A new law forcing Japanese refiners to upgrade their plants' ability to turn fuel oil into higher-value fuels may force them to cut even more refining capacity, with their current poor profitability a deterrent to the heavy investment required.
Japan on 5 July introduced new rules requiring all refiners to raise their residual fluid catalytic cracking (RFCC) or coking capacity against total crude refining capacity. Tokyo wants to improve the ratio to around 13pc by April 2013. All Japanese refiners are required to submit their plans to achieve this goal by end-October.
Japan's RFCC capacity stood around 10pc of the total 4.8mn b/d crude processing capacity as of 1 April this year. Any refiner whose cracking ratio stands below 10pc of their total refining capacity will face the challenge of either upgrading or building a new cracking or coking unit, or shutting part of their refining capacity to improve their ratio.
Cosmo Oil's cracking ratio stands at 4.5pc, having in February already commissioned a new 25,000 b/d coking facility at the 100,000 b/d Sakai refinery and completed 80,000 b/d of capacity cuts to bring its total crude processing capacity to 555,000 b/d. The 660,000 b/d TonenGeneral has a ratio of just 4.2pc, while Brazil's state-owned oil firm Petrobras has been mulling whether to upgrade the 100,000 b/d Nansei refinery in Okinawa to process heavy crude.
Japan's refinery runs have been hovering round 65pc of total capacity as the domestic market faces the weakest demand in 40 years. A declining and aging population, as well as environmental concerns, saw oil products demand of 3.4mn b/d in the last fiscal year ending 31 March. Japanese refiners have plans to cut total capacity by around 900,000 b/d, or around 20pc, in the next five years.
Japan on 5 July introduced new rules requiring all refiners to raise their residual fluid catalytic cracking (RFCC) or coking capacity against total crude refining capacity. Tokyo wants to improve the ratio to around 13pc by April 2013. All Japanese refiners are required to submit their plans to achieve this goal by end-October.
Japan's RFCC capacity stood around 10pc of the total 4.8mn b/d crude processing capacity as of 1 April this year. Any refiner whose cracking ratio stands below 10pc of their total refining capacity will face the challenge of either upgrading or building a new cracking or coking unit, or shutting part of their refining capacity to improve their ratio.
Cosmo Oil's cracking ratio stands at 4.5pc, having in February already commissioned a new 25,000 b/d coking facility at the 100,000 b/d Sakai refinery and completed 80,000 b/d of capacity cuts to bring its total crude processing capacity to 555,000 b/d. The 660,000 b/d TonenGeneral has a ratio of just 4.2pc, while Brazil's state-owned oil firm Petrobras has been mulling whether to upgrade the 100,000 b/d Nansei refinery in Okinawa to process heavy crude.
Japan's refinery runs have been hovering round 65pc of total capacity as the domestic market faces the weakest demand in 40 years. A declining and aging population, as well as environmental concerns, saw oil products demand of 3.4mn b/d in the last fiscal year ending 31 March. Japanese refiners have plans to cut total capacity by around 900,000 b/d, or around 20pc, in the next five years.
