September 30, 2004


"Building Partnership with Customers: The Challenge to Become an Integrated Energy Company" (Cosmo Oil Co)

Keywords: Newsletter 

JFS Newsletter No.25 (September 2004)

Staff writer Kazunori Kobayashi

Oil is the principal energy source in the modern economy. According to the BP Statistical Review of World Energy 2002, oil accounts for about 40 percent of the world's primary energy. In oil-dependent Japan, the dependence is even more obvious: oil accounts for about 50 percent of the country's primary energy sources, and 99.7 percent of this oil is imported. Japan, the world's second largest economy, accounting for about 14 percent of the world's gross domestic product in 2001, was also the world's second largest consumer of crude oil, consuming 7.2 percent of the world oil.

In order to shift toward a sustainable society, it is essential that sources should be shifted from non-renewable to renewable energy, but this cannot be done overnight. The best energy mix would depend on a combination of various factors, such as technology, infrastructure, safety, economic efficiency, stability and locality. The key here is to supply energy in a stable manner while increasing the proportion of eco-friendly energy. It is essential to find ways for suppliers, consumers and society to follow this long-term and step-by-step path toward a sustainable future.

Cosmo Oil Co., Japan's third-largest oil refiner and petroleum distributor (in terms of sales of fuel oil), is grappling with this challenge. Under its slogan, "Cosmo Oil--the environmental choice and the truly environmentally advanced company," the company aims to transform itself from a petroleum company into an integrated energy company. Keiichiro Okabe, chairman and chief executive officer, acknowledges that fossil fuels have benefited humanity in many ways. But it is also true that the world's mass consumption of oil has enormous impact on the global environment. He recognizes that reducing the overall environmental impact on society caused by energy supply and consumption is the key to promoting a sustainable society. Thus, Cosmo Oil is focusing on the following three areas: (1) reducing environmental impact of petroleum products which play a central role in the modern economy in the entire product life cycle, (2) building environmental partnership with customers, and (3) developing and supplying energy that has lower environmental impacts.

For the first area, Cosmo Oil is mainly engaged in four activities: producing crude oil in oil-producing countries, transporting oil to Japan, refining crude oil at refineries, and delivering oil to its gas stations. First, the company sizes up the environmental impact of its products at every stage and tries to steadily reduce it based on targets under its ISO environmental management system. Here it has obtained good results. In terms of prevention of global warming, the company has promoted energy saving at its refineries, achieving in 2002 a 9.7 percent reduction from the 1990 level, in terms of energy consumption per unit of volume processed (crude oil equivalent), surpassing their original target of 9.2 percent reduction for 2004, two years early. By 2004, the company had successfully reduced its volume of industrial waste disposal by 83 percent compared to the 1990 level, surpassing its reduction target of 81 percent (average value for the period 2002 to 2004). On top of that, emissions of sulfur oxides used for improving the quality of gasoline and diesel have been reduced.

While promoting the reduction of environmental impacts in its production processes, Cosmo Oil discovered by calculating the CO2 emissions from its entire product life cycle that 90.5 percent of the emissions were attributable to the consumption stage by customers. How then could the company reduce emissions at the consumption stage?

Thus, as the second area of its activities, Cosmo Oil is now working in cooperation with its customers, searching for opportunities to find comprehensive solutions that would work in the mid- and longer term. In pursuit of this objective, Cosmo Oil launched in April 2002 a credit card called Cosmo The Card "Eco," which can be used at gas stations operated by Cosmo Oil. The card members will donate 500 yen (about U.S.$4.60) every year to the company-managed "Eco Fund," to which Cosmo Oil will also contribute a part of its sales. The funds will be used to support environmental conservation projects in developing countries and educational projects inside and outside of Japan. The fund officials listen to the voices of the local project staff, review the projects with partners, including NPOs and NGOs, and implement projects to produce tangible results on a continuous basis. In fiscal 2003, the card membership rose to 75,000, and the funds were used to support rain forest conservation projects in Papua New Guinea and the Solomon Islands, as well as environmental education assistance projects in Japan.

While the rain forest conservation project was in progress, it was communicated to the general public through television commercials that candidly addressed the impact of global warming brought about by oil consumption and showed the images of activities carried out in unity with governments of developing countries. Until fiscal 2001, the company was the sole supporter of this project, which was implemented in cooperation with NPOs and NGOs. But starting in fiscal 2002, Cosmo customers also joined in the implementation of activities, and Chairman Okabe says that the company has been able to offer activities with significant positive impacts on society because of the synergies generated between the company, customers and NPOs.

