Mitsui O.S.K. to Invest Up to $3.9 Billion in Deep-Sea Gas

Mitsui O.S.K. Lines Ltd. plans to invest as much as 400 billion yen ($3.9 billion) in deep-sea gas production and transportation to revive profitability amid a glut in the bulk shipping market.

The world’s largest merchant fleet operator, which announced its first floating storage regasification plant in October, is targeting as many as five more by the fiscal year starting April 2020, Takeshi Hashimoto, a managing executive officer at the energy and offshore business, said in an interview in Tokyo yesterday. Mitsui O.S.K. will also partner in floating production ship projects, Hashimoto said.

Mitsui O.S.K. aims to tap soaring demand for liquefied natural gas as resistance to nuclear energy grows following Japan’s nuclear disaster and pollution concerns hamper coal plants. The Tokyo-based company is focused on LNG as investments in vessels to haul coal and iron-ore weighed on earnings after excess supply of the ships dragged down freight rates.

“Deep-sea investments are the new highlight of Mitsui O.S.K.’s strategy,” Hashimoto said. “There’s less competition because of the high investment costs, technical skills involved, and need for financing.”

Mitsui O.S.K. has forecast a return to profit this fiscal year with net income of 57 billion yen as a weaker yen helps push up the value of revenue from dollar contracts. The company posted a loss of 179 billion yen in the 12 months ended March.

Shares of Mitsui O.S.K. jumped 3.4 percent, the most since Feb. 7, to close at 424 yen in Tokyo today. Rival Nippon Yusen K.K. gained 1.6 percent, while Kawasaki Kisen Kaisha Ltd. rose 1.7 percent.

‘Cheaper, Quicker’

Mitsui O.S.K.’s floating storage regasification unit, or FSRU, will be built by Daewoo Shipbuilding & Marine Engineering Co. and is for a project in Uruguay, the line said in October. The unit will cost about 40 billion yen, Hashimoto said.

“It’s cheaper and quicker to build a regasification unit at sea than on land,” he said. “There’s no need to buy the land. There’s also no need to negotiate with residents in the area, because it’s offshore.”

Mitsui O.S.K. is also aiming to double its floating production, storage and offloading vessels, known as FPSO, to 10 from five, by fiscal 2020, Hashimoto said. The FPSO units each cost about $1 billion to $1.5 billion and so the company will partner with Japanese companies to split the cost, he said.

The shipping line is focusing on LNG as global demand is set to increase as developing countries step up consumption to meet their energy needs, Hashimoto said.

Global LNG trade is set to increase 31 percent from 2012 to 2018 as a record number of projects from the U.S. to Australia come to fruition, according to the International Energy Agency’s medium-term market report, published in June.

China Demand

China’s appetite for gas will double by 2018 as Asia’s biggest economy seeks to replace dirty coal-burning power plants, International Energy Agency forecasts show.

“The share of gas as a source of energy is going to increase,” Hashimoto said. “It’s becoming increasingly difficult to increase nuclear use after Fukushima and there are problems with sulfur oxides and nitrogen oxide emissions with coal. Emerging economies are increasingly going to start choosing LNG as they build facilities.”

The shipping line announced in December it was partnering with Mitsui & Co., Marubeni Corp. and Modec Inc. on a floating production and storage unit off the coast of Brazil.

Nippon Yusen is also targeting deep-sea gas and oil to boost profits. The line, which last year announced its venture won a contract to operate two FPSO vessels from a group led by Petroleo Brasileiro SA, has said it may double its FPSO fleet to six by 2020.

Before it's here, it's on the Bloomberg Terminal.