Eric Watkins
Senior Correspondent
LOS ANGELES, Aug. 4 -- Idemitsu Kosan Co. will spend ¥16 billion to upgrade the 45,000 b/d fluid catalytic cracking unit at its 220,000 b/d Chiba refinery east of Tokyo.
In the face of declining market rates for its fuel oil, the firm aims to increase production of naphtha and propylene, while decreasing production of heavy fuel oil.
After the upgrade, due for completion in April 2011, the unit's production of heavy fuel oil will be reduced by 200,000 kl/year, while its production of naphtha and propylene will increase by 260,000 kl/year.
In May, Idemitsu Kosan Co. sold 30,000 tonnes of heavy grade fuel oil for loading in early June, described by company and trading sources as likely to be its first spot sale of the fuel in 3 years.
Sources said that Chiba was running at nearly full capacity then and that stocks were high. They said such a rare export compounded pressure on an Asian market already "awash" with supply due to weak Chinese demand.
At the time, the price spread between fuel oil and Dubai crude worsened to minus $27.15/bbl from minus $26.80/bbl, more than doubling year-on-year from the 2007 level of $13.55.
Last November, Idemitsu Kosan Co. said it planned to triple its capacity to export refined products at Chiba and at its 160,000 b/d Aichi refinery.
Reports said the refiner wants to export a combined 3 million kl/y of jet fuel, gasoil, and gasoline, up from current capacity of 1 million kl/y, by reforming pipelines and revamping switching pumps.
After revamping the Chiba and Aichi facilities, Idemitsu Kosan plans to expand the export capacity of its 140,000-b/d Hokkaido refinery and 120,000-b/d Tokuyama refinery.
Price changes
Meanwhile, Idemitsu Kosan Co. last month announced plans to start linking its wholesale prices of gasoline, diesel, and two other petroleum products to oil futures and spot prices so that higher procurement costs are promptly reflected in the prices it charges to domestic gas stations.
Wholesale prices for those products will be calculated by adding transportation costs as well as brand and other fees to base prices.
The base prices will be determined by using prices of oil futures on the Tokyo Commodity Exchange and spot oil prices published by major research firms. In addition, wholesale prices will be revised every week rather than the current twice a month.
Idemitsu now sets its wholesale prices mainly by computing crude oil procurement costs and having changes in them reflected in existing wholesale prices.
"We are hopeful that we will be able to secure profit margins that are comparable to those of foreign oil wholesalers" under the new system, said Idemitsu Pres. Akihiko Tenbo.
Contact Eric Watkins at [email protected].