Japan's JXTG sees drop in oil demand Apr-Sep, boosts 3-year capex to $14 bil

Tokyo — Japan's JXTG Holdings expects to see double digit drops in its oil products demand over April-September as the coronavirus pandemic cripples petroleum demand, while it boosts its capital expenditures to Yen 1.5 trillion ($13.9 billion) for the next three years as it accelerates investments for energy transformation, President Tsutomu Sugimori said Wednesday.

JXTG Holdings, which reported a net loss of Yen 187.9 billion for fiscal 2019-2020 (April-March) as a result of petroleum inventory evaluation losses and deteriorated margins because of lower oil prices, forecasts a return to a net profit of Yen 40 billion for fiscal 2020-2021 after seeing the coronavirus impact on oil demand in the first half of the fiscal year.

JXTG Holdings expects its clean products demand to drop 14% and its refined products exports to plunge 46% on the year during the April-September period, as the coronavirus pandemic cripples petroleum demand, President Tsutomu Sugimori said Wednesday.

Speaking at a press earnings webcast, Sugimori said that JXTG is closely monitoring a potential impact on oil demand from people's changes in lifestyles during the coronavirus pandemic.

"Whether or not gasoline, gasoil and jet fuel [demand] will recover to pre-coronavirus levels is also a critical issue for us, so we will be monitoring it closely," Sugimori said.

BALANCED SUPPLY

JXTG Holdings -- the parent of JXTG Nippon Oil & Energy, the largest Japanese refiner -- has a good balance of its products supply over demand amid refinery run cuts and maintenance, coupled with reduced crude supply from its major term suppliers such as Saudi Arabia, Sugimori said.

JXTG currently has a combined 371,000 b/d shut at its Kawasaki and Oita refineries, or 19% of its installed capacity of 1.93 million b/d for scheduled maintenance programs, according to S&P Global Platts calculations based on company information.

"Regarding our crude procurements, we are currently facing supply cuts from our direct deals with oil producing countries such as Saudi Arabia," Sugimori said.

"In the face of the demand drop, we are balanced with the supply cuts," he said. "We should be able to adjust from procuring spot cargoes should we face needs."

Saudi Aramco has informed at least one Japanese refiner that it will reduce the refiner's June-loading crude allocations by 20%-40%, with the cuts being made across grades, with larger cuts in heavier grades.

Saudi Arabia has said it will voluntarily cut an additional 1 million b/d of its crude oil output in June, over and above its quota as per the OPEC+ agreement, and hold its output at 7.492 million b/d.

GREEN SHIFT

JXTG Holdings, which will rename itself to be ENEOS Holdings upon approval at its general shareholders meeting in June, plans to spend Yen 1.5 trillion for capex during its three-year plan to fiscal 2022-2023, with its midstream to downstream investments accounting for close to 90%.

Under its new capex, which is up 44.2% from Yen 1.04 trillion in the previous three-year plan, JXTG has earmarked Yen 830 billion for its strategic investments, with Yen 400 billion for the next generation energy supply and businesses, including Yen 130 billion for renewables and hydrogen.

Of the strategic investments, JXTG has earmarked Yen 250 billion for electronic materials and petrochemicals and Yen 180 billion for its foundation businesses, with petroleum refining accounting for Yen 130 billion.

In its midstream and downstream expenditures, it kept Yen 470 billion for maintaining businesses in the new three-year plan.

JXTG's plans Yen 200 billion of upstream investments in the three-year business plan, down 26% from Yen 270 billion in the previous business plan.

"Declining oil demand would mean that we would need new business and services," Sugimori said. "For this sense, we are increasing our investments in order to capture business opportunities."

NAME CHANGE

JXTG Holdings also Wednesday appointed Katsuyuki Ota, president of JXTG Nippon Oil & Energy, to be the president of ENEOS Holdings and ENEOS Corp., the new unit name for its midstream to downstream businesses, following shareholders' approval in June. Sugimori will be chairman and group CEO of ENEOS Holdings after the management reshuffle.

The drop of Nippon Oil from the English trade name of its downstream arm will be the first time since Nippon Oil was established in 1888. The new corporate name of ENEOS, which has been used as a brand name for the group's energy businesses, was coined from a combination of the words energy and neos, which means new in Greek. The company joins a growing bandwagon of traditional oil companies looking to reinvent themselves as drivers of low-carbon sustainable energy.

(Updates with more details.)