Idemitsu Kosan K.K.

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Idemitsu Kosan K.K.

3-3-1 Marunouchi
Chiyoda-ku, Tokyo 100
Japan
(03) 3213-3111
Fax: (03) 3213-9315

Private Company
Incorporated: 1911 as Idemitsu & Co.
Employees: 5,497
Sales: ¥1.71 trillion (US$12.59 billion)

Idemitsu Kosan K.K. Japan’s largest independent oil company, is named after its founder, Sazou Idemitsu. The company has a nationwide network of 29 branch offices, 13 sub-branch offices, 9,000 service stations, and 6,000 liquefied petroleum gas (LPG) retail outlets. The Idemitsu group’s primary activities are the securing of oil resources, crude oil refining, and petroleum product marketing. The group also has interests in alternative energy sources such as coal, uranium, and geothermal generating, as well as petrochemicals and related fields. The group operates six refineries and two petrochemical facilities in Japan, and also maintains an extensive network of overseas offices covering 17 major cities in 14 countries, ensuring a stable supply of energy resources. Idemitsu Kosan is one of the most growth-oriented companies in Japan. The company is organized as a joint stock company, with all shares held by the Idemitsu family and by the employees. Sazou Idemitsu began his career selling lubricants in the northern part of Kyushu in Japan, as an agent for the Nippon Sekiyu (Oil) Co. Ltd., and established Idemitsu & Co. in 1911. In 1913, he began selling fuel oil for fishing boats at Shimonoseki port; this business opened up nationwide marketing opportunities. He studied fuel combustion efficiency, and promoted fuel conversion from expensive paraffin oil—kerosene—to cheaper raw light oil. In 1923, he became a pioneer of retailing methods by introducing small tanker vessels equipped with fuel meters thus replacing canned fuel distribution for fishing boats. After his marketing success in Japan, he extended his sales activities to Manchuria. In 1914 he began to sell lubricants to the South Manchuria Railroad Co. Ltd., a Japanese-owned national railroad company which was central to Japan’s imperialistic plans for China, and to an expanding market in northeast China. At the time, the supply of lubricants to China was dominated by foreign companies such as Standard Oil, Royal Dutch/Shell group, through its Japanese subsidiary, Asiatic Petroleum Company. Idemitsu & Co. attempted to open up the market for Japanese companies by demonstrating the competitive quality and price of its goods. In 1916, Idemitsu opened the Dairen branch, competing with large foreign companies, and sold lubricants, fuel oil, cement, volcanic ash, and machine tools.

During the winters of 1916 to 1918, accidents frequently occurred on the South Manchuria railroad, as lubricants froze and axles often overheated. In 1919, the railroad company systematically tested the efficiency of every lubricant available, and concluded that Idemitsu’s product was among the best. It granted exclusive agency to Idemitsu & Co. From 1919 to 1922 Idemitsu established further sales branches in Qindao in China, Taipei and Chilung in Taiwan, and Seoul in Korea. In 1929, Nippon Sekiyu (Oil) Co. established Taiwanese and Korean branches and began direct sales. Consequently the sales activities of Idemitsu, as an agent of Nippon Sekiyu (Oil), had to be restricted in those areas.

Idemitsu expanded his business between 1920 and 1923 in spite of the postwar recession in the Japanese economy. After 1924 he experienced financial difficulties and closed several foreign branches quickly to protect his business. After 1931, he expanded again into the Manchurian market but with more careful strategic planning.

In 1932, after the Japanese established a puppet government in Manchuria, the Japanese government controlled major commodities and industries. As a result, the functions of Idemitsu were limited to those of a distributor under the controlled economy. By 1939 oil distribution in Japan was tightly controlled by the government and the sales divisions—wholesale and retail—of each oil company were organized into regional distribution associations. Sazou Idemitsu was forced to reduce sales activities. To ensure the safety of his business, he decided to diversify beyond oil sales into transportation by tanker with his first oil tanker, Nisshomaru, launched in 1938; oil refining through investment in Kyushu Oil Refinery Co. Ltd.; and other products.

In 1940, Idemitsu & Co. moved its domestic headquarters from Moji City in Kyushu to Tokyo, and established a new joint stock company, Idemitsu Kosan K.K.with a capital of ¥4 million. The Chinese and Manchurian interests were reorganized into separate regional subsidiaries. In 1939, Idemitsu began to build a 100,000-tonnage scale oil tank in Shanghai, and imported paraffin oil—kerosene—and volatile oil—including benzine and naphtha—from the United States. However, after the outbreak of the Pacific War in 1941 almost all industries came under the control of the military government, and the activities of the company were limited to distribution.

