Regulations slash Japan's refining capacity cut by 20%, temporary relief from cuts expected

04-Apr-14

Japanese refiners have slashed capacity by around 20% to meet government regulations and for individual corporate reasons -- now face the prospect of not having enough supply of some products in the next few months to meet domestic demand, as per industry sources in Platts. An increase in imports of naphtha and low sulfur fuel oil is expected amid several plant shutdowns due to planned maintenance through June. Japan's current refining capacity is down 19.2% from a 10 year peak of 4.89 mln bpd in early April 2008 and down 520,000 bpd or 11.6% from 4.47 mln bpd a year ago, according to Ministry of Economy, Trade and Industry data. Scheduled maintenance will take at least 915,000 bpd of Japan's refining capacity offline in May and 1.2 mln bpd in June -- accounting for 23-30% of total capacity, according to Platts calculations. That would leave the country's operable refining capacity at about 3.04 mln bpd in May and 2.75 mln bpd in June. Japan's combined refining capacity has fallen to 3.95 mln bpd as of March 31, but the country's under-pressure downstream sector might have to cut yet more capacity by March 2017 if the government moves ahead to revise the regulations and implement revisions. Japan's naphtha imports are expected to rise by around 15.1 million barrels year on year from as early as in fiscal 2014-15 (April-March) as a result of decommissioning refining operations at JX Nippon Oil & Energy's 180,000 bpd Muroran refinery and Idemitsu Kosan's 120,000 bpd Tokuyama refinery, according to Platts calculations based on industry information. In addition to generally steady naphtha demand for aromatics, Japan's naphtha imports are expected to increase to make up for loss in naphtha output at JX's Muroran and Idemitsu's Tokuyama plants as the companies turn the former refineries into petrochemical plants.