Japan calls for increased refining capacity to ease shortages

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 18 -- Japan’s government is pursuing a number of emergency measures to deal with fuel shortages that include shipping 38,000 kl of oil products by sea from refineries in Hokkaido and western Japan to the Tohoku region, hard-hit by the recent earthquake and tsunami.

Minister of Economy, Trade, and Industry Banri Kaieda called on the Petroleum Association of Japan (PAJ) to implement the emergency steps after earlier urging oil distributors to release 1.26 million kl for supply to the market.

Kaieda said the government will secure 38,000 kl/day of oil products to be shipped by sea to oil storage facilities in Akita and Niigata prefectures from 13 refineries in Hokkaido as well as Sakai, Mizushima and elsewhere in western Japan.

Kaieda also called for the operating rates of refineries in western Japan, which stand at around 80%, to be raised to at least 95%.

Idemitsu Kosan Co., JX Nippon Oil & Energy Corp., and other major oil distributors already are stepping up their own efforts to alleviate Japan's fuel shortage.

Idemitsu will raise utilization rates at all of its domestic refineries. It had expected the rate to be at around 85-90% for the first quarter, but will now lift it to almost full capacity.

On Mar. 17, JX Energy shipped 5,000 kl of gasoline by sea to a facility in Yokohama from its Mizushima refinery in western Japan.

In addition to boosting supplies to the Kanto region, JX Energy also planned as soon as today to transport gasoline, light oil and other products by rail along the Sea of Japan coast to relieve earthquake-hit regions.

Cosmo Oil Co. said it has increased refining capacity at its Yokkaichi and Sakaide facilities in western Japan by a combined 80,000 b/d.

Cosmo’s 220,000 b/d Chiba refinery was damaged in the quake, so the firm will increase capacity by more than 20% at other refineries to cope with shortages.

Showa Shell Sekiyu KK said it will transport oil products from refineries in Kawasaki and elsewhere to terminals in the cities of Niigata and Akita before trucking them overland to afflicted areas in Miyagi and Iwate prefectures.

PAJ Pres. Akihiko Tembo said the increased refinery utilization—combined with emergency imports of 450,000 kl and suspended exports of 650,000 kl—represent “a total 1.4 million kl of additional supply” or more than 3 days' worth of Japanese consumption.

PAJ earlier said last week’s earthquake and tsunami stopped six refineries, including JX Nippon Oil & Energy Corp.'s Sendai facility, the only refinery in the Tohoku region, closest to the epicenter.

In addition, JX Nippon Oil & Energy Group was forced to stop operations at two other locations: its Kashima refinery in Kamisu, Ibaraki Prefecture, and its Negishi refinery in Yokohama.

Two other refineries also have stopped operating in Ichihara, Chiba Prefecture—one owned by Cosmo Oil Co. and the other by Kyokuto Petroleum Industries Ltd.

Altogether, the capacities of the six refineries come to more than 1 million b/d, or more than 25% of Japan's overall capacity.

Foreign oil firms respond
Foreign oil companies also are increasing their efforts to supply Japan with needed supplies of oil and gas.

Chevron Corp. has arranged for a tanker to ship oil from Indonesia to Japan for use in Tokyo Electric Power Co.'s power plants and is in negotiations to secure additional vessels.

A Chevron spokesman said the moves are in response to energy demand in Japan, where fuel is in short supply following the earthquake and tsunami.

Royal Dutch Shell PLC is making preparations to direct as many extra oil and LNG tankers as possible to Japan. The company supplies the fuels to Japan under long-term contracts, but is supplying extra beyond its normal quotas.

Analysts at Nomura International Ltd. said Japan’s oil demand may jump by 3.9%, or 171,000 b/d, as the country seeks alternative power sources after the earthquake and tsunami disabled nuclear power plants.

Japan will make up for the bulk of the nuclear power losses by boosting output in oil- and natural gas-fired power plants, said Nomura, basing its estimates on the effect of quakes in 1995 and 2007.

Other analysts concurred with Nomura’s outlook.

Commerzbank said, “4% of Japan's power plant capacities are offline on a sustainable basis after nuclear power plants have been shut down, meaning that Japan's energy requirements have to be covered to a greater extent by fossil fuels such as oil, coal and gas."

Deutsche Bank analysts said in a research note, "It is odd to think of Europe or Japan as potential growth markets for thermal coal.”

They continued, “However, with nuclear power production apparently moving into reverse in these two regions, the outlook for fossil fuels such as thermal coal, in addition to natural gas and oil, appears much more promising.”

In recent days, the price of uranium—used to generate nuclear power—has slumped by 25% while the costs of coal and gas have soared by more than 10%.

The International Atomic Energy Agency said Japan will need an additional 200,000 boe/d for power plants to offset electricity generation lost from the nuclear power plants that were shut down following the earthquake and tsunami which struck the country on Mar. 11.

Contact Eric Watkins at hippalus@yahoo.com.

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