Japan exempts refiners from raising refinery capacity to meet jet fuel shortage

Japan said July 19 it has decided to exempt refiners from raising their production capacity over July-September, paving the way for covering supply loss from other refineries shut for scheduled maintenance, in a bid to alleviate the domestic jet fuel shortage.

The exemption, which was presented at a July 19 ministerial meeting attended by Prime Minister Fumio Kishida, is part of short- and mid- to long-term action plans for aviation fuel shortages in the country.

According to action plans, Japan will allow refiners to change their production capacity to cover the capacity loss from scheduled maintenance under a special treatment given in the country's refining regulations.

The special treatment will allow refiners to produce jet fuel equivalent to 140 flights a week bound for Asia over July-September, the government said.

"It might be worth tweaking the linear programming models to lift the jet fuel yield and it could be more profitable as well," a middle distillate marketing source at a major Japanese refiner said.

As part of the short-term measures, Japan said it also expects trading houses and refiners to import jet fuel and deliver the purchased barrels directly to refueling tanks at airports, with the first cargo arriving in July at the Narita Airport, equivalent to supply for 300 flights bound for Asia.

Japan's Narita International Airport is set for what would be the first ever direct import of jet fuel from abroad via trading houses as part of its efforts to alleviate ongoing aviation fuel shortages, a company spokesperson told S&P Global Commodity Insights July 11.

Two jet fuel cargoes for loading in July were already sold to two Japanese trading companies, a middle distillate marketing source at a major South Korean refiner told Commodity Insights July 16, adding that one of the cargoes could feed the Narita Airport in Tokyo Bay.

The action plans -- formalized after a third round of discussions at a government-led task force meeting with the private sector since June -- is part of Japan's response to jet fuel shortages affecting 140 flights a week for new flights with foreign airlines amid a significant recovery in the inbound demand.

For winters, Japanese refiners are mulling imports of kerosene and boosting output of jet fuel during the next holiday season, in a bid to ensure fuel supply amid robust demand, Petroleum Association of Japan President

said July 18.

"In any event, imports [of kerosene] will be required [for winter]," Kito told a press conference in Tokyo, while pointing out insufficient domestic production of the middle distillate in the heating demand season.

Further steps

In the short term, Japan said it expects to secure additional tank trucks transport capacity by refiners to transport about 15,000 kl (94,347 barrels) a month of jet fuel from refineries, equivalent to about 150 flights a week bound for Asia, to local airports from July.

The country will likely secure a total of three clean product tankers for jet fuel transport from turning ocean liners to Japan-flagged coastal ships, with two ships turning to coastal tankers by the end of 2024 and build a new ship in the longer term under initiatives by refiners and coastal shippers from July.

Japan's coastal shipping regulations require ships to be Japan-flagged and operated by Japanese crews.

In the mid- to long-term measures after fiscal year 2025-26 (April-March), Japan said it will secure further jet fuel supply capacity from turning existing storage tanks at refineries and oil terminals to jet fuel, as well as securing necessary jet fuel tanks at airports after considering.

The country also aims to secure a number of tank trucks dedicated to transport jet fuel after considering necessary steps, as well as enlarging ships and renewing loading and unloading facilities based on mid-to-long term supply and transport outlooks.

The task force -- led by the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism -- will monitor whether the action plans improve the jet fuel supply situations at each airport for new and additional flights, based on steps undertaken and take necessary steps in its planned quarterly meeting.

Japan's policy response to the jet fuel shortages comes, as the country witnessed a record number of foreign visitors -- about 3.14 million people in June, according to MLIT.

If the first half momentum continues, the number of foreign visitors could jump to 35 million for the year, surpassing 31.88 million seen prior to the pandemic in 2019, MLIT said in a report presented at the ministerial meeting July 19.

In the long run, Japan is aiming to attract 60 million foreign visitors by 2030.