Japan's empty tanks spark oil trading hub ambitions
By Takeo Kumagai
July 14 - As Japan tries to navigate its way through the big changes facing its oil sector through refinery rationalizations, mergers and modifications, industry sources and analysts see a potential for it to emerge as North Asia's premier trading hub.
As it changes from a traditional oil consumer and local refiners cut capacities in the wake of falling domestic demand, it could leverage its surplus storage capacity to play a more active role in crude and oil products trading, industry sources said.
Japan, the world's third-largest oil consumer, after the US and China, is expected to find itself with a lot of surplus storage capacity at oil terminals and refineries in the coming years.
"We must think about ways to utilize our existing facilities instead of closing down and scrapping them," a senior refinery source said.
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Japan's refining capacity "is significantly in surplus today and with rapidly declining demand, there is no doubt that the surpluses are going to increase in future," Satvinder Roopra, head of downstream oil consulting at Wood Mackenzie, told Platts over the phone recently.
Japanese refiners have been forced to mothball unprofitable plants and consolidate assets in recent years. The latest was the creation of the JX Group, following a merger of Nippon Oil, Japan's largest refiner, and miner and refiner Nippon Mining Holdings.
JX is committed to cut overall refining capacity by 400,000 b/d by the end of March 2011.
It will cut another 200,000 b/d of refining capacity by at least the end of fiscal 2013-14 and this plan could be advanced, depending on the demand situation, the company has said.
The fundamental change in domestic consumption has also left refiners trying to shore up their profits by increasing oil products exports.
Japan's domestic demand for oil products is expected to fall to 160.8 million kiloliters (2.77 million b/d) in the fiscal year ending March 2015, down 12.5% from an estimated 183.75 million kl (3.17 million b/d) for the current year ending March 2011, according to forecasts from the Ministry of Economy, Trade and Industry.
The forecast domestic demand for products over 2014-2015 represents 59.7% of Japan's current installed refining capacity of 4.64 million b/d.
"The question is what you would do with that surplus? Do you just cut [the refining capacity], as in the current strategy, or do you try to find other markets?" Roopra said.
"The South Koreans have used their surpluses [excess capacities] to export out, while Singapore has used its surpluses to support its hub status
to supply into regional markets," he said. "There are certainly options available for Japanese refiners other than closing down."
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