INTERVIEW: Idemitsu to bolster refining, pursue LNG; commits to hydrogen, SAF: president

Japan's Idemitsu Kosan aims to rebalance its business portfolio over the next five years, bolstering its foundation refining business and pursuing new LNG and North American gas trading businesses, while remaining committed to shaping its hydrogen, ammonia and SAF businesses, President Noriaki Sakai told Platts, part of S&P Global Energy, May 29.

"Various initiatives are underway, but to put it simply, the most important aspect for us is that we are in the equipment industry. We have multiple production sites, each with equipment that needs to operate stably," Sakai said in an interview at the company's head office in Tokyo.

The plan for the period through to the end of fiscal year 2030-31 (April-March) follows a series of unplanned outages at Idemitsu's refining units in FY 2023-24 and FY 2024-25, resulting in significant losses, he said.

"This depends on how the numbers are interpreted, but I personally recognize this very strongly and am returning to the basics: that stable operation of equipment is crucial for reliably increasing profits," Sakai said, adding that the company -- Japan's second-largest refiner -- has earmarked Yen 1.8 trillion ($11.3 billion) investment, the bulk of which is to be spent on ensuring stable operations in the next five years.

Asked about types of investment, Sakai said: "There are a variety of them. One is investment related to maintenance -- ordinary, routine maintenance, for example. Then, beyond maintenance itself, if necessary, we would also renew equipment or replace existing units with new ones."

To ensure stable operations, Sakai said the company also needs to introduce digital transformation initiatives and new technologies, including AI, amid a serious labor shortage.

Through its efforts to ensure stable operations, Idemitsu aims to improve its average refining operation rates to 90% by the end of FY 2030-31 from an average of 86% in the last three years to FY 2025-26, he said.

In the face of the Strait of Hormuz disruptions amid the Middle East conflict, Idemitsu recognizes the need to consider whether to require investment in its refineries -- which are configured to process Middle Eastern crude oil -- to install new units, or make modifications to existing units to process different types of crude oil other than Middle Eastern barrels in the mid-to-long term, Sakai said.

Asked whether Idemitsu sees the need of reducing Middle East crude dependency, Sakai said: "Yes, I think that's the general direction of the discussion. The fact is, the Strait of Hormuz being effectively blocked is a real issue."

"If the crude oil procurement situation changes from what it is now, then we will need to review our refining environment, including equipment and operational aspects. We need to make comprehensive judgments from various angles, and this will require collaboration between the government and private companies," he added.

Demand seasons

In the short term, Sakai said that Idemitsu has managed to secure a year-ago level of crude procurement volume for June as it stepped up alternative crude sourcing from the Americas after plummeting crude imports from the Middle East in recent months.

"In our view, for example, in June, the refinery operation can be almost the same as in June of the previous year. Demand has not drastically decreased or increased in recent years, so whether we can maintain roughly the same level of operation as last year is a major benchmark. That's the kind of image we have for June," Sakai said.

Asked about the crude procurement outlook for the rest of year, Sakai said: "Given the current situation, including negotiations with Middle Eastern suppliers and our purchasing contracts, if this situation continues steadily, we can expect stable procurement going forward as well."

"Right now, we, like other companies, are preparing for the summer and winter seasons. We need to start preparations for winter now, including stockpiling kerosene and fuel oil to meet increased demand. During this period, we typically increase operations slightly to build inventory for the peak winter demand," he said.

"If, for any reason, stable procurement is disrupted during this critical time, it would be very problematic. Therefore, we are proceeding with procurement very cautiously, understanding how important this period is," he added.

Japan's crude oil imports plummeted 65.7% year over year to 4.07 million kl or 853,329 b/d in April due mainly to reduced imports from the Middle East, according to preliminary data released May 29 by the Ministry of Economy, Trade and Industry. The April crude imports were the lowest in the available data since 1989, according to METI.

"April was indeed extremely low. Looking at our company's situation, April was also quite low. Early in March, the government decided to release oil reserves, and we managed our operations by making use of those reserves in April," Sakai said.

"Additionally, the situation in the first half of this month was also quite supported by stockpiled crude oil, which helped us significantly in handling the necessary processing. It left a positive impression that we were quite helped by these stockpiles during this period."

Growth strategy

Over the next five years, Idemitsu plans to invest a total of Yen 350 billion in expanding its global fuels businesses, including trading, and making forays into the LNG business and North American gas trading.

"Currently, one of the characteristics of our group's fuel business is that we have been putting considerable effort into fuel oil trading not only domestically but also overseas over the past few years," Sakai said.

"While I cannot specify exact figures, the market is quite volatile year by year, with frequent fluctuations in overseas markets. Therefore, it's not simply about exporting and selling from Tokyo; since it's trading, we aim to procure efficiently and sell at good margins, capturing arbitrage opportunities."

"We believe there is still room to grow further... We want to put more effort into this as part of our global expansion strategy," he added.

Asked to elaborate on its forays into LNG and North American gas trading businesses, Sakai said: "The reason is that, historically, we did not have LNG, which was a gap in our energy portfolio. We see LNG as a very useful energy source, especially as the world's reliance on fossil fuels like oil and coal continues longer than initially expected, supporting industries and daily life."

Idemitsu said March 17 that it had made a move to enter the LNG business by investing $500 million in MidOcean Energy, marking its first step toward a full-scale entry into the sector.

"It was a fortunate coincidence, and we see this as an opportunity to finally join the LNG business," Sakai said.

"Our policy is to not just invest for dividends or hold rights; we prefer to be involved as an active participant in the business itself."

As for its entry into North American gas trading, Sakai said that the company is "planning to supply gas via pipelines to data centers and other facilities being planned in North America."

Hydrogen, SAF

Meanwhile, Idemitsu remains committed to shaping its hydrogen, ammonia and SAF projects by around FY 2030-31, Sakai said.

"Although efforts toward carbon neutrality have slowed somewhat worldwide, hydrogen is one area where we are continuing discussions with companies such as Hokkaido Electric in Hokkaido," he said. "We want to produce green hydrogen, and simply from the standpoint of green hydrogen production itself, Idemitsu Kosan has a business site in Hokkaido, so we want to make effective use of those assets. This is something we want to move ahead with quickly. We also want to bring this into shape by around 2030."

While Idemitsu sees SAF still involves many areas that require consultation with airlines and other parties, Sakai said: "We likewise want to get that up and running properly by around 2030, with a proper SAF production facility in place.

"We are still examining various aspects, and it is not yet the right timing to make a final decision. We cannot make that kind of major decision unless there is a reasonably clear path toward social implementation -- that is, a situation where users will actually be able to use it properly."

Idemitsu is now looking to build a 100,000 kiloliters/year alcohol-to-jet SAF production plant at its Chiba complex in Tokyo Bay and a hydroprocessed esters and fatty acids, or HEFA-based 200,000-250,000 kl/year SAF plant in Tokuyama, Sakai said.

"As for blue ammonia, we still maintain the concept of procuring it from places such as the US and building an ammonia supply base in Yamaguchi Prefecture," he added. "Our intention to send ammonia to the Shunan industrial complex as a co-firing fuel has not changed. If the environment is properly put in place, then of course we will accelerate our efforts again."