WATCHING THE WORLD A CHANGE IN JAPAN'S POLICY

Creation of a joint venture among Saudi Aramco Oil Co., a group of Japanese refiners, and Caltex Petroleum Corp. to add refining capacity in Saudi Arabia and Japan has provided another indication that Japanese restrictions on refinery construction are about to change.

As well as building a 300,000 b/d grass roots refinery at Jubail, Saudi Arabia, the joint venture plans to add 150,000 b/d of distillation capacity to an old mothballed Nippon Oil Co. plant in Japan and provide the expanded site with full upgrading facilities (OGJ, June 1 0, p. 1 8).

END OF BAN IN SIGHT?

In theory, 18 year old restrictions on building refining capacity in Japan would preclude such a project. But because the Saudi Aramco-Nippon Oil joint venture was encouraged by Japan's Ministry of International Trade and Industry (MITI), it is assumed in industry circles that the building ban is on its way out.

First indication the policy was about to change came at the end of last month when the Petroleum Council, one of MITI's key advisory committees on the oil industry, completed a study of Japanese refining capacity. It found that new upgraded capacity will be needed to meet future demand for products. The report is now with MITI, and Japanese sources say it is likely to be accepted.

The joint venture is not the only group that believes building restrictions will be scrapped. Outline plans by four other Japanese refiners call for substantial batches of new capacity that would add about 280,000 b/d to Japan's processing capability.

Refinery building restrictions were imposed by MITI in response to a boom in construction in the 1960s that outstripped product demand and left most plants operating at less than 70% of capacity.

The policy has been remarkably successful. Most of the country's 4.38 million b/d of distillation capacity works at well over 80% of capacity. But one side effect is the growing dependence of Japanese markets on some types of product.

Almost 30% of Japan's kerosine requirements and nearly 75% of its naphtha consumption are met by imports, most of them from the Middle East. MITI appeared unconcerned at this import dependence because products sales were often tied in with crude deals giving Japanese companies more clout with state oil company suppliers in the Middle East.

FALLOUT FROM WAR

All that changed with Iraq's invasion of Kuwait. One of Japan's biggest single sources of products, Kuwait's refining complexes, were immediately put out of bounds.

That was followed by Saudi Arabia's decision at the end of last year to end all exports of gas oil and kerosine so top priority could be given to products needed by the allied buildup for the liberation of Kuwait.

Saudi Arabia has lifted the export ban, but the Japanese newspaper Nikkei Weekly reported Japanese companies were told the by the Saudis long term contracts for gas oil will not be resumed until next March.

With demand for all products on the rise, Japanese oil companies and MITI are once more nervous about security of supply.

That could mean the end of reliance on overseas refineries to supply large volumes of some products.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.