The company also developed what it calls "CO2-free" gasoline as part of its environment-friendly activities. Cosmo Oil acquired in fiscal 2002 and 2003 a total of 71,489 tons of CO2 emission credits from a company in Australia. A part of these emission credits were allocated to cover the CO2 generated by consumer use of gasoline. In December 2002 and 2003, the credits were applied, to make gasoline purchased by "Eco" card members, in effect, "CO2-free." The direct impact on CO2 emissions would be that 27,423 tons of CO2 released from a total of 11,763 kiloliters of gasoline and diesel purchased by card members would be absorbed by eucalyptus forests in Australia. The emission credits have also been offered for sale at 500 yen per ton as "CO2 Sequestration Certificates" since January 2003 at events Cosmo Oil supports. They have also been available for purchase on the company website since February 2004, in response to requests from individuals who cannot participate in these events, and from other companies that would like to utilize the certificates to raise awareness about the environment.

In fiscal 2004, Cosmo Oil donated emission credits to Formula Nippon car racing events, for which it is a co-sponsor, making emissions from the machines in all races CO2-neutral, in effect. The sales of emission credits are contributed to the Eco Card Fund to be used for environmentally friendly activities. Eriko Date, who is in charge of Corporate Social Responsibility(CSR) promotion at Cosmo, describes the outcome of these activities as follows: "Cosmo Oil considers these as grass-root efforts to raise environmental awareness for the prevention of global warming, using emission credits. Our efforts have been covered by the Japan Automobile Foundation's and other automobile magazines, drawing the attention of car lovers especially."

This Cosmo The Card "Eco" was the first credit card to receive the Good Design Award in 2002 from the Japan Industrial Design Promotion Organization (JIDPO). The company attributes the winning of the award to the linking of the growing interest of consumers to act for the better global environment with Cosmo's corporate commitment to protect the global environment, and thus enabling customers to take part in environmental activities through purchasing petroleum products. As part of its Cosmo Earth Conscious Act, a joint event with FM radio stations nationwide, Cosmo Oil broadly calls for environmental conservation to the society. Every year, the volunteers recruited through publicity participate in the "Clean Campaign," a cleaning activity at about 40 locations across Japan, including beaches, mountains, rivers and parks.

In the third area of its activities, Cosmo Oil has also been engaged in the development and supply of energy that has lower environmental impacts. "In a sustainable society, the energy sources need to be less harmful to the environment and supplied constantly at an affordable price. Cosmo Oil has been searching for the best mix of energy sources that satisfy these requirements," said Date. As part of the efforts, Cosmo Oil uses natural gas and develops fuel cells. Natural gas has an advantage of having less environmental impact at the time of use, although supplying it as liquefied natural gas (LNG) consumes substantial energy because the liquefication process involves maintaining the gas at supercooled temperatures as low as minus 162 degrees Celsius. The transportation of natural gas in a gaseous state, however, requires pipelines connected to gas fields. Cosmo Oil has been working to develop GTL (gas-to-liquid) technology, which will produce a liquid fuel from natural gas through a chemical reaction. In fiscal 2002, the company was the first in Japan to produced GTL oil and it is currently conducting further research for commercialization.

In the fuel cell business, under contract from governmental organizations such as the New Energy and Industrial Technology Development Organization (NEDO) and the Petroleum Energy Center, Cosmo Oil is currently developing a stationary fuel cell system that uses hydrogen generated from petroleum-based fuels such as LPG and kerosene. In fiscal 2002, as part of efforts to develop technologies to produce hydrogen from kerosene, Cosmo Oil conducted the trial operation of a hydrogen generator using a reforming catalyst developed by the company. In March 2003, as a participant in the "Hydrogen/Fuel Cell Demonstration Project" funded by Japan's Ministry of Economy, Trade and Industry, Cosmo Oil opened a hydrogen refueling station in Yokohama City for fuel cell vehicles. In addition to supplying hydrogen fuel, Cosmo Oil also plans to promote the wider use of fuel cell vehicles.

"Renewable energies have the least environmental impact among various energy sources, but they have not yet reached the technological level yet to guarantee stability of supply and economic competitiveness. We don't know what will be the mainstream energy source in the future. Cosmo Oil has been trying to start a wind power business, and group companies have been conducting feasibility studies for manufacturing biofuel. Now is the time for Cosmo Oil to gain some experience to be ready for the future society, by getting involved in various projects," said Date. Cosmo Oil has begun various initiatives, but these are just the beginning of its efforts to evolve into an integrated energy company for the future sustainable society.