Japan refiners run at two-thirds capacity, awaiting crude from outside the Gulf
Japanese refineries ran at two-thirds of their capacity last week, little changed from the previous week, highlighting the short-term challenges of replacing their Middle Eastern crude supply, cut by the Iran war.
Refinery runs stood at 67.8% of the designed capacity for the week to April 11, in line with 67.7% in the previous week and well below the levels of more than 80% seen before the start of the war in late February, Petroleum Association of Japan data showed on Wednesday.
The outlook for next month may be better, as the country has released oil from its national stockpile and managed to secure substitutes for over half the volume it imported last May via the Strait of Hormuz, officials have said. Overall, Middle Eastern crudes normally make up 95% of Japan's imports.
However, Japanese refineries have limitations on the volume of other crudes they can run, as their plants are designed to process mainly medium-sour Middle Eastern crude. "Japan could likely push non-Middle East crude to around 30-50% of its slate in the short term. But fully replacing Middle Eastern supply is difficult," said Nithin Prakash, an analyst with Rystad Energy.
The new supply is largely coming from the U.S., Japan's closest ally. Tokyo has also contacted producers in countries including Malaysia, Azerbaijan, Brazil, Nigeria and Angola.
The refiners can mix the Middle Eastern crudes with light-sweet crude from the U.S. and West Africa along with some medium grades from the Caspian region and parts of Latin America, Prakash said, adding that the shift would increase yields of gasoline and naphtha and reduce diesel and jet output.
PAJ has suspended publication of Japan's petroleum product stocks, citing the change in supply structure.
Idemitsu Kosan said it is exploring crude purchases from various countries, including in North and South America, adding there are challenges related to refinery equipment when processing non-Middle Eastern oils.
Taiyo Oil said it can process more than 50% of non-Middle Eastern grades, including those from North America, Southeast Asia and grades from Oceania.
Japan's top refiner Eneos and Cosmo Energy declined to comment on their refinery specifications.
Japanese refiners have not made major upgrades at their plants, built mainly during the industrial boom of the 1960s to 1970s, or invested in new ones, as fuel demand is declining.
Gasoline demand in Japan is forecast to decline 10% over the five years to 2030, according to an April 7 document from the industry ministry, and all major refining groups have been expanding into renewables in the recent years.
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