August 09:
TOKYO —
Japan’s biggest refiner JX Holdings Inc is likely to cut its crude capacity by 10% to meet a government order on boosting efficiency in the country’s struggling refining industry, the head of its oil business said.
Japan has five major refining companies and a host of smaller refiners, all competing to fill a dwindling number of cars as the country’s population declines and younger drivers opt for more fuel efficient vehicles. Every week more than 30 gasoline stands go out of business.
Japan’s industry ministry last week finalised a new directive aimed at either cutting refiners’ capacities or raising their output ratio for higher value fuels. An earlier directive had forced the industry to cut overall capacity by nearly 20% through March this year.
Most of Japan’s refiners are likely to choose cutting capacity, industry sources said, as investments in new units don’t make economic sense in a shrinking market.
“Considering that demand is falling, we recognise we cannot avoid capacity reductions,” Tsutomu Sugimori, president of JX’s oil unit, told Reuters. “We are cutting about 10%.”
Refiners are in a difficult position, however, as lower crude distillation unit (CDU) capacity could limit operation of secondary units, which would be contrary to the government’s goals of strengthening competitiveness, Sugimori said.
Refiners would also have less product to sell, he said. “It would be difficult for a refiner that has only two or three CDUs to scrap one of them.”
Overall, Japan’s capacity would fall to about 3.6 million barrels per day (bpd) by March 2017, from nearly 4 million bpd now, unless refiners choose to upgrade secondary units.
Japan’s oil demand is projected to fall 7.8% to 3.06 million bpd over five years to March 2019, a government energy committee forecast in March.
Refiners have until Oct. 31 to lay out their plans under the directive, according to the Ministry of Economy, Trade and Industry (METI).
Part of METI’s intention via the mandate is to encourage oil refiners to join forces in an industry realignment or in joint processing agreements, according to ministry documents.
Some refiners are already forming joint processing arrangements, and these could lead to mergers or other joint ventures, industry sources said.
“From a common sense standpoint, I wouldn’t be surprised if (mergers) occurred,” said Sugimori.
Cosmo Oil may deepen cooperation with other refineries at its plants in Yokkaichi and Sakai in western Japan, Cosmo’s Senior Executive Officer, Kenichi Taki, said to reporters on Tuesday.
“The directive has just been issued and we will consider how we can meet the targets from now,” Taki said.
Kyokuto Petroleum Industries (KPI) - a unit of TonenGeneral Sekiyu - and Cosmo Oil are already integrating their refining operations in Chiba near Tokyo by connecting them with pipelines.
The two may scrap the 110,000 bpd No.1 CDU at Cosmo’s Chiba plant, giving credit for the capacity cut to both Cosmo and TonenGeneral, industry sources said.
Multiple refineries are located in industrial areas in Kawasaki in eastern Japan and Yokkaichi and Sakai in western Japan, where similar arrangements could be made, said an analyst who declined to be identified.
The new mandate has come into effect just as Japan’s refiners report their first-quarter earnings. Despite a recovery in oil refining margins, they have suffered from lower overall profits as falling oil prices hurt gains on inventories.
JX said that net profit for the three months through June fell 60% to 14 billion yen from a year earlier.
But earlier capacity cuts had given it the best petroleum refining margins in seven quarters.
Idemitsu Kosan, Japan’s second biggest refiner by revenue, said on Tuesday that its quarterly profit fell 59% to 9.2 billion yen.
Cosmo Oil Co, Japan’s third-biggest refiner, said its first-quarter loss widened to 6.5 billion yen, from 4.7 billion yen a year earlier.
TonenGeneral said last week that its first-half performance had swung to a net loss of around 15 billion yen.
Source: www.japantoday.com/category/business/view/oil-refiner-jx-to-cut-capacity-10-to-meet-govt-mandate
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