Hiroshi Kiriyama has always felt it is important to consider all of a company’s stakeholders, rather than just the shareholders. This is why for the last few years he has tried to walk a difficult tightrope: being conscious of the environment while also being CEO of an oil company.
As Group CEO of Cosmo Energy, Hiroshi is part of a sector that has made a major contribution to global warming. But he is adamant that this is a role where he can make an impact, and he has committed to transforming the company into a carbon neutral green energy provider.
"Currently, the oil business is still our main source of revenue, but we are heading towards carbon neutral," Hiroshi says. "One mainstay of the business that we’re trying to establish is wind power, and we’re hoping this will be our main business stream in the future."
Cosmo is nearing the end of a medium-term management plan, launched in 2018, to move the company towards greener energy under the slogan "Oil and New".
When we were preparing for this back in 2017, there were hardly any oil companies saying that they would be heading towards CO2 reduction.
"When we were preparing for this, there were hardly any oil companies saying that they would be heading towards CO2 reduction," Hiroshi reveals. "But for our company, we were mentioning it for at least a decade before the launch of the plan. So this is something very unique."
Cosmo’s transition away from fossil fuels also includes an investment in electric vehicles – an area where the company will leverage its rich trove of customer data to help establish a strong presence.
"We see automobiles changing to electric vehicles, and another aspect of that would be to go into the mobility service areas," Hiroshi adds. "We think that we have the largest amount of customer data compared to our peers, and we’d like to make the best use of that and using DX [digital transformation] technology."
Cosmo offers a package of products that includes renewable energy and electric vehicles under its Zero Carbon Solution business. This means customers who buy their vehicles also buy the electricity to power them from Cosmo. Rather than producing the vehicles itself, the company owns a stake in the car manufacturer that does.
"We are going into the whole supply chain of the renewables and carbon-free business," Hiroshi explains. "Zero Carbon Solution is a unique business."
In order to be able to produce wind power, Cosmo must win public tenders for the rights to build wind farms. This, Hiroshi says, is a key concern for the company in the medium-term.
"We’re heading towards offshore wind power, and these are awarded through tenders. So we want to make sure that we actually have the ability to win the tenders. That’s where we need to look for the next one to two years," he says.
Another challenge for the company is to improve digital literacy throughout the organisation.
"We want to improve the literacy of all of the employees within the Cosmo Group," Hiroshi continues. "There are several layers to this, such as creating data scientists or also improving the literacy level of non-data specialists as well. We already have a program with a time span of about three years in order to improve on each level."
Cosmo’s smartphone app has four million users, so the company is combining customer data from the app with data from users of its credit card in order to offer customised marketing to individual consumers.
"We are also just beginning to exchange data with other companies and will be looking towards creating specific marketing channels for each individual. That’s something that we’re just planning and going forward with now," Hiroshi notes.
We think that we have the largest amount of customer data compared to our peers, and we’d like to make the best use of that.
It is not just in the field of data where Cosmo depends on strong partnerships to maximise its potential. One place where many organisations share mutual interests is Abu Dhabi. In fact, the government of the United Arab Emirates even owned a 20 percent share in Cosmo until recently, when it exited the group as part of its decarbonisation policy.
"They have exited our company but the strong connection with the country still continues," Hiroshi says. "Another very stable partnership we have is with the Abu Dhabi National Oil Company. We have signed an MoU [Memorandum of Understanding] to do joint studies in CCUS, or Carbon Dioxide Capture, Utilisation and Storage, which means injecting CO2 into the ground and in return enhancing the oil production, which essentially creates a carbon-free oil."
Cosmo has also signed an MoU with a UAE company called Masdar, which is one of the world’s leading renewable energy companies. The two companies are collaborating to explore the possibility of creating new renewable energy initiatives that include projects both inside and outside Japan.
Domestically, Cosmo also enjoys strong relationships with its several hundred dealers, who operate under the Cosmo brand. The number of local partners has been increasing as Japan’s oil sector undergoes significant consolidation. "Now we have basically only three major oil companies in Japan," Hiroshi declares. "Among the three, we are doing well."
In the petrochemicals sector, Cosmo has a joint venture in Korea with Hyundai Oilbank, as well as a joint venture company producing ethylene, a material used to produce polystyrene. "We have lots of collaboration and very close relations with partners in all areas of our business," Hiroshi says.
"Being in the oil industry," he adds, "there aren’t very many suppliers compared with other industries. But obviously, for us, it’s the oil-producing countries who are our most important suppliers, of which the UAE and especially Abu Dhabi is the most important. That’s why we have our producing company there. We also purchase significant amounts of crude oil from Abu Dhabi. So it is probably one of the most important suppliers for Cosmo."
Bucking the trend
One key characteristic that differentiates Cosmo from its competition is its extremely high refinery utilisation rate, which measures how much crude oil refineries are processing as a percentage of their total capacity.
"Our refineries operate at above 99 per cent of our capacity, which is very high compared to our peers," Hiroshi stresses. "Our competitors’ refinery utilisation rates are probably about 20 points lower than ours."
This high utilisation rate makes Cosmo highly cost competitive, and was enabled by the company’s decision to close unnecessary refineries earlier than others did.
Our refineries operate at above 99 per cent of our capacity, which is very high compared to our peers.
While competitors have suffered amid a fall in demand for oil in the country, Cosmo has bucked the trend.
"Although demand is falling across the whole of Japan, we have managed to tie up with other companies so that for us, our sales volumes have actually increased, so we have the customers there, whereas our peers don’t have the customers," Hiroshi says.
Hiroshi hopes Cosmo’s strong position in the Japanese oil market will also place it in a strong position to effect change. "Although we are an oil company, we’re seen as a very environmentally conscious company," he points out.
"We’ve been doing this for a very long time, and we plan to continue to do this for a long time to come."