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Japanese oil, gas and petrochemicals

Hydrocarbon Engineering,

Oil and gas

BMI has reported that new Japanese legislation that was meant to streamline the refining sector has seen approximately 400 000 bpd of the country’s refining capacity coming offline and new favourable terms for joint ventures are expected to see the downstream sector consolidate further. BMI has therefore forecast that weak refined product demand to offer limited future prospects for the sector. BMI has also forecast that the demand for LNG is to remain elevated. The increase in LNG purchases is also said to be reflecting higher consumption by the power sector. In the short term, BMI expect demand for LNG to remain steady as Japan continues to fill the nuclear void.

Annual crude import contracts are being impacted by the reduction in refining capacity. Processing of imported crude declined 3.4% year on year in September 2014 to hit 3.28 million bpd, down from 3.39 million bpd in September 2013. The theoretical oil import requirement forecast is expected to be 4.32 million bpd this year and to fall to 2023, especially when nuclear capacity comes back online.

When it comes to natural gas, BMI believes that demand will still increase for 2014 figures, as data from the country’s 10 utilities indicate that LNG purchases increased by 2.4% year on year between April and September 2014.


The Japanese petrochemicals sector is ageing and is struggling to compete with an increasingly competitive Asian market, so cracker capacity is being cut, dramatically. BMI has also said that Japanese olefins production has been adversely affected by a drop in polymer output domestically. Polymer production has failed to return to levels witnessed pre the 2008 financial crisis and this trend, BMI believes, spells trouble for Japan’s petrochemicals producers who are already grappling with a falling competitive edge and squeezed margins.

Approximately half of Japan’s cracker capacity is reportedly fed by imported naphtha, which has risen in cost recently, losing competitiveness against ethane fed production in the Middle East and the US. BMI has reportedly calculated that crude distillation capacity fell considerably in reaction to new refining laws and that is what has affected the domestic cheap availability of naphtha for the petrochemicals sector.

Finally, BMI has said that the domestic Japanese market will not be sufficient to lift the country’s petrochemicals industry. A rebound is expected this year, however the rest of BMI’s forecast period to 2023 is going to see low levels of growth and similarly low rates of consumption growth in petrochemicals segments exposed to the automotive industry, such as ABS rubbers and engineering plastics.

Edited from report briefs by Claira Lloyd

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