Japanese oil refiners scramble to shrink capacity

With five major Japanese refiners scrambling to reduce capacity by the spring of 2014, the current glut of gasoline and other petroleum products will likely ease, but oil companies will still be left to navigate such challenges as restructuring domestic product supply operations and expanding overseas.
The Japanese government introduced a new rule in 2010 that requires refiners to raise the ratio of heavy oil cracking to refining capacity by March 2014.
In response, TonenGeneral Sekiyu KK will stop operating some equipment at two of its three refineries while also investing upwards of US$52.4 million dollars to increase its cracking unit capacity. These changes are planned for the Kawasaki plant in the Kanagawa Prefecture south of Tokyo, and in Arita in the Wakayama Prefecture in western Japan. Overall, the changes will result in a reduction of 105,000 barrels per day, or 16% of the company’s overall capacity.
At a press conference, TonenGeneral President Jun Muto said his company is not considering any voluntary retirement programs as part of the capacity cuts. One change not easy to forecast is the impact on exports. About 30% of the company’s output is exported, so export volumes might be slightly affected as a result of the capacity cut, he said.
Cosmo Oil Co. is expected to close its Sakaide refinery in Kagawa Prefecture in July 2013. Cosmo and TonenGeneral had been slow to comply with the regulations, and Cosmo is still the only big refiner not on a path to compliance, so it plans to scrap additional equipment or make additional investments in cracking facilities next fiscal year in order to meet the standard.
JX Nippon Oil & Energy Corp. and Idemitsu Kosan Co. will shut down refineries in Hokkaido and Yamaguchi prefectures by March 2014. Both firms will streamline operations and both plan to increase their focus on chemicals and other products with a high added value.
Even with the capacity cuts, Japanese refiners will not be finished making drastic overhauls to their operations. Imports of Asian gasoline are expected to intensify competition further, while domestic demand for petroleum products is projected to fall as Japan’s population shrinks and more eco-friendly vehicles hit the road. A government projection estimates that domestic gasoline demand will tumble by as much as 60% from current levels by 2030.
Consequently, oil companies will need to re-examine domestic operations, expand into new business areas and stretch their reach overseas. The reduction in refineries is expected to increase partnerships in procurement and logistics in the industry. (February 14, 2013)