Idemitsu to lift term Khafji crude once Neutral Zone supply restarts

Tokyo — Japanese refiner Idemitsu Kosan expects to lift Khafji crude oil once supply from Saudi Arabia and Kuwait's shared Neutral Zone resumes after production stopped more than five years ago.

Idemitsu Chairman Takashi Tsukioka on Thursday said the company would "welcome the restart of heavy Khafji crude oil in the Neutral Zone" and noted its "remaining contractual supply volume will be maintained once production is restarted."

The return of Khafji crude will help Japanese refiners secure supplies seen as an alternative to Iranian Heavy crude, a key import prior to US sanctions against Iran. The suspension of Iranian oil imports has forced the country's refiners to reach out to suppliers, such as Ecuador, to fill its heavy crude requirements.

The offshore Khafji field, owned by Saudi Arabia's Aramco Gulf Operations Co. and Kuwait Gulf Oil Co., was shut in October 2014 by Aramco because of new government emissions standards for gas flaring.

The onshore Wafra field is operated by KGOC and Saudi Arabian Chevron. It was shuttered in May 2015 after Chevron said it had encountered difficulties in securing work and equipment permits.

Prior to production suspension, Khafji crude had an API gravity of 28.5 degrees and 2.85% sulfur content, and Wafra had an API of 24.5 degrees and 3.88% sulfur content.

Saudi Arabia and Kuwait will gradually ramp up production from the offshore al-Khafji field and the onshore Wafra field, Kuwait's oil minister Khaled al-Fadhel said February 16, according to a report by state-run KUNA news agency.

Crude oil production from the Neutral Zone, where Saudi Arabia and Kuwait share equal output, will reach 550,000 b/d by the end of the year after a trial pump started on February 16, the Kuwaiti oil minister said.

Khafji imports

Japan last imported 672,248 barrels of Khafji crude in November 2014, according to the Ministry of Economy, Trade and Industry data.

Over January-November 2014, Japan imported 16.74 million barrels of Khafji crude and 3.85 million barrels of Wafra crude, METI data showed. Wafra crude imports were suspended in 2015, when Japan imported a total of 2.21 million barrels.

Refiner Fuji Oil, which has a 33,000 b/d coker at its sole 143,000 b/d Sodegaura refinery in Tokyo Bay, intends to consider procuring Khafji crude oil once supply is resumed, a company spokesman said.

Idemitsu Kosan has a 6.66% stake in Fuji Oil, with state-owned Kuwait Petroleum Corp. holding a 7.52% stake and the Saudi Arabian government a 7.52% stake.