Mandates add pressure on Japanese refiners

By OGJ editors
HOUSTON, July 14 -- New mandates for upgrading capacity might accelerate a restructuring of the Japanese refining industry, says the International Energy Agency.

Beset by rapidly falling domestic demand for oil products and growing competition from China and elsewhere in Asia, Japanese refiners are struggling with excess distillation capacity (OGJ, June 21, 2010, p. 54).

But of 1.1 million b/d of capacity cuts announced last year, less than 400,000 b/d has been assigned to specific facilities and can be considered firm, IEA says in its July Oil Market Report.

But that might change following a regulation introduced July 5 by the Japanese government.

By March 2014, Japanese refineries must increase their heavy-crude upgrading capacity to 13% of distillation capacity from the current 10%.

Refiners must submit plans for increasing their upgrading ratios by Oct. 31.

“Refiners not willing to invest in expensive upgrading units in the current weak-margin environment could instead reduce crude distillation capacity, speeding up industry consolidation in progress,” IEA said.