Stakeholder Dialogues

Introduction

Tanaka

Chiyoda Corporation is a socially responsible company and, in the six years since I became an Outside Director, the company has navigated the transition from coal and petroleum to LNG as a major source of global energy. By actively working towards more efficient and cleaner energy across the globe, Chiyoda actively contributes to society. LNG, the Company’s core business since the 1990s, is evolving in parallel with the trend towards a carbon-free society and continues to grow, extending Chiyoda’s successful track record of delivering projects worldwide, primarily in the USA and Qatar.

As the pursuit of decarbonization accelerates and headwinds against petroleum and gas increase, the world is proceeding along the correct path towards clean, renewable sources of energy. The actions of major corporations, such as the American IT giants of Google, Apple, Facebook, Amazon, and Microsoft in declaring their support for the realization of net-zero greenhouse gas (GHG) emissions throughout the entire supply chain by 2030, 20 years ahead of the target set by the government, is essential. Corporations on both sides of the supply and demand balance are realizing that collaboration and a common approach towards clean energy to meet global environmental challenges for the benefit of society is essential to improve business performance.

We are also seeing considerable shifts on the financial front and the more than 450 Japanese companies declaring their support for the TCFD recommendations as of July 2021, following Chiyoda’s support in 2019, has grown exponentially during COVID-19. I believe this increase is especially due to the propensity of younger generations to realize a sustainable global environment. The world will not return to pre-COVID-19 conditions and thriving companies need to adapt to the changing global business environment.

I am looking forward to hearing all your views and I trust that we can share our thoughts openly in discussing the issues to address, and other topics, and how Chiyoda and we as individuals can support the realization of a carbon-free society.

Contributing to Society through Hydrogen and Carbon

Ikeda

I have been involved in the development of SPERA Hydrogen^TM since the hydrogen business was established in April 2011, not long after the Great East Japan Earthquake. Due to that devastating event, there was immense pressure to revise our energy policies, including reassessing the role of nuclear power.

Hydrogen began to attract attention as an alternative source of energy at that time. In 2014, three years after the launch of our SPERA Hydrogen^TM initiative, the Japanese government became the world’s first organization to unveil a strategic road map for hydrogen and fuel cells, followed by the ‘Basic Hydrogen Strategy’ announcement in 2017. However, factors such as the lack of widespread awareness of the importance of reducing CO₂ emissions, led to an inability to implement economic measures.

The challenges in our industry are changing according to the accelerating shift towards global decarbonization of the last two years. The importance of effectively managing environmental issues has become more recognized and a paradigm shift is taking place as companies address such issues through their business activities, presenting both risks and opportunities to our business.

As society continues with this change, our medium to long-term goal is to implement a hydrogen value chain and use our hydrogen technology to support the realization of a sustainable society. We will utilize our technological development and integration strengths and will collaboratively engage with energy and trading companies and other business partners. Establishing a hydrogen value chain will hasten the development of an even more sustainable energy system from the perspective of making effective use of carbon. In the long term, renewable energy and hydrogen as the ultimate clean energy will be our main source of energy. Carbon will be integrated with hydrogen and converted into chemicals or used in battery production. Our goal is to integrate renewable energy, hydrogen and carbon.

Chiyoda is also pursuing commercializing the use of carbon and will leverage its strengths as an integrated engineering company while playing an important role by anticipating the changes that lie ahead.

Enhancing the Chiyoda Brand by Providing Cutting-edge Solutions

Yao

Society’s demands for decarbonization by reducing CO₂ emissions have increased since I joined Chiyoda in 2015 and the global transition to alternative, cleaner sources of energy is a business opportunity for our Company.

I have been involved in the process engineering of LNG plants since joining Chiyoda and have experienced the increased emphasis on reducing LNG plant CO₂ emissions to tackle climate change, including both minimizing CO₂ generation during LNG production and recovering CO₂ already emitted. Chiyoda uses AI to improve energy efficiency to tackle the former and our carbon dioxide capture and storage (CCS) technology, capturing and storing emitted CO₂, and capture and utilization (CCU) technology to reuse the recovered CO₂, to tackle the latter.

I am currently responsible for the NFE LNG Project in Qatar, secured in February 2021. Our client, QatarEnergy, has a declared goal of reducing all Qatar’s LNG plant GHG emissions by 25% by 2030. Our proposals to reduce CO₂ emissions from our plants, minimize on-site power generation facilities by receiving power from existing power plants and using CCS technology have been adopted by clients. Because the thermal efficiency of existing power plants is greater than our on-site power generation facilities and renewable energy is used to generate some power from the existing power plants, CO₂ emissions are reduced.

