Japan's ENEOS has no plans to sign Russian crude import deals following invasion: chairman

Japan's largest refiner ENEOS does not plan to sign any Russian crude oil import contracts following Russia's invasion of Ukraine, ENEOS Holdings Chairman Tsutomu Sugimori said March 22.

"Following the Ukraine invasion, we have not signed any contracts [for Russian crude]," Sugimori told an online press conference as the president of the Petroleum Association of Japan. "We do not expect to import [Russian crude] for the moment."

The move comes at a time when an increasing number of companies are reluctant to take any spot crude and LNG cargoes from Russia amid fear of reputational risk, according to industry sources.

ENEOS, however, will receive a few ships carrying Russian crude cargoes until April from its purchase contracts signed prior to the invasion in February, Sugimori said.

"Until April, we will receive a few ships under contracts signed prior to the start of the Ukraine invasion in February," Sugimori said. "For these [cargoes] we have secured ships, and we will be able to make our payments."

Asked about alternative crude supply source, Sugimori said ENEOS would likely secure alternative barrels from the Middle East.

Russia supplied 4% of Japan's total crude oil imports of 2.48 million b/d in 2021, with the Middle East supplying 92% of the total, according to finance ministry data.

Domestic demand

Commenting on domestic demand, Sugimori said gasoline demand over February-March had taken a sharper hit from COVID-19 priority measures and rising prices than other refined products.

ENEOS has estimated that Japan's gasoline demand in February fell 4% year on year and was 12% below the pre-pandemic level and in March fell 7% year on year and was 6% below the pre-pandemic level, Sugimori said.

While noting the difficulty in drawing a line between the coronavirus pandemic impact and high prices, Sugimori said: "After all, [consumers] would refrain from buying [gasoline] from rising prices, generally speaking."

Japan's estimated kerosene demand, however, jumped more than 10% year on year in February and March because of cold weather, Sugimori added.

The country's refiners are required to submit by end March their response to a third round of refining regulations that require refiners to increase processing volumes of vacuum residue by the end of fiscal 2021-22 (April-March) from baseline average volumes processed over fiscal 2014-15 to fiscal 2016-17.

Asked whether Japanese refiners will be able to meet the requirement despite a significant drop in their refining volumes in the last two years because of the pandemic-led demand slump, Sugimori said: "It will be difficult to achieve it."

"However, we are in the midst of emergency situations such as the coronavirus pandemic and the Ukraine issues, so that we expect to see some sort of mitigation," he added.

The third round of regulations require refiners to achieve a national target vacuum residue ratio -- the daily residual processing volume as a percentage of the daily crude processing volume -- of 7.5% by the end of March 2022.