Nippon Oil and Japan Energy Join with Petrochemical Majors for Integration Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Nippon Oil Corporation (TYO:5001) (NOC) (Tokyo) and Japan Energy Corporation (JEC) (Tokyo), a wholly-owned subsidiary of Nippon Mining Holdings Incorporation (TYO:5016) (Tokyo), will set up a petrochemical plant in association with Mitsubishi Chemical Corporation (Tokyo) and Asahi Kasei Corporation (TYO:3407) (Tokyo). The condensate-splitter project will produce 34,000 barrels per day (BBL/d) of naphtha.

There has been focused effort in Japan by both the government and the industry to gain a competitive cost advantage by integrating the petrochemical and oil-refining sectors. In 2000, 19 Japanese oil refining companies including NOC formed Refinery Integration for Group Operations (RING). The project supported and funded by the trade ministry is part of the "Renaissance Project" set up by the Japanese government. The project will assess the oil and petrochemical industries in Japan and recommend methods to reduce costs of production. The group also plans to share energy-saving practices and techniques, business information and carry out combined distribution of products.

Members of the group decided that integration of refineries with chemical plants by 2030 will enable companies to share raw material and power generators, thereby achieving production and cost efficiency, sustaining profitability and capturing new markets. The NOC-JEC plant to be built in Mizushima in the Okayama prefecture will be part of this initiative. This plant will be adjacent to Japan Energy's existing 205,200 BBL/d refining unit. The commissioning of the petrochemical project will also aim at reducing Japan's naphtha imports. The naphtha produced at this plant will be supplied to Mitsubishi Chemical and Asahi Kasei.

Japan's naphtha imports in August 2008 were 8.6% higher than the previous month. The average import cost of naphtha in August 2008 was $1136.20 per ton, while the cost in July 2008 was $1128.20. Mitsubishi Chemical Corporation, Japan's largest petrochemical manufacturer, has been urging refining companies to increase their naphtha production using condensate. By 2010, the supply of condensate will increase by 7.2%. This is attributed to new projects in Australia, Iran and Qatar. RING plans to buy condensate from these countries by taking advantage of the increased supply and using the domestic manufacturing facilities to increase production of naphtha.

Japan has been witnessing a decrease in the consumption of fuel and petroleum products since 2005. The decline is expected to continue through 2012. The country's policy of using alternate renewable sources of energy, aging population and the industry's move towards replacing oil and petroleum with natural gas as a more viable option are reasons for the downtrend. Being the country's largest refiner, NOC is cognizant of this trend in the domestic market. The company has turned its focus to chemical refining integration and production of two key products - propylene and paraxylene, which are byproducts of the oil refining process. These products are used in the manufacture of acrylic resins, polypropylene and polyester. NOC plans to produce these strategic products cost-effectively and tap the growing Asian market.

With reducing demand for petroleum products in Japan, oil refining companies are forging alliances with domestic chemicals and petroleum sectors to tap the international markets especially China, India and South Korea, where demand for petroleum products is on the rise.

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