Japan’s JXTG eyes reducing Middle East term crude imports in 2020
Japan’s largest refiner JXTG Nippon Oil & Energy is looking to reduce term crude oil imports from the Middle East in 2020 in order to diversify supply sources and adopt a flexible feedstock procurement strategy in preparation for stricter marine fuel sulfur requirements, the president of parent company JXTG Holdings said Friday.
“We are looking to reduce fixed deals as much as possible in order to be able to buy light and heavy grades as needed on a spot basis,” Tsutomu Sugimori said at an earnings press conference in Tokyo.
“This would be most economically rational as well as helping [us] to respond to the IMO [mandate],” Sugimori said, referring to the International Maritime Organization’s sulfur limit mandate for marine fuels from next year.
The possible move by JXTG, which has an installed refining capacity of 1.93 million b/d, to reduce its Middle East term crude supply is significant because the supply from the region accounted for 88% of Japan’s total crude imports in 2018.
Japan’s term crude imports also accounted for 69% of the 3.06 million b/d imported in 2018, with spot supplies making up the balance, according to the Ministry of Economy, Trade and Industry data.
Asked whether JXTG is looking to cut term crude procurements from the Middle East, Sugimori told reporters: “After all the Middle East accounts for the largest amount of our term [supply].” “If we are reducing them [term procurements], that’s only the region,” he added.
Sugimori’s remarks came as JXTG has already made efforts to diversify its crude supply sources to generate economic benefits, while keeping the Middle East as its main supply source.
Japanese refiners typically import crude on VLCCs from the Middle East and refine sour grades with desulurizers to generate economic benefits, while they import arbitrage cargoes on smaller Aframax or Suezmax tankers.
“While the Middle East is currently large [as a supply source] because of the economical rationale, there are some issues surrounding the Strait of Hormuz,” Sugimori said.
Tokyo became nervous after the September 14 attacks on Saudi Arabian oil facilities, which occurred after two ships, including one operated by a Japanese shipping company, were attacked on June 13 just outside the Strait of Hormuz. A key route for oil tankers in the Persian Gulf, the Strait of Hormuz is used for around 80% of Japan’s crude imports.
JXTG’s ambition to adopt a more flexible approach in its crude procurements also came at a time when the refiner is increasingly adjusting its production of IMO-compliant bunker fuels following its start of commercial supply in October.
The IMO will cap global sulfur content in marine fuels at 0.5% from January 1, down from the current 3.5%. This applies outside the designated emissions control areas, where the limit is already 0.1%.
“Our principle is to minimize residual output in our throughput system,” said Sugimori, adding that the company will still be able to find buyers for its high sulfur fuel oil supply after making a good progress in cultivating a customer base.
To produce IMO-compliant bunker fuel oil, JXTG is looking to buy light crude oil from the Middle East, the US and Russia, Sugimori said.
“Although I am not sure how this works out by our unit configurations, we should aim for the system to take any [crude] from anywhere,” Sugimori said. “The more we diversify [our supply sources], the easier it becomes to respond to the IMO [mandate].”
Since the start of the supply of IMO-compliant bunker fuel, JXTG has been ready to supply 0.5% sulfur bunker fuel oil at eight refineries — all of the refineries it had planned to supply the fuels.
Low sulfur IMO 2020-compliant fuels are now available at JXTG’s 145,000 b/d Sendai refinery in the northeast, the 197,100 b/d Kashima refinery on the east coast, the 270,000 b/d Negishi refinery and the 129,000 b/d Chiba refinery in Tokyo Bay; the 135,000 b/d Sakai refinery, the 320,200 b/d Mizushima refinery, the 120,000 b/d Marifu refinery in the west; and its 136,000 b/d Oita refinery in the southwest.
Japan’s potential LSFO demand for bunkering is estimated to be around 100,000 b/d, according to S&P Global Platts calculations based on market information. This includes demand from domestic coastal vessels, which account for roughly half of domestic demand.