Japan's ENEOS aims for flexible crude procurement with 'overwhelmingly' active spot buying: CEO

Japan's ENEOS Holdings is "overwhelmingly active in procuring spot" crude oil, with the largest Japanese refiner open to purchasing Canadian crude alongside US and South American barrels, should it prove economical, President and CEO Tomohide Miyata said Nov. 13.

"As we have a higher-than-expected spot ratio [in our crude procurement], we could do Canadian crude oil, as it offers various grades, should it prove economical," Miyata said at an earnings press conference in Tokyo.

Due to the "very heavy" characteristics of Canadian crude, Miyata said ENEOS would need to assess the economics of refining and tank operations, noting that there are "very limited refineries" capable of handling the barrels.

"Basically, we are overwhelmingly active in procuring spot [crude oil], and we will always be hunting for competitive crude oil as necessary, not limited to Canadian crude," Miyata said. "We are also dealing with various other [crudes] from the US and regions including South America."

Miyata's comments came as Japan's crude oil imports from North America totaled over 4.1 million barrels in September, with imports from the US rising ninefold year over year. This also marked Japan's first imports of Canada's Cold Lake crude since November 2019, reducing its dependency on Middle Eastern crude to the lowest level in eight months.

Japan's imports of US crude totaled 3.84 million barrels in September, comprising 2.78 million barrels of WTI Midland and 1.06 million barrels of West Texas Light. Meanwhile, its imports of Cold Lake crude from Canada amounted to 264,027 barrels, according to preliminary data released Oct. 31 by the Ministry of Economy, Trade and Industry.

The increase in North American crude imports helped reduce Japan's dependency on Middle Eastern crude to 92.7% in September from 96% a year earlier, marking the lowest level since 92.8% in January.

Cold Lake crude has a sulfur content of 3.67% and a gravity of 21.8 API.

The Aquatravesia, which loaded a crude cargo at Vancouver, discharged a partial cargo at ENEOS' Kiire oil terminal in southwest Japan as of Sept. 20 after arriving Sept. 19, according to Platts cFlow ship and commodity tracking software from S&P Global Commodity Insights.

Canadian economics

Canada's long-awaited 590,000-b/d Trans Mountain expansion pipeline began commercial service May 1, providing Canadian producers with the opportunity to export their crude from Vancouver to the international market.

For Northeast Asian refiners, procuring heavy Canadian crudes was only economically viable when co-loaded with light sweet US crudes in a VLCC tanker from the US Gulf Coast.

However, the start of the TMX pipeline provides a much faster Vancouver-to-North Asia Pacific Ocean route for standalone Canadian heavy crude deliveries, according to a market analyst at a Singapore-based integrated Japanese trading company and feedstock management sources at two Japanese refiners.

Before the completion of the TMX pipeline project, Canadian heavy crude grades, including Cold Lake Blend and Western Canadian Select, originating from landlocked Alberta, were transported via the Keystone pipeline -- taking about a month -- to the US Gulf for export, sources said.

A feedstock management source at Japan's Cosmo Oil indicated that the refiner had occasionally purchased Canada's heavy sour Cold Lake crude for its Sakai refinery when Middle Eastern, Southeast Asian and Australian heavy crude grades were expensive. The source added that the Sakai refinery's coker facility was upgraded several months before the outbreak of the pandemic.

Still, logistical costs for heavy and waxy Canadian crude could be expensive during winter, as the oil needs to be kept heated, according to feedstock and logistics management sources at Japanese and South Korean refiners.

Price differentials for Canadian heavy crudes have been trending higher over the past several trading cycles, reflecting Asian refiners' growing interest in Cold Lake and Western Canadian Select cargoes loaded at the Westridge Marine Terminal in Vancouver.

Platts, part of Commodity Insights, assessed Cold Lake at an average discount of $5.37/b to the WTI CMA in the fourth quarter to date, up from the Q3 average discount of $7.7/b.