JX Nippon Oil and Energy Hopes to Rise Above Japanese Refining Industry Decline

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Researched by Industrial Info Resources (Sugar Land, Texas)--Last year, Nippon Oil Corporation and Nippon Mining Holdings Incorporated, two very prominent companies in the Japanese oil and gas industry, announced that they would merge to form JX Holdings Incorporated (TYO:5020) (Tokyo, Japan) in April 2010. A subsidiary, JX Nippon Oil and Energy Corporation (JX Nippon Oil), was established in July with a 30% share in the Japanese petroleum industry.

The company was created to improve profitability and manage oversupply in the declining market, marking the beginning of the end of the oil era in Japan. JX Nippon Oil designed a new plan that would mesh well with current and predicted future trends, to engage in more overseas refining projects, to develop new business ventures such as solar power projects, and to invest in consolidation and restructuring, rather than building new facilities. By 2014, JX Nippon Oil is looking to reduce its refining capacity by 200,000 barrels per day (BBL/d) to 400,000 BBL/d, in compliance with new directives implemented by the government.

Both Nippon Oil and Nippon Mining Holdings each had significant capacities in the petrochemical sector. Japan is expecting a 30% decrease in ethylene demand, as the Middle East and China flood the global market with cost-advantaged feedstocks. According to Japan's Ministry of Economy, Trade and Industry, the decline in ethylene demand, coupled with the decline of the domestic petroleum market and the appreciation of the Japanese yen, will drive massive consolidations throughout the petrochemical sector. Major petrochemical players Mitsubishi Chemical Holdings Corporation (TYO:4188) (Tokyo) and Asahi KASEI Corporation (TYO:3407) (Tokyo) announced plans to establish a joint venture company to consolidate naphtha cracker operations as the country faces a decline in ethylene demand. As consolidation occurs, companies impacted by the Refining Industry will more than likely focus on boosting production of specialty petrochemicals and key intermediates.

Part of JX Nippon Oil's 2013 goal to reduce its annual costs by $652 million is to consolidate and streamline its own petrochemical facilities. As it reduces its refining capacity, JX Nippon Oil plans to begin maintenance efforts on various plants, beginning with the ethylene unit of the Kawasaki plant. It currently has an output of about 55,000 metric tons of ethylene per year, and there has been no word regarding the future of the Kawasaki plant. The $30 million maintenance turnaround is scheduled to take place between the second and third quarters of 2012 and will focus on maintaining production efficiency, rather than boosting production.

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