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Showa Shell Sekiyu is one of Japan's leading distributors and refiners of fuel oil. The company is 50% owned by Royal Dutch/Shell. The company deals principally in petroleum products such as gasoline, naptha, jet fuels, and fuels for electrical power generation, as well as in kerosene, heating oil, lubricants, and coal. Showa Shell operates more than 7,700 gasoline service stations in Japan. The company operates crude oil refineries in Japan at Kawasaki, Niigata, Yokkaichi, and Yamaguchi. Two plants manufacture lubricants in Yokohama and Kobe. The company has extended its business into non-oil areas, with interests in rental car, travel, and real estate businesses. Showa's subsidiary, Computer Plaza, is dedicated to developing Japanese-language computer software. Another interest of Showa Shell Sekiyu is the development of solar-powered batteries. Showa Shell Sekiyu was formed in 1985 by the merger of two oil companies, Showa Oil Company and Shell Sekiyu. The two companies had had close ties ever since the close of World War II.
Petroleum was not commonly used in Japan until after 1868, when Japan opened its commerce to Western markets. Until that time, domestically mined coal was used for heating and energy. Though some oil fields were discovered in Japan, from the 1880s through World War II the Japanese oil market was dominated by two foreign organizations, Standard Oil and Rayal Dutch/Shell. These groups, already operating on a global scale, were able to flood the Japanese market with cheap imported oil.
With Japan's military and industrial buildup in the years preceding World War II, petroleum came to be important to the country's economy. Jet fuel in particular was crucial to the success of the Japanese air force. The Showa Oil Company was established during the war, in 1942, from the merger of three smaller oil companies, Hayama Oil, Asahi Oil, and Niitsu Oil.
Shell Sekiyu was begun around 1876 in Yokohama by the Samuel Samuel & Co., a forerunner of Shell. In 1900 the company was incorporated as the Rising Sun Petroleum Company, to handle escalating petroleum imports.
Prior to World War II, oil production had never really been enough to support the industrializing nation. In addition bombing during the war had laid waste to the company's physical plants. After the war occupation forces refused to allow the Japanese refining industry to start up until 1949. At that time joint operation with a foreign company was the most effective way to revive the almost dead petroleum industry, and Showa Oil signed an operating agreement with Royal Dutch/Shell in 1949. Shell Sekiyu did the same a year later. The U.S. occupation forces encouraged these mergers. Showa Oil, before its 1985 merger with Shell Sekiyu, was 50% owned by Royal Dutch/Shell and Shell Sekiyu was 100% owned by Royal Dutch.
In the 1950s Showa Oil and Shell Sekiyu were among several foreign-owned companies that dominated the Japanese petroleum market, focusing on rebuilding and expanding their refineries. Like most Japanese oil companies at that time, the Shell companies were not interested in exploration but in importing crude. The crude was refined, marketed, and distributed in Japan. In 1949 Showa Oil's Kawasaki refinery could handle 6,000 barrels of crude per day but capacity increased to 102,000 barrels per day by 1965. At the same time Shell Sekiyu had the capacity to refine 180,000 barrels per day. Most of the crude oil was imported from the Persian Gulf countries.
The tremendous buildup of the Shell affiliates' refining capacities was made possible without government loans, and with minimal government regulation. In the early 1960s, however, Japan's Ministry of International Trade and Industry (MITI) took a increasingly large role in the oil industry, in some ways working against Showa and other foreign-owned companies. The Petroleum Industry Law was enacted in 1962, which favored the development of domestically owned oil companies; the law also assigned to MITI a permanent supervisory role over the future development of the petroleum industry. The Japanese government wanted to avoid control of the oil industry by international oil companies, as had been the case before the war, and used its regulatory forces to ensure that domestic companies got favorable positions in the booming petroleum market. Around this time, Showa and Shell Sekiyu supplied roughly 12% of the Japanese oil market. Foreign-owned companies combined controlled roughly 80% of Japan's oil market, of which the Shell group was the third largest. MITI's aim was to approximate an even split between the international and domestic companies' shares of the market. MITI achieved this desired balance over the next ten years, without adversely affecting Showa Oil or Shell Sekiyu. The new government regulations directly or indirectly shaped the business strategies of the Shell companies in the years to come.
An overall effect of the 1962 regulatory act was to increase competition among all the companies dealing in the Japanese oil market. MITI actively encouraged mergers between smaller domestic companies so they could rival the larger, older, foreign-affiliated firms like Showa. The major zaibatsu, established banking and corporate dynasties, such as Mitsui, Sumitomo, and Mitsubishi, plunged into the oil business around the end of the 1950s. With long-standing political and economic power in Japan, these groups did not take long to come to the fore of the petroleum industry. The Japanese oil market became more competitive because the major companies were for the most part caught up to each other technologically. Japanese engineers, sponsored by MITI, were working diligently to master and improve petrochemical technology. As long as the price of imported crude remained stable, the competitive edge in the domestic market would go to the company with the most efficient, low-cost refining technology.
