Japan's Idemitsu says fuel oil requests from utilities have 'doubled' for this winter

Japan's second-largest refiner Idemitsu Kosan has already received winter fuel oil supply requests from a couple of power utilities at "double" the peak volumes seen last winter, when the country's power supply was stretched to critical levels during extreme cold spells, President and CEO Shunichi Kito said Nov. 9.

"Amid power shortage concerns this winter, power utilities are considering early procurements," Kito told an earnings press conference. "We have also received supply [requests] from a couple of power utilities at roughly double the level of last January-February, which we are considering fulfilling firmly."

The Idemitsu CEO's remarks come after the Petroleum Association of Japan President Tsutomu Sugimori said Oct. 27 that Japanese refiners were unsure whether they would be able to meet all the requests they were receiving for oil supply from local power utilities this winter.

Last January, Japanese refiners boosted fuel oil supplies to power generators following an emergency request from the Federation of Electric Power Companies of Japan to PAJ.

Japan experienced a power supply shortage last winter as demand surged during extreme cold spells in January, with local power utilities forced to restrict gas-fired power generation due to low LNG stocks. That was exacerbated by glitches at coal-fired power plants, low hydropower generation due to droughts, fluctuations in solar power output due to weather conditions, reduced oil-fired power generation capacity and low nuclear power output.

Kito noted that Idemitsu had received abrupt inquiries for additional supplies of coal and fuel oil for thermal power generation at the time but that the company was only able to "supply to the best of its ability."

"At the beginning of this year, when power [supply] tightened extremely, a very challenging moment arrived all of sudden," Kito said, noting also that there had been logistical challenges for refiners to ship fuel oil cargoes to power utilities due to a lack of coastal vessels.

"Following such events, power utilities are preparing early in this fiscal year, and we are also securing vessels as part of early preparations to avoid great confusion and maintain stable supply," Kito said. "However, we cannot predict the degree of power [supply] tightness. We believe we need to carefully respond to the situations."

Idemitsu, which produces coal in Queensland and New South Wales in Australia and Indonesia, has not so far received any additional supply requests from Japanese power utilities for coal, a company spokesperson said Nov. 9.

According to Ministry of Economy, Trade and Industry data, last January total fuel oil sales to the domestic market surged 43% on the year to 179,585 b/d. There was also a shipment of 751,109 barrels of crude oil for power generation, nearly double the 429,323 barrels in December 2020, and compared with no crude shipments for power generation in January 2020.

In February fuel oil sales dropped 20.2% month on month and 4.3% year on year to 143,370 b/d as oil demand for power retreated with the replenishment of LNG stocks by mid-February, according to METI data. Crude shipments for power burn also slid to 112,613 barrels in February.

Operationally, Idemitsu plans to raise its refinery run rates to over 80% in the second half of fiscal year 2021-22 (April-March), Yoshitaka Onuma, general manager of Idemitsu's finance and accounting department, told the press conference Nov. 9.

This would bring its average run rate for the fiscal year up to about 80%. Rates in the first half of the fiscal year ending March 31 averaged 73% because of heavy refinery maintenance programs.

Idemitsu said it now expects gasoline demand to rise 2.1% year on year in FY 2021-22, but will still be 7.8% below the pre-pandemic level in FY 2019-20.

FY 2021-22 jet fuel demand is seen surging 32% year on year but 28.4% below FY 2019-20, it said.

Idemitsu also revised higher its FY 2021-22 income forecast due mainly to higher Dubai crude prices and Australian spot coal prices. It now expects an average Dubai crude price of $72.1/barrel and an Australian coal spot price of $135.5/mt for the fiscal year, up from its May 11 forecast of $60/b Dubai crude and $80/mt Australian spot coal price.