Japanese oil companies dramatically cut back refining capacities

Major Japanese oil companies are reducing their refining capacities due to a drop in domestic demand. The government has urged the reduction, as it fears that cutthroat competition could lead to a collapse of the entire industry. Cosmo Oil Co. President, Keizo Morikawa announced at a press conference in late August that the company plans to shut down its Sakaide refinery in Kagawa Prefecture in July 2013. The closure will result in a reduction of the company’s refining capacity by 20% or 140,000 barrels per day (bpd). Cosmo will integrate its refining operations in three locations to achieve increased efficiency.
Other companies in the industry are also rushing to reduce their refining capacities. The JX Group downsized by shutting down six of its processing plants as early as October 2010, reducing its refining capacity by 400,000 bpd. In September 2011, Showa Shell Sekiyu cut back its refinery capacity by 120,000 bpd at its Ogimachi plant in Kawasaki, Kanagawa Prefecture. Idemitsu Kosan Co. is set to shut down its 120,000 bpd Tokuyama refinery in Yamaguchi Prefecture in March 2014.
The cutbacks are unavoidable because of falling demand, due partly to the growing shift from oil to natural gas use and the increased efficiency of cars. According to the Petroleum Association of Japan, the 1999 domestic peak demand for petroleum of 245.97 million liters is expected to be approximately half of that at 134 million liters by fiscal year 2020. The 2009 Law Concerning Sophisticated Methods of Energy Supply Structures has encouraged further reduction in refining capacity. It calls on companies to increase the ratio of crude distillation units to their total processing capacity.
The goal is to bring the industry’s 10-year achievement of about a 10% crude distillation ratio to 13% by the end of fiscal 2013. (September 30, 2012)