Studying sogo shosha

opinion

by Alasdair Whyte

September 28, 2023

Nike’s Worldwide Headquarters in Portland Oregon is not just a place to work. It also tells the history of the company. There are buildings named after Michael Jordan, John McEnroe and Serena Williams. Announcements are made in the Tiger Woods Conference Centre.

In the middle of the campus there is the Nissho Iwai Gardens dedicated to the Japanese trading company (now Sojitz) that saved Nike from bankruptcy in 1975 and its founder Phil Knight from a possible criminal investigation.

Few countries have the equivalent of Japan’s sogo shosha which literally translates as ‘trading company’. These companies are now widely diversified with investments across many different industries. Warren Buffett’s Berkshire Hathaway (which has similarities with Japanese trading companies) owns 8.5% stakes in the biggest five.

Trading houses have become key investors and players in Sustainable Aviation Fuel (SAF). Japan has proposed a domestic mandate where 10% of all aviation fuel needs to be SAF by 2030. This is expected to become law next year. But the sogo shosha are not just looking at domestic SAF.

This week Mitsui & Co, a leading Japanese trading house, agreed to fund 25% of a new SAF and renewable diesel refinery in Portugal. The refinery, which will use used cooking oil and fats as feedstock, will be operated by Galp, Portugal’s largest energy company.

Mitsui & Co is also a strong supporter of LanzaJet. It invested $10m in the company in 2020 and is keen to help establish a plant in Japan working with Cosmo Oil. All Nippon Airways is also a LanzaJet investor.

“It is a great pleasure to see LanzaJet’s innovative technology starting to take shape and Mitsui is very proud of being a part of the strong partnership that is making it happen,” said Toru Iijima, chief operating officer of the Energy Solutions Business Unit, Mitsui & Co, when celebrating a construction milestone at LanzaJet’s facility in Georgia last year. “We look forward to developing commercial projects using LanzaJet technology around the globe.”

The trading house has identified energy transition as a key strategic initiative in its medium-term Management Plan 2026 (which was announced in May). Asian SAF manufacturing is a target for its next financial year.

Sojitz has been the sales agent for Boeing in Japan since 1956. Last year it signed a memorandum with the manufacturer to promote SAF and other renewable technologies like hydrogen. In May, it announced an investment in NEXT Renewable Fuels in Texas. NEXT is using the HEFA process to produce SAF.

Marubeni, another sogo shosha, is part of a consortium with the UAE energy company Masdar, TotalEnergies and Siemens Energy looking to make SAF from methanol.

In 2018 it entered a strategic agreement with Fulcrum Bioenergy. Marubeni led a group of investors which also included Japan Airlines and the Japan Overseas Infrastructure Investment Corporation for Transport and Urban Development. Japan Airlines also agreed to buy SAF. Trading houses do not just bring money – they also bring relationships with customers.

As part of the deal, Marubeni and Fulcrum agreed to jointly develop waste-to-fuels plants outside the US for 10 years. Marubeni has also been working on looking at using plastics to make SAF in Japan.

Trading companies do still trade. Itochu is supplying Neste fuel in Japan. Itochu and Fuji Oil are blending the neat SAF with fossil jet fuel in the country.

Itochu is an investor in Raven SR which uses the Fischer-Tropsch process with its Steam/CO2Reforming process. As part of this investment, Itochu has helped Raven SR arrange off-take agreements with All Nippon Airways and Japan Airlines.

“We are grateful our strategic partner Itochu introduced us to JAL to initiate this landmark agreement for long-term SAF supplies that will foster growth for Raven SR on a global basis and help JAL with its carbon reduction commitments,” said Matt Murdock, CEO, Raven SR, when the agreement was announced.

Sumitomo, another trading house, is looking at making SAF from waste wood. It has announced an agreement with Nippon Paper Industries inside Japan. Sumitomo Corporation of Americas is also working with technology firm Axens and finance firm Allotrope Partners on a study to produce SAF in California. The project is looking at using waste from forestry as a feedstock.

In May, Mitsubishi Corporation launched a $1bn decarbonisation fund with MUFG bank and Pavilion Private Equity, a South Korean firm. The Marunouchi Climate Tech Growth Fund is looking to invest $20m to $100m in about 20 start-ups by 2029. It wants to invest in SAF start-ups.

Mitsubishi Corporation already invested in Swedish Biofuels which is planning to make SAF using Alcohol-to-jet technology before the announcement. The trading company was also an early investor in Bill Gates’ Breakthrough Energy (which has funded LanzaJet’s Georgia facility).

Aside from oil companies, it is hard to think of any group or businesses that is as committed to SAF as Japan’s trading houses. The country has a long history of investing in aviation. If you have ever flown on a widebody aircraft operated by a European flag carrier, the odds are that you have flown on an aircraft financed by Japanese investors (British Airways would not have been privatised without Japanese leases in the 1980s).

Soon there is a good chance that a Japanese trading house will also have helped make the fuel.