Japan's Idemitsu Kosan to reduce refining capacity

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 29 -- Japanese refiner Idemitsu Kosan Co., eyeing reduced demand for refined products, plans to cut 100,000 b/d of crude refining capacity by the fiscal year ending in March 2014.

The firm said its 3-year program from fiscal 2010 calls for reducing its combined capacity at four Japanese refineries to 540,000 b/d from the current 640,000 b/d.

Idemitsu Pres. Kazuhisa Nakano declined to specify which of the firm’s refining facilities will be subject to the reduction, saying only, “We will spend 1 year or so to decide.”

Under the downsizing plan, Idemitsu will reduce by 11% its 7,000-strong workforce by fiscal 2012 and by 21% by fiscal 2015 through natural attrition and recruitment curbs.

Idemitsu’s decision follows the continued reduction in Japan’s oil consumption over the past several years due to more energy-efficient technologies and a shift to cleaner-burning natural gas.

The downturn was documented by Japan’s Ministry of Economy, Trade, and Industry, which foresees a decline in the country's overall oil demand of 4.2% in the fiscal year started Apr. 1, after a drop of 4.6% the previous year.

Idemitsu’s decision comes just a week after the firm’s chairman announced a 50% cut in its Iranian crude imports to 10,000 b/d from the previous 20,000 b/d.

“The primary factor behind this is that domestic demand has been shifting to clean oil,” such as gasoline, kerosine and gas oil, said Idemitsu Chairman Akihiko Tembo, adding that the firm has been cutting heavy crudes generally.

The difficulties of Japan’s refiners were underlined at the time by Tembo, who also serves as Chairman of Petroleum Association of Japan.

"In a short term, crude oil prices are on a rise” and “the yen keeps weakening,” Tembo said, adding, “Both rises have dealt us a double blow.”

“We have found ourselves in an awkward situation,” he said. “As it has become harder for oil wholesalers to obtain refining profit margin, we should review [our] marketing method.”

That review apparently has taken place. Despite its downsizing plans, Idemitsu aims to nearly triple its operating profit over the coming 3 years by cutting costs in Japan and boosting overseas sales.

The company expects to post a consolidated operating profit of ¥120 billion in fiscal 2012 ending in March 2013, up from ¥44.5 billion estimated for fiscal 2009.

While cutting domestic refining capacity, the firm reportedly is considering expanding refining capacity in Asia and the Middle East to meet rising demand in emerging economies.

Idemitsu plans to bolster its crude production by 8,000 b/d from fiscal 2009 to 38,000 b/d through development of oil fields in Norway, the UK, and Vietnam where it owns drilling concessions.

According to analyst IHS Global Insight, Vietnam is central to Idemitsu’s overseas strategy. “The company hopes to boost investment [in Vietnam] to take advantage of a projected doubling of fuel demand to 600,000 b/d by 2020, while potentially using investments as a base to serve other regional markets such as Cambodia and Laos,” the analyst said.

Earlier this month, Brazil’s Petroleo Brasileiro SA (Petrobras) adopted a similar strategy to Idemitsu, saying it aims to turn Okinawa refiner Nansei Sekiyu KK into a wholly owned subsidiary and an Asian oil supply base.

Initially, Petrobras planned to furnish Brazilian crude to Nansei to be processed into light oil and raw chemical material for export to Asian markets. But it has since decided to use Nansei as a base for storing and exporting oil to other Asian refineries. Petrobras will deliver 1.8 million bbl of oil to Nansei every 2 months for shipment (OGJ Online, Apr. 6, 2010).

Contact Eric Watkins at hippalus@yahoo.com.

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