TOKYO - State-owned China National Petroleum Corp (CNPC) is looking at taking a 49 percent stake in Nippon Oil Corp's Osaka refinery, a move that would match burgeoning oil product demand in the world's second largest energy consumer with Japan's growing refining surplus.
Japan's falling oil demand has left it with spare refining capacity, and the aim is to eventually export all the output of the 115,000 barrels per day refinery, Nippon director Michio Ikeda told Reuters.
The latest venture will build on years of cooperation under which Nippon Oil leased out a small part of its capacity to CNPC's overseas unit PetroChina to process crude in Japan and supply refined products to China. The heads of the two firms signed the deal in Tokyo on Wednesday.
Japan's biggest oil refiner has increased crude refining for PetroChina over the years to 70,000 barrels per day in the current business year that started last month.
"China lacks capacity to meet oil needs and selected Nippon Oil as a partner that can flexibly supply quality products," said Toshinori Ito, senior analyst at UBS Securities Japan Ltd.
"The deal wipes out part of Japan's excess capacity and tightens supply and demand... The deal is desirable not only for the two firms, but also the Japanese oil industry as a whole."
The venture, if confirmed, will be the first investment by a Chinese oil firm in a Japanese refiner but the third major overseas refining investment for China's largest oil and gas producer, after Kazakhstan and Sudan.
CNPC's Japanese investment would follow the move by Brazil's Petrobras, which took control of Nansei Sekiyu KK from Exxon Mobil Japan group earlier this year.
"Japan has surplus refining capacity, so my understanding is that the price they offer should be quite reasonable," said a senior trading official with PetroChina, CNPC's listed unit.
The venture, expected to be set up around April 2009, would put CNPC in charge of crude procurement and product sales for the Osaka refinery, Nippon Oil President Shinji Nishio told reporters.
This will enable the top Asian oil and gas firm to boost its already rapidly-growing trade portfolio.
Nippon Oil would retain 51 percent and be in charge of refinery operation and management.
The Osaka refinery has a capacity to export about 40,000 bpd of oil products, mainly middle distillates gas oil and jet fuel/kerosene.
"All volumes processed at Osaka refinery cannot be exported physically," Nippon Oil President Shinji Nishio told reporters. "Overall, oil products equivalent to Osaka refinery's capacity would be exported from Osaka and other refineries of ours combined."
Nishio said the two firms would discuss what to do with the contracted processing for PetroChina of 70,000 bpd and Osaka refinery's 115,000 bpd capacity, but added Osaka refinery venture may not be in charge of processing all of the contracted crude processing for the Chinese firm.
The two firms have not finalised the amount of investments for the venture, Nishio added.
Japan's top refiner Nippon Oil, which would merge with smaller rival Kyushu Oil Co later this year, said last month it would stop refining crude at its smallest refinery in Toyama with capacity of 60,000 bpd next March, citing high costs, overcapacity and shrinking demand at home.
"For Nippon Oil, there would be no more need to adjust supply and demand for the next several years," said UBS' Ito.
As a first step of the venture, Nippon Oil would like to boost the Osaka refinery's export of high-sulphur fuel oil by 20,000 bpd, Nippon's Ikeda said.
Japanese oil firms are being forced to look overseas for business opportunities due to shrinking demand at home as the population ages and young drivers drive more fuel-efficient vehicles.
They are investing in new port facilities and infrastructure, with particular focus on fast-growing markets such as China and India.
Nippon Oil said last week it plans to raise its core oil product exports to 120,000 bpd in the fiscal year to March 2011, double the volumes exported in the last business year, and compared with this business year's goal of 100,000 bpd.
Nippon Oil's Nishio said his company was not considering a cross-shareholding arrangement with CNPC's listed subsidiaries.
Japan's falling oil demand has left it with spare refining capacity, and the aim is to eventually export all the output of the 115,000 barrels per day refinery, Nippon director Michio Ikeda told Reuters.
The latest venture will build on years of cooperation under which Nippon Oil leased out a small part of its capacity to CNPC's overseas unit PetroChina to process crude in Japan and supply refined products to China. The heads of the two firms signed the deal in Tokyo on Wednesday.
Japan's biggest oil refiner has increased crude refining for PetroChina over the years to 70,000 barrels per day in the current business year that started last month.
"China lacks capacity to meet oil needs and selected Nippon Oil as a partner that can flexibly supply quality products," said Toshinori Ito, senior analyst at UBS Securities Japan Ltd.
"The deal wipes out part of Japan's excess capacity and tightens supply and demand... The deal is desirable not only for the two firms, but also the Japanese oil industry as a whole."
The venture, if confirmed, will be the first investment by a Chinese oil firm in a Japanese refiner but the third major overseas refining investment for China's largest oil and gas producer, after Kazakhstan and Sudan.
CNPC's Japanese investment would follow the move by Brazil's Petrobras, which took control of Nansei Sekiyu KK from Exxon Mobil Japan group earlier this year.
"Japan has surplus refining capacity, so my understanding is that the price they offer should be quite reasonable," said a senior trading official with PetroChina, CNPC's listed unit.
The venture, expected to be set up around April 2009, would put CNPC in charge of crude procurement and product sales for the Osaka refinery, Nippon Oil President Shinji Nishio told reporters.
This will enable the top Asian oil and gas firm to boost its already rapidly-growing trade portfolio.
Nippon Oil would retain 51 percent and be in charge of refinery operation and management.
The Osaka refinery has a capacity to export about 40,000 bpd of oil products, mainly middle distillates gas oil and jet fuel/kerosene.
"All volumes processed at Osaka refinery cannot be exported physically," Nippon Oil President Shinji Nishio told reporters. "Overall, oil products equivalent to Osaka refinery's capacity would be exported from Osaka and other refineries of ours combined."
Nishio said the two firms would discuss what to do with the contracted processing for PetroChina of 70,000 bpd and Osaka refinery's 115,000 bpd capacity, but added Osaka refinery venture may not be in charge of processing all of the contracted crude processing for the Chinese firm.
The two firms have not finalised the amount of investments for the venture, Nishio added.
Japan's top refiner Nippon Oil, which would merge with smaller rival Kyushu Oil Co later this year, said last month it would stop refining crude at its smallest refinery in Toyama with capacity of 60,000 bpd next March, citing high costs, overcapacity and shrinking demand at home.
"For Nippon Oil, there would be no more need to adjust supply and demand for the next several years," said UBS' Ito.
As a first step of the venture, Nippon Oil would like to boost the Osaka refinery's export of high-sulphur fuel oil by 20,000 bpd, Nippon's Ikeda said.
Japanese oil firms are being forced to look overseas for business opportunities due to shrinking demand at home as the population ages and young drivers drive more fuel-efficient vehicles.
They are investing in new port facilities and infrastructure, with particular focus on fast-growing markets such as China and India.
Nippon Oil said last week it plans to raise its core oil product exports to 120,000 bpd in the fiscal year to March 2011, double the volumes exported in the last business year, and compared with this business year's goal of 100,000 bpd.
Nippon Oil's Nishio said his company was not considering a cross-shareholding arrangement with CNPC's listed subsidiaries.
