Japan's oil refiners continue to scale down production capacity
A growing number of gasoline stations and refineries in Japan are scheduled to be permanently closed in the months ahead due to declining demand for gasoline and other oil products, and a law which took effect in 2009. The law requires gasoline stations that installed storage tanks 40 years ago or earlier to either refurbish or replace them by the end of January.
The increasing availability of fuel-economy cars, as well as declining vehicle ownership especially among young people has led to less demand for gasoline and other fuel oils in Japan. The Petroleum Association of Japan said that demand shrank from around 250 million kiloliters in fiscal 1999, to
around 200 million kiloliters in fiscal 2011.
The country’s wholesalers are paring down their refinery and oil processing facilities due to shrinking gasoline sales. By the end of March 2014, Japan’s refinery capacity is projected to drop by 10% from 4.48 million barrels at the end of October this year.
The revised Fire Service Law is also causing refiners to slowly reduce their operations, but some, are preparing for permanent closures. Under the 2009 law, which is meant to enhance international competitiveness of the refineries, refinery operators have the choice of either trimming their capacity by March 31, 2014 or making capital investments to meet enhanced refinery standards.
Refineries that opt to make capital investments are required to either refurbish underground tanks at gas stations which are 40 years old or more and equip them with sensors that will detect oil leaks or replace the tanks within two years. Failure to abide could mean forfeiture of operating licenses.
According to the Fire and Disaster Management Agency, a total of 61 oil leaks and other accidents that were linked to obsolete underground tanks were reported in 2011. In addition to the upgrading of the tanks, the agency has also asked station owners to address the issue of corrosion.
An industry official said the cost of refurbishing three tanks could reach ¥7.5 million (US$79,586.73). Since many stations use one tank for gasoline and another for diesel fuel, the cost of renovation and replacements are quite high and as a result, as of September 30 last year, only around 30% of all tanks have been refurbished.
An industry survey of 500 station owners revealed that around 7.5% are planning to shut down because of the revised Fire Service Law.
Cosmo Oil Co. announced it will permanently shut down its Sakaide refinery in Kagawa Prefecture in July this year; and Idemitsu Kosan Co. said its Tokuyama refinery in Yamaguchi Prefecture would stop operations in March 2014. The country’s largest oil wholesaler, JX Nippon Oil & Energy Corp., will also stop crude oil processing at its Muroran refinery in Hokkaido by the end of March 2014.
The closure of a refinery in Japan has a major impact on the local economy and poses a big dent on the fuel supplies of the country because the locations of Japan’s refineries lack geographical diversity. Out of 27 refineries, a majority of the country’s refineries are located in the Pacific coastal regions so there are concerns about maintaining a stable supply of fuel in the event of a disaster.
To urge JX Nippon Oil to keep running its refinery in Muroran, the city government of Muroran gathered around 200,000 signatures last December. A city official said closure of the refinery “would undermine kerosene supply and the backup function for energy supply in a disaster.”
According to the Agency for Natural Resources and Energy, a branch of the Economy, Trade and Industry Ministry, the total number of gas stations in the country has dropped from around 60,000 at the end of fiscal 1994 to around 38,000 on March 31, 2012, the end of fiscal 2011.
Many stations across the country also supply kerosene for heating and closure in cold regions could mean increased inconvenience for residents who rely on them. (January 17, 2013)