Chiyoda generates much of its business, including NFE, based on our successful track record of delivering world-class state-of-the-art projects and developing collaborative long-standing robust working relationships with our clients founded on reliability. By promptly responding to the changing needs of our clients and consistently providing cutting-edge solutions, we will further strengthen our existing client relationships and, by promoting our corporate brand, enhance our global presence.

Tanaka

Chiyoda has a long history of successfully delivering LNG projects in Qatar and we will promote our hydrogen and CCS technology, in addition to LNG, based on our reputation for reliability and transparency. By delivering on our customers current requirements, while also proposing solutions to future needs, we will further strengthen our existing relationships and foster new associations with valued customers.

Looking One Step Ahead of Decarbonization Technology

Masagaki

When I joined Chiyoda in 1999, my wish was to work in an environment-related division. I have therefore observed the global drive towards decarbonization with great interest and, looking back over the last 20 years, am surprised that the trend did not commence sooner.

Realizing decarbonization, particularly using CCU, will encompass energy and material approaches.

In terms of urgency and handling volumes, CCU technology for the manufacture of energy carriers is taking precedence over similar technology geared to material production. Examples include creating methane and jet fuel through CO₂ and, while different from CCU, creating ammonia for fuel from ‘clean’ hydrogen (from renewable energy). The low return on overhead costs from using environmentally friendly energy compared to conventional energy, such as coal and petroleum, was a disincentive for the shift to decarbonization which did not therefore commence due to economics. However, this obstacle was removed as a result of the increased importance of ESG investment and the scrutiny of financial institutions over conventional energy projects. The power of economic rationality therefore also provoked the shift to decarbonization, which I find ironic.

CCU for material production will likely gain popularity in the future. For example, CO₂ can be converted into plastic and concrete materials. While CCS technology can store CO₂ underground, storing all of the CO₂ emitted using CCS technology will be impossible, and monitoring the stored CO₂ will entail long-term costs. Because lifestyle needs will continue to be essential, we must be open to utilizing CO₂ by material means.

Regardless of whether CO₂ will be used to produce natural gas as synthetic methane or converted into materials such as plastic, an extensive amount of green hydrogen (from renewable energy sources), will be required in order reuse CO₂ in such forms. Hydrogen atoms are found in many objects in our daily lives, including plastic PET bottles and polyethylene. As such, the demand for CCU-related green hydrogen will strengthen drastically from 2030 onward, raising concerns over the intense competition for green energy that will likely take place on a global scale.

Based on these assumptions, Japan will be uncompetitive in terms of cost for hydrogen and energy transport, due to its geographical location and domestic industry challenges towards realizing decarbonization in the near future. For that reason, the Japanese government must seriously consider undertaking measures that will ensure that its country remains competitive on the global stage. Due to the high hurdles involved in realizing decarbonization from the perspective of ensuring energy security, I believe we are at a stage where bold action must be taken over the medium to long term in the form of the “Asia Super Grid” project, encompassing sharing natural energy between Asian countries.

Tanaka

While it may be challenging to transport large volumes of energy from certain countries in light of energy security, the Asia Super Grid is certainly not ‘out of reach’ as long as hydrogen can be imported as another solution.

Extracting hydrogen from gas in Russia and using CCS or creating energy from hydropower for transportation via pipelines to Japan is also worthy of consideration. A range of options should be considered for Japan to remain globally competitive.

Advancing the Energy Transition through CCU Technology

Takagawa

I remember discussing global environmental issues and how the term “global warming” appeared in textbooks when I was a child in school. However, few people were then aware that this was a major problem. Over the last few years, we have witnessed a drastic shift in the approach towards decarbonization, which continues to this day.

I have been involved in plant design and construction in the EPC business since joining Chiyoda 10 years ago. My wish to contribute to realizing a sustainable global environment has strengthened as a result of the growing trend towards decarbonization, and is one reason I wanted to join a team tasked with developing new businesses in its pursuit. I have been able to converse with university students in the past and hear their views on the environment and was amazed at their awareness and detailed knowledge of the 17 SDG goals.

When we study the measures being undertaken by the American and European governments, we can assess the urgency with which they are addressing environmental issues. Certain cases, such as when Royal Dutch Shell plc was ordered by a district court in the Netherlands to raise its decarbonization targets, have been a catalyst for change. In executing my responsibilities, I have also had the opportunity to talk with institutional investors in Japan and discovered that environmental awareness in Japan, both individually and organizational, was below that of Europe and the USA due, for the most part, to a ‘passive’ approach. Japanese institutional investors do not include factors such as GHG emissions when deciding on investments and this made me realize that Japanese ESG investment is lagging behind Europe and the USA. I also sensed that these regions are revamping existing profits and industry structures to accelerate the decarbonization progress more effectively. For these reasons, it may be a good idea for Chiyoda to initially advance into Europe, establish a market position there and familiarize ourselves with their technologies and services before expanding in Japan, in a reverse import kind of way.

