- Acquisitive Japanese trading houses will find the course clear of some of their toughest competitors in the race for Canadian energy assets after Ottawa said it would bar state-owned companies from taking majority stakes in oil sands assets.
Japan's "Shosha", giant trading companies with stakes in supply lines for everything from noodles to natural gas, have snapped up global energy assets in the wake of the Fukushima nuclear disaster. The strong yen and soft government financing have helped bankroll the shopping spree.
But the privately-held firms have struggled to outbid state giants such as those from China, with governments more directly behind them.
"I think that, particularly for the private sector companies in Japan, the doors to the Canadian energy resources sector are now wide open," said Victor Shum, managing director, downstream energy consulting, at IHS in Singapore. "The Canadian government welcomes foreign private sector companies."
Despite big spending already this year, the finances of Mitsubishi Corp, Mitsui & Co and other trading houses have barely been sapped. The seven biggest Shosha had about 5.2 trillion yen ($63 billion) of cash or cash equivalents at the end of September this year.
And with the Canadian government saying that much of the C$650 billion ($660 billion) in investment in natural resources the country needs in the next decade will probably have to come from abroad, Japanese trading houses may have a golden opportunity.
"They are politically more palatable," said Penn Bowers, an analyst who covers the trading houses at CLSA Asia-Pacific Markets in Tokyo. "They are quiet, predictable and want their fair share of profits. They know how to get projects done and that also helps for financing."
The trading houses may benefit from government-supported financing and have high-level ties with politicians, but Tokyo does not dictate government strategy, nor does the state have majority stakes in the trading houses.
In approving the $15.1 billion bid by China's state-owned CNOOC Ltd for energy company Nexen Inc on Dec. 8, Canada drew a line in the sand against future acquisitions by foreign government enterprises.
"Foreign state control of oil sands development has reached the point at which further such foreign state control would not be of net benefit to Canada," Prime Minister Stephen Harper said, when approving the Nexen takeover.
Japan's government and trading companies were closely watching the outcome of the CNOOC bid for Nexen, said Nobuo Tanaka, an associate at the Institute of Energy Economics, Japan and former executive director of the International Energy Agency.
"For Japanese companies, the benefits are the clearer rules," Tanaka said. "The decision is based on considerations of fair competition and restricting state-owned companies protected by their governments from exerting an unfair influence."
The clarification effectively rules out further takeovers from Chinese and Indian state-owned energy companies, which have competed with Japanese firms for resources from Africa to Canada as they sought to secure supplies to power economic growth.
For Japan and Canada, the gas link is likely to grow the fastest. Japan is emerging as a top market for Canadian liquefied natural gas (LNG) as developers gear up to export more than 9 billion cubic feet a day, Canada's Natural Resources Minister Joe Oliver said in September.
Japan is the world's largest importer of LNG and efforts to cut its reliance on nuclear power after the Fukushima disaster last year mean it's likely to remain so for some time.
Japanese companies have also been investors in Canada's oil sands, the world's third-largest reserves of crude after Saudi Arabia and Venezuela.
Japan Petroleum Exploration will make a final investment decision on its Hangingstone oil sands expansion project in Canada by the end of this year, the company said in August, the second delay in the decision.
To be sure, Japanese companies can count on state support for financing. Japan has allocated a 10 trillion yen credit facility aimed at helping companies invest overseas as part of its efforts to cope with a strong yen.
Under the programme that expires at the end of March, the government has provided $14.2 billion in loans via Japan Bank for International Cooperation to secure energy resources in 22 transactions, including six in Canada.
Officials at the trading houses declined to comment on Canada's rule change.