* Annual overseas trading volumes seen rising to 3 million mt
* VLGC fleet to rise to 8 tankers
* Overseas trading involving US LPG possible
Japan's newly established Gyxis intends to triple its annual overseas LPG trading volume to 3 million mt and double its VLGC fleet in three years as it aims to become "one of leading trading companies" in the world, its executive vice president Shigeki Nara told Platts in an interview this week.
Gyxis was established on April 1 by the consolidation of the LPG import and wholesale operations of Japanese refiners Cosmo Oil, Showa Shell and TonenGeneral along with trading house Sumitomo, creating an LPG trading powerhouse with an estimated share of the Japanese market of around a quarter.
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Japan is the world's largest importer of LPG.
The consolidated LPG importer and distributor had combined annual domestic sales of around 3.7 million mt -- excluding LPG used to generate electric power or as a raw material for petrochemicals -- with imports of about 2.8 million mt and overseas trading of some 1 million mt, based on the four companies' volumes in 2013.
The company aims to increase annual volumes from combined domestic sales and overseas trading volumes of around 4.7 million mt before the consolidation to "around 6-7 million mt in an early stage" by expanding its overseas trading operations, Nara said.
"We aim to bring our [annual overseas trading volumes] to 3 million mt, equal to domestic volumes in around three years," Nara said.
In order to the expand its overseas trading, Gyxis also intends to expand its VLGC fleet to "seven to eight vessels," up from four VLGCs on time-charter on the same timeline as expanding the overseas trading volume, Nara said.
"Further ahead, we aim for a fleet of 10 tankers," he said without giving an indication of when.
Expanding its overseas trading volumes will also help enhance energy security by diversifying Gyxis' supply sources, as well as increasing the competitiveness of supplies to Japan, Nara said.
"We need a certain volume to be flexible in our response to changes in demand situations as customers overseas generally do not commit to long-term contracts but rather seek one-year-long term or spot deals," Nara said.
While declining to specify its target markets overseas, Nara said growth is expected mainly in Southeast Asia, adding that Gyxis's trading will likely involve increased supplies from the US.
US LPG PROCUREMENTS
Prior to the consolidation, Middle East supplies accounted for 70-80% of Gyxis' LPG procurement with the US supplying less than 20% and the balance coming from others on a landed basis to Japan, Nara said.
The US supplies include multi-year term contracts with Enterprise Products Partners for 500,000-600,000 mt/year, or roughly one cargo per month, of LPG indexed to Mont Belvieu prices, said Nara, adding that Sumitomo had had contracts with Enterprise since 2001.
In recent years, Japanese companies have increased US LPG procurements as part of efforts to diversify supply sources beyond the Middle East and to introduce the MB indexation to Saudi Aramco's dominant contract prices system.
Nara said Gyxis would consider whether to raise procurements from the US and that despite the apparent slowdown in US shale oil output growth following the oil price collapse, liquids production from the country would continue to grow.
He also said he expects US supplies to Asia will ultimately grow, whether or not they are shipped through the expanded Panama Canal, which will shorten the voyage to Asia. The Panama Canal expansion is expected to be completed in the second quarter of 2016.
In 2014, Japan imported around 1.59 million mt of LPG from the US in 2014, comprising 13.7% of the total 11.6 million mt it imported in the year, up from an 8.2% share in 2013, according to the Japan LP Gas Association.
In Japan, Gyxis has an annual LPG output of around 700,000-800,000 mt through its access to 11 refineries across the country, said Nara, adding that "having the domestic output is an extremely strong point."
It also has import terminals at seven locations: Kashima, Chiba, Kawasaki, Hekinan, Yokkaichi, Sakai and Oita -- ranging from the east coast to the southwest in the Pacific Ocean -- and four smaller, satellite terminals at Shimizu, Sakaide, Matsuyama and Hiroshima typically used by coastal vessels.
Nara also said Gyxis would watch developments in light of an expected rise in Japan's LPG demand for city gas supplies. LPG can be used to add calorific value to lean LNG, gas with more methane and a lower heating value, imports of which are increasing.
Over the next five years to fiscal 2019-20 (April-March), Japan's LPG demand for city gas use is expected to rise by an average 6.3% a year to 1.584 million mt as Japan starts importing lean coalbed methane-based LNG from Australia from fiscal 2015-2016 and gradually starts importing lean LNG from the US from fiscal 2018-2019, according to a recent Ministry of Economy, Trade and Industry forecast.
Gyxis is held 25% each by Cosmo Oil, Showa Shell, Sumitomo and TonenGeneral.
--Takeo Kumagai, firstname.lastname@example.org
--Edited by Alisdair Bowles, email@example.com