After World War II, the Japanese petroleum industry was controlled by the Supreme Commander for the Allied Powers (SCAP). In reality expatriate managers from Standard Oil, Shell, Caltex, Tidewater, and Union Oil constituted a Petroleum Advisory Group that decided Japanese petroleum policies. After the abolition in 1949 of the Oil Distribution Public Corporation which had been set up during the war by the Japanese government to ration scarce oil, ten companies, including Standard Oil, Shell, and Caltex, selected as petroleum products suppliers by the Ministry of International Trade and Industry (MITI). Idemitsu Kosan was included in the ten, and dissolved its long-standing ties with Nippon Sekiyu (Oil) Co. Ltd.

In 1952, according to the peace treaty which became effective that year, the Japanese government abolished price controls on petroleum products and permitted a foreign exchange quota for importing naphtha. In 1951 Idemitsu Kosan was permitted by MITI to build a new tanker, which was launched in the same year. Using his new tanker, Idemitsu imported high-octane gasoline from California and sold it in the Japanese domestic market. Soon, however, the major U.S. oil companies decided that there were profits to be made from selling naphtha directly to Japan, and they began to restrict sales of naphtha to Idemitsu in California. Idemitsu changed its sourc-ing to Houston, Texas, but soon sales were restricted there also. Eventually Idemitsu found a supplier in Venezuela. As naphtha sales in Japan by foreign companies increased, MITI felt the necessity for import restrictions to protect the domestic oil industry. MITI therefore passed the Oil Industry Law, which restricted the number of oil importers. As a result, only a few foreign companies could continue to import oil to Japan, and those which could were forced to do so through joint ventures with Japanese companies. Soon Japan saw the rapid establishment of its own petrochemical industry.

As Idemitsu was at that time only an importer and distributor of naphtha, his company was unable to import oil because of the domination of major foreign oil companies. It therefore became essential for Idemitsu to establish a reputation as an oil importer. The nationalization in 1953 of Anglo-Iranian Oil by the Iranian government and the resulting friction between the Iranian and British governments were fortuitous for Idemitsu. The Iranian government was unable to find a customer because of the dangerous wartime conditions, until Idemitsu decided to send his large tanker Nisshomaru to procure Iranian oil. He managed to secure a price 30% lower than the standard market price of the time. However, the British government was displeased by Idemitsu’s behavior and lodged a complaint with MITI. Although Idemitsu’s action was applauded by the Iranians and the Japan public, MITI felt that it had been put in a difficult position and Idemitsu fell out of favor with MITI officials. To protect his company against repercussions, Idemitsu tightened the closed ownership policy of his company still further.

Both the restriction of naphtha exports and the Japanese government’s alteration of its policy to favor domestic refineries posed a serious threat to Idemitsu Kosan. Refineries had to be constructed quickly. In May 1956 Idemitsu began construction of Tokuyama oil refinery, which went into operation in March 1957. In 1960, after the addition of a second refinery facility, Tokuyama refinery’s production capacity amounted to 140,000 barrels per day.

By the following decade, Idemitsu was concentrating its efforts on constructing refinery facilities. In 1963 the Chiba oil refinery, was built, producing 100,000 barrels per day. This was followed by the Hyogo oil refinery in 1970, the Hokkaido oil refinery in 1973, and the Aichi oil refinery in 1975. Idemitsu began to pursue a vertical integration strategy, from crude oil importing to refinery and sales of products. In July 1962 the world’s largest tanker, Nisshomaru III, was completed, and Idemitsu established the Idemitsu Tanker Co. Ltd. to manage the oil transportation division. From 1962 to 1981, Idemitsu completed ten mammoth tankers—with a tonnage of more than 200,000—and established a worldwide network for petroleum transportation.

In 1963, Idemitsu’s petrochemical facility in the Tokuyama refinery went into operation, and the company entered new fields of production. In 1964 Idemitsu established Idemitsu Petrochemical Co. Ltd., which became the center of the Tokuyama refinery complex. In 1962, MITI introduced the Oil Industry Law to control excess production and price competition between petroleum companies. Idemitsu opposed the law because it restricted competition and obstructed freedom of business. In the second half of 1962, Sekiyu Renmei—the Oil Producers’ Federation—was organized at the instigation of MITI, and began to restrict production. However, the federation failed to prevent overproduction, and price competition resulted in spite of the cartel agreement. Idemitsu stood against such curbing of production, and withdrew from the federation. In November 1965, the seamen’s union struck, the first such strike in Japanese history. The result was a major shortage of petroleum products. Idemitsu disregarded the quota and went into full production. The Oil Producers’ Federation and MITI criticized the decision, but Idemitsu continued to ignore the restriction until the strike ended.

