🥇 First rule of investing? Know when to save! Up to 55% off InvestingPro before BLACK FRIDAYCLAIM SALE

Japan's Eneos to hasten refinery consolidation as virus slams demand at home

Published 08/30/2020, 11:05 AM
Updated 08/30/2020, 11:10 AM
© Reuters. Eneos Holdings President Katsuyuki Ota speaks during an interview with Reuters at the company headquarters in Tokyo, Japan
5020
-
5019
-
PLX
-

By Yuka Obayashi and Ritsuko Shimizu

TOKYO (Reuters) - Japan's biggest oil refiner Eneos Holdings Inc (T:5020) will hasten its transformation into a supplier of low-carbon energy and materials as domestic oil demand drops more than expected due to the COVID-19 pandemic, new President Katsuyuki Ota said.

A quicker timeline comes amid a wider consolidation in Japan's refining sector, which has been cutting capacity as it struggles to get business from a shrinking, ageing population that consumes less fuel because of more efficient vehicles.

Eneos, formerly JXTG, unveiled last year its long-term plan to transform with an assumption that domestic oil demand would halve by 2040, or fall 2% annually. It said in May 2020 it would spend 1.5 trillion yen ($14 billion) in three years to March 2023 to drive the change.

But "Japan's oil demand may not return to the levels we had anticipated before the pandemic", said Ota, who became president in June. "We need to tackle various reforms faster" to develop growth businesses such as renewable energy and streamline the refinery structure, he added.

"It would not only mean shutting refineries down, but also turning them into chemical refineries or energy platforms for electric power, hydrogen and others."

To this end, Eneos' refineries in a petrochemical complex in Kashima, east of Tokyo, and Mizushima, western Japan, among others have potential, Ota said.

Eneos operates 11 refineries with 1.93 million barrels per day (bpd) capacity. Their run rate in April-June plunged to 68%, lowest since 2010, as the pandemic slammed demand.

It has already decided to stop refining at its 115,000 bpd Osaka refinery, and teamed up with Mitsubishi Chemical to strengthen petrochemical refining at their plants in Kashima.

The end of refining at Eneos' Osaka plant will cut Japan's overall capacity to just over 3.4 million bpd, from 5.94 million bpd in the 1980s.

Graphic - Japan refining capacity Japan refining capacity: https://graphics.reuters.com/ENEOS-STRATEGY/xklpynnoevg/chart.png

To cope with sliding demand, four of Japan's biggest oil companies have merged into two, Eneos and Idemitsu Kosan (T:5019), in recent years.

Ota said further alliances would likely be with players in other industries such as electricity, gas and chemicals.

Eneos is still in talks with Vietnam National Petroleum Group (Petrolimex) (HM:PLX) to collaborate on refinery projects, and it eyes renewable energy projects in Australia to make CO2-free hydrogen, he said.

© Reuters. Eneos Holdings President Katsuyuki Ota speaks during an interview with Reuters at the company headquarters in Tokyo, Japan

($1 = 106 yen)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.