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Idemitsu strengthens ties with Saudi Aramco after integrating Showa Shell

Tokyo — The absorption of Showa Shell's assets by Japan's Idemitsu Kosan took effect Monday, making Saudi Aramco the second-largest shareholder in the combined entity and helping the Saudi oil producer to strengthen its position as a top crude supplier to a 1 million b/d refiner.

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"We hope to maintain a favorable relationship with Saudi Aramco," an Idemitsu Kosan spokesman told S&P Global Platts.

"Saudi Aramco was the largest crude oil supplier for Idemitsu Kosan for fiscal 2018-19 (April-March), and we expect our principle for procuring crude from Saudi Arabia will not change even after the integration," the spokesman said.

Idemitsu Kosan revealed Monday that Saudi Aramco now has a 7.65% stake in Idemitsu Kosan, second only to Nisho Kosan, an Idemitsu founding family entity, with a 8.98% stake in the Japanese refiner.

Saudi Aramco had a 14.96% stake in Showa Shell.

The new share holdings in Idemitsu Kosan came to light as the transfer of Showa Shell's assets, liabilities, and rights and obligations to the second-largest Japanese refiner took effect Monday. Idemitsu Kosan made Showa Shell a wholly-owned subsidiary under a share exchange on April 1.

A Japanese oil industry analyst said Saudi Aramco's equity participation in Idemitsu Kosan will generate reciprocal benefits.

"For Saudi Aramco, its equity participation in Idemitsu Kosan will help it to secure a crude sales outlet for the long-term and Idemitsu might get a preferential crude supply when it is needed," the analyst said.

Saudi Arabia is by far the largest crude oil supplier to Japan. Japan imported an average of 1.17 million b/d of Saudi Arabian crude over January-May, accounting for 37.4% of the total imports of 3.13 in the five months, according to the Ministry of Economy, Trade and Industry data.

Among Showa Shell's assets for possible absorption, the Idemitsu Kosan spokesman confirmed that it has absorbed Showa Shell's 6.57% stake in Fuji Oil, which operates the sole 143,000 b/d Sodegaura refinery in Tokyo Bay.

The spokesman added that Idemitsu Kosan also took over Showa Shell's oil products contractual deal with Fuji Oil. Idemitsu Kosan will also jointly procure crude with Fuji Oil, he added.

Fuji Oil had been supplying oil products to its stake holder and major customer Showa Shell, which it had also jointly procured crude oil.

Idemitsu Kosan's absorption of Showa Shell's stake in Fuji Oil will boost Idemitsu Kosan's total refining capacity to 1.09 million b/d over seven refineries from a combined capacity of 945,000 b/d covering six refineries in Japan.

The combined entity now accounts for roughly a third of the domestic oil products market and sells around 14 million kl/year, or about 240,000 b/d of oil products abroad.

--Takeo Kumagai, takeo.kumagai@spglobal.com

--Edited by Claudia Carpenter, claudia.carpenter@spglobal.com