In February 1966 price control of petroleum products was abolished, and in August the production quota was repealed. In September 1966, MITI asked Idemitsu to return to the federation. The company did so in October. Sazou Idemitsu became the chairman of the board, although he retained effective control of the company, and his younger brother Keisuke Idemitsu took his place as president. This was a necessary step if the reconciliation with MITI was to take place.

Under the leadership of Keisuke Idemitsu, the company and its subsidiaries internalized such production functions as mining, refinery, and transportation of raw materials, and diversified the product range. In 1976, Idemitsu Japan Sea Oil Development Co. Ltd.—established in 1961—was reorganized as Idemitsu Oil Development Co. Ltd. Idemitsu Oil & Gas Co. Ltd. started oil and gas drilling in the offshore field of Niigata Prefecture, beginning commercial production in 1984. In 1987 Idemitsu began to develop an oil field in southeast Turkey with the Finnish company Neste Oy. In 1989 Idemitsu acquired 10% ownership of two concessions of the Snorre oil field in the Norwegian sector of the North Sea. In the same year, Idemitsu acquired 25% ownership of the northwest continental shelf concession in Australia and participated in oil drilling operations in various places around the world, including the United Kingdom, Egypt, Gabon, Pakistan, Myanmar, Australia, and Brazil.

In 1977 the company set up a new energy department to promote alternative sources of energy. In 1980, imports of coal from Australia began and the Coal Cartridge System (CCS) was developed to supply coal for small users. The Chiba Bulk Terminal was built in 1986. From this period, Idemitsu started to acquire coal mining interests in Australia, including the Ebenezer mine in Queensland—225 million tons reserve—and the Muswellbrook mine in New South Wales—594 million tons reserve. By 1990 the company had acquired another four foreign coal mining operations—with an estimated total of 2.5 billion tons of deposits—and had become the largest Japanese coal mining company.

In 1979 the Idemitsu Geothermal Development Co. Ltd. was established, and research drilling for geothermal generating plants began in the Hokkaido, Tohoku, and Kyushu concessions. In the Oita project in Kyushu a pilot plant was built. This was an experimental factory plant to examine technological capability and economic feasibility for starting up a master plant.

In the area of uranium exploration, Idemitsu took a 12.87% stake in the predevelopment work at the Cigar Lake Project in Saskatchewan, Canada, entering into partnership with CAMECO and COGEMA Canada. As the result of trial bowling—test drilling to estimate the total amount of deposits available—the uranium deposits at Cigar Lake were estimated at 192,500 tons, and mining operations were to begin in 1991.

After 1985, as a result of the “reverse oil shock,” the price of oil declined rapidly, and some of Idemitsu’s alternative energy resources development projects lost their economic effectiveness. However, investments in coal and uranium mining will help the company to provide for an expected shortage in energy supplies after the late 1990s.

Idemitsu’s rapid growth was the result of investment in short-term ventures in petroleum-related industries. However, investments in energy resources projects, such as mining for coal and uranium ore, involve the taking of long-term risks, including considerable investment in the protection of the environment against pollution, an area in which Idemitsu has no experience. The major task for the Idemitsu group is to build a flexible business structure and a sound financial base to enable it to withstand uncertainties and risks arising from its direct foreign investments in energy resources development.

Principal Subsidiaries

Apollo Service Co. Ltd; Shigemune Sea Transportation Co. Ltd.; Idemitsu Tanker Co. Ltd.; Idemitsu Petrochemical Co. Ltd.; Idemitsu Oil Development Co. Ltd.; Idemitsu Oil & Gas Co. Ltd; Petrochemicals Malaysia Sdn. Bhd.; Calbu Industry Co. Ltd.; Shiroyama Kosan Co. Ltd.; Polycarbonados do Brazil Co. Ltd.; Idemitsu Engineering Co. Ltd.; Uni Chemical Industry Co. Ltd.; Idemitsu Dupont Co. Ltd.; Idemitsu Credit Co. Ltd.; Idemitsu Chemicals U.S.A. Incorporated; Idemitsu International Europe Incorporated; Idemitsu Chemicals Co. Ltd.; Idemitsu D.S.M. Co. Ltd.