Tokyo — Japan and Saudi Arabia have agreed in principle to renew a joint crude oil storage scheme in Okinawa when it expires in October, a move that gives the Middle East supplier quick and easy access to its key customers in East Asia, while providing energy security for Tokyo amid mounting geopolitical woes.
It was one of the areas of cooperation in the updated Saudi-Japan Vision 2030 2.0 agreement signed at a ministerial meeting on Wednesday in Tokyo.
"It is significant to renew the joint crude oil storage project," Minister of Economy, Trade and Industry Isshu Sugawara said at the start of the fourth Saudi-Japan 2030 Vision Ministerial Meeting in Tokyo. "Our country will continue to support Saudi Arabia's stable oil supply through this project henceforward."
The current agreement with Saudi Aramco under a scheme known as the "Joint Crude Storage by Producing Countries," and where Tokyo pays for storing Saudi Arabian oil at leased storage tanks in Okinawa, is due to expire in October.
Following this, Japan and Saudi Arabia will accelerate their talks for renewal of the scheme, which will continue to generate beneficial for both countries, sources at the Ministry of Economy, Trade and Industry said.
Under the current agreement, Saudi Aramco leases 1.30 million kiloliters or 8.18 million barrels of crude oil storage capacity at Okinawa for commercial purposes in exchange for prioritizing supply to Japan in the event of an emergency.
For Japan, storing oil domestically from its strategic suppliers such as Saudi Arabia has become more important after a series of events this year which occurred in the Middle East, where Japan relies on close to 90% of its crude import requirements.
Crude imports from Saudi Arabia average 1.09 million b/d and account for roughly 35% of total oil imports over January-August, when the kingdom was still the largest supplier for Japan, although its imports for the first eight months of this year fell 5.8% from a year ago.
Tokyo became nervous after the September 14 attacks on Saudi Arabian oil facilities, which occurred after two ships, including one operated by a Japanese shipping company, were attacked on June 13 just outside of the Strait of Hormuz. The waterway, a key route for oil tankers in the Persian Gulf, is used for around 80% of Japan's crude imports.
RARE SPOT SALES FROM OKINAWA
Meanwhile, Saudi Aramco has shipped crude oil cargoes from its leased storage in Okinawa twice so far this year.
Most recently, Saudi Aramco shipped a rare Arab Light crude cargo from its leased storage in Okinawa, Japan, to a PetroChina refinery in central Hebei province arriving October 18, sources familiar with the matter told S&P Global Platts.
The 136,000 mt Arab Light crude cargo on the Suezmax tanker Glorycrown was to be delivered to PetroChina's Huabei Petrochemical refinery, a port source said on Friday.
The Glorycrown, left the Tianjin port in the Bohai Bay on October 20 after discharging a cargo from Okinawa, in Japan's southwest, according to cFlow, Platts trade flow software.
Saudi Aramco's spot crude sale from the Okinawa storage was concluded before attacks to its oil facilities on September 14, a source familiar with the matter said.
Saudi Aramco in early September raised its official selling price for Arab Light crude for loading in October and bound for Asia by 60 cents/b to a premium of $2.30/b against the monthly average of Platts Oman/Dubai assessments.
Saudi Aramco last shipped a spot crude shipment from the Okinawa terminal on the Suezmax Jag Lakshya in March, the source said. The Jag Lakshya shipped a cargo to Quanzhou in Fujian in southern China from Okinawa, according to cFlow.
In recent years, Saudi Aramco has rarely made crude shipments from the Okinawa terminal as a result of Saudi Arabia's commitment to the OPEC/non-OPEC production cut deal, according to the source familiar with the matter.
The production accord, which OPEC signed with Russia and nine other non-OPEC countries in December, commits the 24-country coalition to 1.2 million b/d in supply cuts through March 2020.
-- Takeo Kumagai, firstname.lastname@example.org
-- Edited by Norazlina Jumaat, email@example.com