I am currently involved in a CCU project that involves creating para-xylene from CO₂. As previously stated by Mr. Masagaki, both CCS and CCU will be critical to realizing decarbonization. I hope to significantly contribute to energy transition as the world implements measures in the pursuit of decarbonization.

Tanaka

The Royal Dutch Shell court order had an enormous impact on energy companies too as they have been highly respected since commencing scenario analysis in the early 1970’s. Despite efforts to disclose measures for realizing carbon neutrality by 2050, the company was served with this court order. Such cases demonstrate how the world is rapidly changing.

As Ms. Takagawa stated, Europe and the USA are leading Japan in environmental awareness, an area of increasing importance for developing business in these regions. Conducting business with trading companies and other enterprises in Europe is very interesting.

Establishing a Presence in New Domains by Leveraging Our Sophisticated Technologies and Expertise

Shibahara

Chiyoda has continued to grow through its core business of large-scale, complex plant EPC work and leveraging its chemical engineering capabilities. However, the company will be unable to rely on these capabilities to the same degree in the future because of the global trend towards decarbonization, which includes renewable energy, hydrogen production through electrolysis and energy storage. Continuous and distributed type standalone equipment is now mainstream for energy systems, meaning that Chiyoda’s strengths differ from required technologies.

Under these circumstances, we are being urged to reshape our organization into a new Chiyoda by leveraging our cultivated strengths. While there may be some urgent technical obstacles to overcome, as long as we can effectively use our core competencies, we will be able to lead way towards decarbonization.

Our technological capabilities will be key to continued success. Even without the proprietary technologies for new types of energy, proposing optimal solutions by measuring the economical efficiency of our underlying technologies and equipment as a system integrator is an acknowledged value and is unique to the Company. The ability to market products manufactured through our distinctly Chiyoda craftsmanship reflect our experience and current endeavors in the digital transformation field, supplying electricity and distributed energy and our continuous dedication to technology is a further advantage. These products include complex energy systems, such as heat supply utilizing green energy and hydrogen and decarbonization applications in the industries of our expertise, and for sectors within which we will look to enhance asset values throughout the entire infrastructure lifecycle. From the perspective of leveraging our existing technologies, we must propose technological assessments and scale-ups along the upstream section of our energy system development process and develop a framework conducive to the stable generation of earnings in non-EPC fields.

Our safety design technologies, cultivated through our EPC plant activities, have enabled us to secure orders for large-scale battery energy storage projects. Our expertise as an engineering company can be used in many fields and I am confident our departments can collaborate to enhance our implementation capabilities.

Enhancing Corporate Value through Consistent Stakeholder Engagement

Ikejiri

I have managed sustainability and social contribution activities in the IR, PR & CSR Section since 2015.

Our most significant progress in CSR initiatives over the last few years has been conducting TCFD scenario analyses. As mentioned earlier by Director Tanaka, Chiyoda declared its support for the TCFD recommendations in 2019 and conducted trial analysis during participation in the Ministry of the Environment’s Project to ‘Analyze Scenarios of Climate Risks and Opportunities in Accordance with TCFD’. Scenario analyses were conducted based on a 4˚C scenario, in which measures are not undertaken in response to climate change, and on a 2˚C scenario, within which net-zero GHG emissions is the goal for the second half of the 21st century. However, the 2˚C scenario will need to be updated following further scenarios, such as a 1.5˚C scenario, by leading sustainability companies in Europe and the USA. In these regions, political measures and financial backing are in place to aggressively advance towards realizing carbon neutrality, with pressure from financial institutions and non-governmental organizations (NGOs) to mitigate CO₂ emissions and divest from fossil fuels. I hope we can conduct more in-depth scenario analysis in line with such advancements.

We have disclosed data for Scope 1 and Scope 2 emissions and aim to do the same for Scope 3 emissions in the future.

I understand the dichotomy between proposing technological solutions and implementing expensive environmental initiatives when controlling costs. Nonetheless, the extraordinary advances made by our clients to reduce CO₂ emissions will translate into tremendous business opportunities.

A priority issue for management under the current medium-term management plan is the promotion of climate change measures. We will promptly communicate the Company’s diverse initiatives, aimed at realizing the corporate philosophy of ‘Energy and Environment in Harmony’, to stakeholders as part of the IR, PR & CSR Section's daily activities, fulfilling our role in promoting our business and enhancing corporate value.

Tanaka

Today has been a tremendously valuable experience and I thank you all for expressing your opinions so candidly.

I sense that the drastic shifts taking place in our world are felt deeply by all of you. We must therefore think seriously about how Chiyoda can adapt our technologies to this changing environment. Successful companies have an abundance of exceptional talent and technological seeds and I look forward to watching the younger generation, such as yourselves, blossom into inspiring leaders in the years ahead.