Japan's Idemitsu has not seen any Middle East crude supply cuts since OPEC+ decision: CEO

Idemitsu Kosan has not received any cuts to its November loadings of Middle Eastern crude following the recent OPEC+ decision to reduce output, Shunichi Kito, the president and CEO of Japan's second-largest refiner, said Oct. 19.

Speaking to reporters at a news conference organized by the Petroleum Association of Japan in Tokyo, Kito, also the president of PAJ, said Idemitsu has not received any crude supply cuts from the Middle Eastern producers.

Middle East oil supply accounts for about 95% of Japan's total imports.

Asian refiners were quick to reassess their short-term and long-term crude procurement strategies after OPEC and its allies Oct. 5 cut their production quotas by 2 million b/d for 14 months from November.

As European refiners absorb more US, North Sea and West African crudes to replace Russian Urals, a slew of Asian refiners were expected to depend ever more heavily on Middle Eastern supply.

"Saudi Aramco, as well as other major Middle Eastern producers, understand the importance of Asian customers and how crucial the Asian market share affects their finances," a feedstock manager at a major South Korean refiner said.

Saudi Aramco seemed keen to maintain its market share in oil dependent Asia despite the recent announcement by OPEC+ to cut the group's production quota, multiple crude traders across Northeast and South Asia have said.

The de-facto OPEC+ kingpin was said to have provided most Asian buyers especially refiners in China, India, Japan and South Korea with full term crude volumes for November, according to refinery sources and sour crude traders across the region.

Asked about the impact from the G7's proposed oil price cap on Russian oil, Kito said the effectiveness of the mechanism depended on Russia's response, while noting that few details were available.

"My view after all is that setting the price cap would mean we cannot buy [Russian oil] above the [price] cap. In other words, it would be fine to buy Russian crude cheap," Kito said. "This means it is really up Russia, which supplies [its oil] cheap."

"Even if the Western countries set the price cap unilaterally, [oil] would not be supplied should Russia does not follow it. This raises a question about whether this really functions."

Winter outlook

Amid a low kerosene inventory with winter just around the corner, Japanese refiners may need to boost their kerosene imports should the weather turns colder than expected, Kito said.

"We are an import position [for kerosene] in winter because our production is not enough for [the domestic] supply. In the event of severe winter, which accelerates shipments more than planned, we would need to import spot [cargoes] in addition to our planned term imports."

Kito expressed concern that such additional kerosene imports would lead to a "considerable cost increase" amid high middle distillates cargo prices in Singapore.

"As for kerosene, I believe we have a very sensitive issue this winter," he said. "With the forecast of severe winter, if it happens there is a chance of both power and kerosene supply and demand to be tightened so that we need to be prepared."

Kito said Japan's fuel oil demand for power generation in fiscal year 2022-23 (April-March) was set to rise 10% from a year ago, when it was boosted from tightening of the power supply and demand balance in January 2021.

Importing SAF

At the news conference, PAJ also released a set of policy recommendations for the government to help introducing carbon neutral fuels in the oil sector as part of its efforts toward 2050 carbon neutrality.

Among prospective carbon neutral fuels, PAJ revealed that Japanese refiners plan to start importing sustainable aviation fuel from 2023 ahead of their planned start of domestic production from 2025.

PAJ also requested the government to consider provide "bold" support in the area of public finance and taxation for building and developing technologies for SAF and other relevant units.

PAJ also requested the government to exempt any tax for SAF feedstocks.

Japan's state-owned New Energy and Industrial Technology Development Organization in April granted Yen 29.2 billion ($195 million) grant for Idemitsu's Yen 45.7 billion project over FY 2022-23 to FY 2026-27 to develop and commercialize its supply chain of SAF using the ATJ, or the Alcohol to Jet technology, launching the country's first commercial SAF supply chain by end-March 2027.

For its project, Idemitsu said it planned to construct the world's first 100,000 kiloliters/year ATJ-technology-based SAF production plant at its Chiba complex in Tokyo Bay in FY 2025-26.

Idemitsu also plans to procure 180,000 kiloliters/year of bioethanol as SAF feedstock mainly from Brazil with supplementary volumes from Japan in order to start its SAF supply from FY 2026-27.