Of course, oil peak will come eventually, possibly somewhere in the 2030s. To prepare for this, we'll pursue business diversification and focus on initiatives I mentioned earlier, including CO2 reductions and containment, renewables, and hydrogen.

Well, thank you very much. I really enjoyed your interview. Thank you very much. Have a nice day.