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Japan mulls new emergency oil supply framework with Asian oil consumers

Japan is looking into cooperating with other Asian oil consumers to work out reciprocal frameworks aimed at ensuring the uninterrupted flow of crude and oil products in the event that a potential escalation of tensions in the Middle East threatens to disrupt supplies.

Under a policy outline approved Wednesday at the Ministry of Economy, Trade and Industry’s oil and natural gas subcommittee, Japan should boost its energy security further by a number of measures, including cooperation on security of supply with other Asian oil consumers.

“Without ensuring the security of Asia, Japan’s security also cannot be guaranteed,” Hajime Wakuda, deputy director general of METI’s natural resources and fuel department, told the subcommittee, referring to the region’s great dependence on Middle Eastern oil supply.

“Japan should utilize its know-how and reserve assets for [petroleum] reserve cooperation with Asian countries,” Wakuda said. “For example, we should aim to enhance security Asia-wide by such win-win measures as two-way exchange of crude and products in the event of an emergency.” METI’s policy outline will be the basis for its policy recommendation at its natural resources and fuel committee on December 11 in order to set the government’s new international resources strategy after January.

ASIA’S VULNERABILITY

The attacks on Saudi Arabia’s oil facilities in September exposed Asia’s vulnerabilities in absorbing supply disruptions with purpose-built emergency stocks, which either don’t exist or fall short of global standards.

While organizations like the International Energy Agency have coordinated strategic petroleum reserves (SPR) in member countries, most Asian countries are not IEA members and are unable to fund expensive long-term storage programs.

While IEA members Japan and South Korea have mandated petroleum reserves of 90-days of fuel imports, China and India are still building theirs, with oil exporters like Indonesia and Malaysia finding less need for petroleum reserves.

Tokyo’s latest policy development results from its analysis that any supply disruptions at other major Asian oil consumers would have side effects on Japan’s oil supply security.

Japan’s security of oil supply came under the spotlight on June 13 when two vessels, including one operated by a Japanese shipping company, were attacked just outside of the Strait of Hormuz. The waterway, a key route for oil tankers in the Persian Gulf, is used for around 80% of Japan’s crude imports.

PAJ SUPPORTIVE

Japanese refiners welcomed METI’s latest policy outline Wednesday to enhance energy security.

“We see it is an important task to diversify supply sources in order to reduce the Middle East dependency,” Nobuaki Oshio, managing director of the Petroleum Association of Japan, told the subcommittee.

“We need to look at procuring crude oil from outside the Middle East, or from the Middle East without the [Strait of] Hormuz exposure by considering economics, supply stability and refinery compatibility,” Oshio said.

Japanese refiners, however, called for enhanced petroleum reserves systems, as dependency on both the Middle East and Strait of Hormuz cannot be reduced any time soon, Oshio said.

“Taking into consideration potential supply disruptions from the Middle East as well as its possible long-term [disruptions], we request to maintain the current [petroleum] reserve volumes in order to contribute to enhancing Asia-wide security,” Oshio said.

Refiners also urged for improved mobility of Japan’s national petroleum reserves, with closer cooperation between the government and private sector for emergency situations.

At the end of September, Japan’s petroleum reserves stood at 509.54 million barrels, accounting for 230 days of consumption, and 193 days of imports, METI data showed. This includes 9.43 million barrels held by Saudi Arabia and Abu Dhabi.
Source: Platts

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