Inpex transformation takes urgent tone On a barren stretch of coastline in Japan's northern Niigata prefecture lies Naoetsu, a gas-receiving terminal under construction by Inpex, the country's biggest energy explorer and producer. Unlike most of the 28 facilities already built to handle shipments of liquefied natural gas, Naoetsu is lapped by the Sea of Japan rather than the more quake-prone Pacific Ocean. However, since the tsunami in March last year, engineers have reinforced levees and lifted the foundations of the site's power generators. "We have to consider every risk," says construction co-ordinator Hiroshi Une. The same goes for Inpex itself, as the 42 year-old company looks to move into what president Toshiaki Kitamura calls the "top tier" of upstream specialists, able to operate big and complex projects rather than simply invest in them. That transition was under way before March 2011, as Inpex poured resources into developing a medium-sized LNG project in Indonesia and a large one off the coast of Western Australia, known as Ichthys. However, the total shutdown of nuclear reactors after the Fukushima crisis means that Inpex's mission to bring LNG to Japan, some of it via Naoetsu, is now a more urgent one. Utilities" purchases of LNG rose by more than a quarter in the last fiscal year. Some idled nuclear plants may be restarted, but a return to pre-crisis levels of nuclear power generation within Japan looks "almost impossible," says Mr Kitamura. By 2018, when both Inpex projects should have come on stream, they will produce almost 11m tonnes of LNG a year between them - equivalent to about one-eighth of Japan's record-high consumption last year. "Contributing to the secure provision of energy for Japan has made us even more determined to secure these projects" schedules," says Mr Kitamura, a former vice-minister for internal affairs at the trade ministry, hired by Inpex three years ago and promoted to president in 2010. The government is the largest shareholder in Inpex, with 19 per cent. Investors will be watching closely too. Eight years after privatisation, Inpex is still something of an unknown quantity. Almost all of its 73 assets in 26 countries are small stakes in projects controlled by other companies. "They don't bring a lot to the table technically," says Brynjar Bustnes, energy analyst at JPMorgan in Hong Kong. That largely passive portfolio is reflected in Inpex's market capitalisation of Y1.7tn ($21bn), 37th among global producers, some way short of the peer-group - Apache ($31bn), Anadarko ($29bn) and BG ($63bn) - to which Mr Kitamura aspires. "Inpex is seen as "deep value,"" says Neil Beveridge, senior analyst at Bernstein Research in Hong Kong, referring to low-priced stocks with high potential. There's tremendous growth there, provided they can pull off these projects. That is why so much rides on Ichthys, Japan's biggest-ever investment in Australia, formally launched last month by Australia's prime minister Julia Gillard. When Inpex took the final decision to press ahead with the $34bn project in January this year, it lifted its proven reserves by four-fifths at a stroke. The company is now talking to banks to fund about half of its share of development costs, currently at 72 per cent. Total, the French major, has 24 per cent of the project, with Japanese utilities holding the balance. But much remains uncertain. Costs spiralled and the timetable slipped after Inpex scrapped its original plan to build an LNG liquefaction plant on the Maret Islands, 200km away in Western Australia. Instead, Inpex will run an 889km pipeline from the Timor Sea to Darwin, in the Northern Territory. According to Bernstein's Mr Beveridge, costs on global LNG projects typically blow out by 30 per cent from the final estimate and the projects arrive at least a year behind schedule. By his calculations, which assume such overruns, Ichthys will be among the most expensive of the two-dozen projects that could turn Australia into the world's largest LNG exporter by 2017, surpassing Qatar. Mr Kitamura says Inpex has guarded against cost inflation on Ichthys by spending a full year on scenario planning before the final investment decision, and by negotiating an "unusually high" proportion of lump-sum payments with contractors. He notes, too, that the more experienced Total is providing the project's managing director and "more than 30" officers on secondment. Investors in Inpex seem to be reserving judgment. The company's shares beat the Topix index by about a fifth in the six months after the quake, but have since lagged behind the benchmark. "Not many oil companies can have a truly game-changing development," says Penn Bowers, a Tokyo-based analyst with CLSA. Inpex can prove themselves in a lot of ways over the next couple of years.