Saudis may begin storing oil on Okinawa by yearend

Saudi Arabia, competing with other suppliers and building on plans under way for several months, is likely to start storing crude oil in national storage facilities on Okinawa by yearend, according to a senior Japanese official.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Apr. 27 -- Saudi Arabia, competing with other suppliers and building on plans under way for several months, is likely to start storing crude oil in national storage facilities on Okinawa by yearend, according to a senior Japanese official.

"We expect Saudi Aramco to start by the end of this year," said Hidenobu Teramura, director for petroleum policy at Japan's Ministry of Economy, Trade, and Industry (METI).

Last December, Saudi Arabia's Oil Minister Ali al-Naimi said his country had accepted an offer by the Japanese to store “millions of barrels” of oil in commercial storage in the Okinawa islands.

Further signaling this shift, Aramco last December relinquished its Caribbean storage in St. Eustatius to PetroChina (OGJ Online, Jan. 12, 2010).

Saudi crude exports to the US dropped to 989,000 b/d in 2009 from 1.503 million b/d in 2008—the time volumes have fallen below 1 million b/d since 1988.

As a result, Saudi Arabia, which is currently producing just over 8 million b/d of oil, now exports more than 50% of its output to the Asian market, which is expected to account for the bulk of future demand growth (OGJ Online, Apr. 20, 2010).

The Saudi move follows recent reports that Brazil’s Petroleo Brasileiro SA (Petrobras) plans to turn Okinawa refiner Nansei Sekiyu KK into a wholly owned subsidiary and an Asian oil supply base.

The shipments are likely to add more than 33,000 b/d to Brazil's crude sales to northeast Asia, though traders said changing price conditions and freight economics could prompt Petrobras to sell part of the cargo before it reaches Okinawa (OGJ Online, Apr. 6, 2010).

Meanwhile, according to Teramura, Aramco plans to store 3.7 million bbl/month under an agreement that is likely to last at least 3 years. Under the agreement, Japan will have priority access to the oil.

In an apparent attempt to begin clearing space for Saudi Arabia to store its crude on the island, Japan already has offered oil from its reserves on Okinawa.

Japan is offering 220,000 kl of Kuwaiti Khafji crude and about 260,000 kl of Iraqi Basra Light crude, according to a tender document on METI’s web site.

Under the tender offer, for which bids will be opened on Apr. 30, the oil will be released from tanks the government rents at the Okinawa Oil Base and shipped between June 10 and Sept. 9.

A METI official said the tender is part of a plan by the Japanese government to change the composition of the national stockpiles by holding less heavy crudes and more lighter grades.

Contact Eric Watkins at hippalus@yahoo.com.

More in Pipelines & Transportation