The powerful backing of Royal Dutch/Shell propelled Showa Oil and Shell Sekiyu through the first decade of MITI's regulation. In addition Royal Dutch/Shell had sources for crude oil in all parts of the globe. Foreign-affiliated firms still had advantages, particularly in international contract negotiations. The newer Japanese companies had little experience in negotiating drilling and exploration rights. Experts in Japan and abroad agreed that the new Japanese companies were not yet ready to take a major position in the world oil scene.
In the early 1970s, with rising political tensions in the Middle East, finding new sources of crude became important to the stability of the oil industry. By comparison with the other major international oil firms, Royal Dutch/Shell was considered short on crude oil. Its historical position as one of the two or three largest international oil companies was based on its efficient refining and marketing and long-range planning. Well before the 1973 OPEC embargo, the Shell companies were looking for oil sources outside the Middle East. Showa Oil began to seek out joint refining ventures abroad at the same time.
In 1975 Showa made an agreement with Algeria's National Hydrocarbon Corporation to provide technical assistance for the design and operation of two new oil refineries. Royal Dutch/Shell discovered a large natural gas field off Australia's northwest shelf around the same time; that gas was intended for marketing in Japan. Royal Dutch/Shell discovered the gigantic North Sea gas field in 1979, which improved the Shell affiliates' position considerably.
In the same year as the North Sea discovery, Showa Oil acquired a 25% interest in another Japanese company, Toa Oil, which interest was formerly held by C. Itoh, a Japanese holding company. Toa Oil had valuable contracts to import and wholesale 230,000 barrels of oil daily through direct purchases; that is, Toa could buy this oil directly from the oil field, without any international oil company intermediary. MITI had encouraged the domestic oil companies to make direct purchase contracts. Though C. Itoh initiated the sale of Toa to Showa, MITI was disturbed by the transaction. The domestic company would lose its direct purchase contracts to the foreign-affiliated Showa, shifting the balance within the Japanese oil industry to foreign affiliates. The market split between the foreign and domestic groups was very nearly 50-50 before the Toa sale, and MITI wanted to maintain this even split or tip it in favor of the domestic companies. However, in this case the industry went against the regulators' wishes.
Following the acquisition of Toa, Showa strengthened its ties with Kuwait. In 1980 the Kuwaiti government agreed to export 30,000 more barrels of crude oil per day to Showa Oil. Showa's efforts to secure a variety of sources for crude oil were generally successful in the 1970s. In the 1980s Showa found its profits still too closely tied to the fluctuations in the price of crude. In 1981 the company posted a loss of ¥21.2 billion. The next year, Showa showed a profit of ¥1.2 billion. In spite of highly sophisticated refining and marketing techniques, the company could do little to control the swings of the world's crude oil markets. Showa began to diversify its product line, and in the 1980s built and bought office buildings and apartment houses, to gain rental income. Showa also invested in rental car and travel businesses.
Showa Oil and Shell Sekiyu formally merged in 1985. They had had a close operating relationship through most of their history. The merger made them equal partners in the new corporation. Showa Shell Sekiyu K.K. Royal Dutch/Shell retained a 50% interest in the new company. The merger streamlined the Shell affiliates' operations and made management more efficient and cost-effective.
Despite the company's ventures into non-oil areas, including the 1987 launch of a computer software company, Computer Plaza K.K., Showa Shell Sekiyu's focus remained on oil. At the end of the 1980s, oil market analysts were predicting an even larger Japanese presence in the world oil market in the decades to come. MITI would like 30% of Japan's oil to come from fields leased or owned by Japanese companies by 1995. In 1989, only 10% came from such sources. Also in 1989, MITI agreed to give tax incentives to companies that buy existing oil fields. Showa Shell Sekiyu made it clear that the company's aim is to become a major producer as well as refiner in the 1990s. Kiyoshi Takahashi, executive chairman of Showa Shell Sekiyu, compared his company at the end of the 1980s to the Japanese car industry 15 years earlier, implying that the big boom is still to come.
The affiliation of Showa Shell Sekiyu with Royal Dutch/Shell continues to be a crucial element in the company's success. As political turmoil racks the Middle East in the 1990s, and most Japanese oil companies are exploring alternative sources of crude, partnership with the world's largest oil company places Showa Shell a step ahead in the search for new petroleum markets. Showa Shell Sekiyu plans to continue to ensure a steady flow of oil into Japan in the coming decades.
Principal Subsidiaries: Showa Shell Sempaku K.K.; K.K. Rising Sun; Showa Oil K.K.; Shoseki International Corp. (U.S.); Showa Oil Hong Kong; Showa Yokkaichi Sekiyu K.K. (75%); Higashi Ohgishima Oil Terminal K.K. (52%); Toa Sekiyu K.K. (42.17%); Seibu Sekiyu K.K. (24.19%).
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