Showa Shell Subsidiary Shuts Down Refinery in Kawasaki

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Researched by Industrial Info Resources East Asia (Kofu-shi, Japan)--On Tuesday, September 20, Toa Oil Company Limited (Kawasaki, Japan), a subsidiary of Showa Shell Sekiyu K.K. (TYO:5002) (Tokyo), permanently shut down the 120,000-barrel-per-day (BBL/d) Ohgimachi site at its Keihin refinery. Showa Shell's overall throughput capacity has fallen to approximately 395,000 BBL/d, produced by its remaining refineries. While Toa has shut down the Ohgimachi side of the refinery, the 65,000-BBL/d Mizue site will remain running. Showa Shell also owns and operates the 210,000-BBL/d Yokkaichi refinery, as well as the 120,000-BBL/d Yamaguchi refinery, operated through subsidiary Seibu Oil Company Limited (Tokyo).

Showa Shell's Ohgimachi shutdown represents one of the first crude distillate unit (CDU) shutdowns directly in accordance with a law passed by the Ministry of Economy, Trade and Industry (METI) last year. Domestic demand has gradually fallen over the years due to an aging population, and Japan's refining industry has become more export-oriented. METI'S regulations call for refiners to increase the country's ratio of residue cracking units (RCUs) to CDUs by the first quarter of 2014. Rather than build new CDUs, refiners are opting to shutdown refineries. JX Nippon Oil and Energy Corporation (TYO:5001) (Tokyo) is also contemplating the shutdown of its 180,000-BBL/d Muroran refinery in Hokkaido, while Petrobras (NYSE:PBR)(Rio de Janeiro) mulls selling its 100,000-BBL/d Nansei refinery in Okinawa.

Despite this law and the domestic market, refiners may look to expand capacity in the future. Foreign markets are lucrative right now and will probably remain so despite lower economic conditions throughout the world. In Japan, jet fuel is the only product line that has steadily increased since the early 1970s, and was the only product to increase production after the earthquake and tsunami. China, which has seen an increase in domestic and international travel, is one of the top importers of Japanese jet fuel, and could become a regional driver for jet fuel demand due to new tariff laws being implemented.

Japan could increase capacity in the future to allow for more jet fuel production due to domestic and international demand. The country is a hub for through-travel to Southeast Asia and other parts of East Asia and represents a major refueling site. Refiners have expressed concern over the METI law, stating that it could hinder capacity expansion in the future.

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