Japanese refineries close as the country's petroleum consumption falls

Japanese refiner ENEOS permanently closed a 120 000 bpd refinery in western Japan in mid-October 2023, and another company, Idemitsu Kosan, plans to close a 120 000 bpd refinery in March 2024. These closures represent 7% of the country’s refinery capacity.

The EIA forecasts consumption of petroleum products in Japan will decline by 3% between 2023 and 2024 to 3.3 million bpd. Japan’s petroleum consumption declined by an average 2% per year through 2022 from its peak of 5.7 million bpd in 1996, largely because of demographic and economic changes. The oil intensity of Japan’s economy, measured as barrels of oil consumed per US$1000 of GDP, has been declining.

Japan’s population peaked in 2009, and the country has seen some of the slowest economic growth among OECD countries since then. In addition, the share of Japan’s population aged 65 and older was 30% as of 2022, compared with 21% in the EU, 17% in the US, and 14% in China, according to the World Bank.

Japan’s refineries were built mainly to serve its domestic fuel needs, and the country has trouble competing in international markets. These refineries are smaller and less complex than newer refineries in Asia, including those in China, South Korea, and India. Complexity refers to a refinery’s secondary processing capacity, such as hydrocracking and coking, which upgrades low-value heavy fuel oil into valuable transportation fuels. More complex refineries can produce more high-value products from the crude oil they process. Less complex refiners, like those in Japan, also process lighter and sweeter grades of crude oil, which are more expensive than heavier and more sour grades. Higher yields of lower-value products, combined with using more expensive crude oils, makes refiners in Japan less profitable and less competitive in world markets. Complex refinery margins in Asia can be 30% - 50% higher than simple refinery margins.

In the EIA’s recent ‘International Energy Outlook’, it projects Japan’s petroleum consumption will continue to decline beyond 2024, suggesting that refiners in Japan will face additional competitive pressures.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/28122023/japanese-refineries-close-as-the-countrys-petroleum-consumption-falls/