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Update – Exxon, Petrobras, Cosmo study shutting Japan Refinery/units vs adding Cokers

Home Forums Coking News: DCU, Upgrader 1.Coker (registered users only) Japan Refinery Closure & Flexicoker becomes standalone Update – Exxon, Petrobras, Cosmo study shutting Japan Refinery/units vs adding Cokers

#5550

Charles Randall
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Exxon, Petrobras May Shut Japan Units on New Rules
By Shigeru Sato and Yuji Okada
July 6, 2010 (Bloomberg)Exxon Mobil Corp.’s Japanese unit and Petroleo Brasileiro SA may have to spend billions of dollars upgrading plants or else shut units because of new rules aimed at boosting heavy-oil refining, analysts said.
The regulations require refiners to increase the proportion of gasoline and gasoil they produce from residues, which are cheaper than lighter crudes, Trade Minister Masayuki Naoshima said yesterday. The move may force the nation’s fuel producers to cut capacity by 800,000 barrels a day, or 17 percent, as they opt to mothball plants rather than carry out costly upgrades, said Hidetoshi Shioda, a senior energy analyst at Mizuho Securities Co.
The rules are meant to compel Japanese refiners to modernize refineries or cut capacity in an oversupplied market so they can compete more effectively with Asian rivals, according to the trade ministry. About 10 percent of the country’s capacity is dedicated to heavy oil processing, compared with 36 percent in China and an Asian average of 19 percent, the ministry said in April.
Exxon’s unit, Tonengeneral Sekiyu K.K., Cosmo Oil Co. and the Brazilian company known as Petrobras stand to lose the most because they have low ratios of residue-refining capacity to crude distillation, said Osamu Fujisawa a Tokyo-based oil economist at industry consultant FE Associates.
“Given the bleak prospects for Japan’s fuel demand, these refiners aren’t likely to spend large sums of money on upgrades but will instead downsize plants,” Fujisawa said.
Low Ratios
Kosuke Kai, a spokesman for ExxonMobil Yugen Kaisha, which holds a 50 percent stake in Tonen, said the company is reviewing the new regulations and declined to comment further. Nelson Toyomura, a spokesman for Petrobras unit Nansei Sekiyu, said the company hasn’t determined what to do with its 100,000 barrel-a- day plant on Okinawa island.
Cosmo Oil spokesman Katsuhisa Maeda said he’s not sure how the company will deal with the new rules. The Tokyo-based refiner, 21 percent owned by the government of Abu Dhabi, has started internal talks to decide how to make its refineries competitive.
Companies whose ratio of residue refining to crude distillation is less than 10 percent will need to increase the proportion by 45 percent by March 2014, according to the new rules. Nansei Sekiyu, Cosmo Oil and TonenGeneral all fall into that category, according to Bloomberg calculations based on refinery data compiled by the Petroleum Association of Japan.
Showa Shell
Showa Shell Sekiyu K.K. will be the least affected among Japanese refiners as it already has a relatively high ratio of residue-processing capacity, said Hirofumi Kawachi, a senior energy analyst at Mizuho Investors Securities Co. in Tokyo.
The company has 88,000 barrels a day residue-processing capacity compared with 515,000 barrels a day of crude distillation, a ratio of about 17 percent, according to the company’s website. That proportion will climb to 22 percent when the company makes good on plans to shut permanently a 120,000 barrel-a-day crude unit by September 2011.
Refiners with a ratio between 10 percent and 13 percent need to boost the proportion by 30 percent, and those with more than 13 percent must increase the ratio by 15 percent, the trade minister said in its announcement on July 5.
Residue processing facilities such as coker units and residue fluid catalytic crackers that can produce gasoline and gasoil components from fuel oil cost around 100 billion yen ($1.1 billion) to build, making them too costly to be viable in a market where fuel demand is declining, said Yuji Nishiyama, an analyst at Credit Suisse in Tokyo.
Japan’s domestic demand for fuels is likely to decline at a rate of 3.5 percent a year through March 2015 because of a shrinking population and a shift to energy conservation, according to the trade ministry.
“The refiners may have to make more cuts if local demand falls faster and steeper in the next decade,” said Shioda of Mizuho Securities in Tokyo.
–Editors: Alex Devine, Clyde Russell.
To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net.

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