Oil Diplomacy Editor
LOS ANGELES, Dec. 5 -- Japan's leading refiner Nippon Oil Corp. and sixth-ranked Nippon Mining Holdings Inc., faced with sluggish domestic demand for gasoline, announced Dec. 4 plans to merge their operations under a single holding company to be established in October 2009.
Apart from creating a firm that will include oil development and refining businesses, as well as operations in copper and other nonferrous metals, the newly formed company is expected to focus on energy technologies, including home-use fuel cells and next-generation solar cells.
Based on combined projected group sales for fiscal 2008, the new company would have annual sales of ¥13.15 trillion, surpassing China National Petroleum Corp. to become the world's eighth-largest firm.
Under the planned merger, the two firms' operations will be reorganized so that three companies specializing in refining and sales, field development, and metals, respectively, will operate under the new holding company.
With regard to refining, Nippon Oil Pres. Shinji Nishio underlined the strategy of the merger, saying: "The new firm will reduce refining capacity by 400,000 bbl, or 20% of the companies' combined capacity, within 2 years."
After the integration, the company is expected to consolidate its 10 existing refineries and domestic network of about 13,000 gas stations, aiming to boost profitability by eliminating excess capacity.
The merger will boost market share, and that is expected to make the new firm competitive against international oil companies such as ExxonMobil Corp., which operate in the domestic market.
Nippon Oil currently has a 23.1% share of Japan's gasoline market, with Nippon Mining Holdings unit Japan Energy Corp. commanding 10.3%. The new holding company will hold 33.4% of the Japanese market, or about twice the 17.7% share now controlled by ExxonMobil.
The merger is in line with perceived need in the current marketplace. According to The Nikkei Business Daily, Japan's oil industry is "burdened with excessive infrastructure and the resulting cutthroat competition."
Roughly 20% of refinery equipment is considered redundant, while the industry's profit margin of 1.43% is well below the manufacturing-sector average of 6.75%.
Contact Eric Watkins at email@example.com.