For a country famously short of hydrocarbon resources, Japan has a surprising number of upstream firms. At least 10 sizable players and domestic firms supply around a third of the nation’s oil and gas. That’s no small feat for the world’s No. 2 LNG importer and No. 4 oil buyer.

According to a recent media report, however, state officials feel that it may be time for an industry consolidation. While most of Japan’s exploration & production (E&P) firms are private, two of the bigger players are state-backed. METI is both the top shareholder and has oversight over CEO appointments at INPEX Corporation and Japan Petroleum Exploration Co, better known as JAPEX.

The two companies have enjoyed bumper profit recently thanks to high oil and gas prices. Net income at INPEX, Japan’s top E&P firm, jumped 97% to a record ¥438 billion in 2022. But over the mid-to-long term, METI officials believe that the costs associated with hydrocarbons will increase and, along with decarbonization, put a strain on the companies. Rather than waiting for the hard times, the ministry is reportedly seeking preemptive action.

Unlike their oil & gas peers in Europe and North America, Japanese upstream firms have so far faced little overt pressure from activists or the media to decouple from hydrocarbons. And while both INPEX and JAPEX have announced net-zero 2050 pledges, in line with the national commitment, as well as investments in renewables and other clean energy areas, the bulk of their business remains focused on oil and gas.