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Nippon Oil plans Vietnam refinery as domestic demand dries up
Nippon Oil Corp. said it may build a refinery in Vietnam with South Korea’s SK Energy Co. to supply fuel in Asia as dwindling demand in Japan forces the company to expand overseas.
“We’ve been in talks with SK and have agreed on the need for participating in a refining project” in Asia, Nippon Oil Chairman Fumiaki Watari said in an interview in Tokyo Wednesday. Vietnam is a potential location for the first venture between Japan and South Korea’s biggest refiners, and the plant may process 200,000 to 300,000 barrels a day of crude oil, he said.
Seo Young Joon, a spokesman at SK Energy in Seoul, said he couldn’t immediately comment. Idemitsu Kosan Co., Japan’s second- largest refiner, and Mitsui Chemicals Inc. plan to spend US$5.8 billion to build a 200,000 barrel-a-day plant in Vietnam.
Nippon Oil is venturing overseas to tap a projected increase in consumption in Asia’s developing economies led by China. In Japan, it is set to merge with Nippon Mining Holdings Inc. next year to cut costs as a shrinking population and global recession curb fuel demand. Watari said the combined company will retrain surplus staff and deploy them in its newer domestic businesses such as solar power and energy-saving equipment.
“Its positive that Nippon Oil is willing to invest overseas, and Vietnam is the market that will expand,” Hidetoshi Shioda, a senior analyst at Mizuho Securities Co. in Tokyo, said by telephone Thursday. “They need to go abroad.”
Japan demand
Nippon Oil has climbed 13 percent in Tokyo trading this year compared with a 9 percent advance in the benchmark Topix index. The stock fell 2.7 percent to 503 yen at 2:50 p.m. local time Thursday.
Consumption of refined products in Japan, the world’s third-biggest oil user, has waned since hitting a peak in 1996 as its population ages and as factories and offices switch to alternative fuels to cut carbon emissions. The worst recession since World War II has accelerated the decline as companies shut businesses or reduce operations.
Domestic sales of oil products have declined for 12 straight months and consumption may fall 3.5 percent annually in the five years ending March 2014, according to the Ministry of Industry and Trade.
This contrasts with developing economies such as China that are expected to boost worldwide oil consumption next year by 1.4 million barrels a day, or 1.7 percent, according to the International Energy Agency.
‘Important assets’
“We know that about 25 percent of Japan’s refining capacity will be unnecessary in the next five years,” Watari said. That’s why the merged company will cut 400,000 barrels a day of capacity, or 22 percent of its total, and this will be done without firing workers and shutting refineries, he said.
“People are important assets,” Watari said. “We will train workers who sell gasoline now to be able to sell solar panels, fuel cells and our new energy products. We will relocate workers” instead of firing them.
The combined capacity of refineries at Mizushima in western Japan will be reduced by 50 percent and some processing units elsewhere will be shut, he said without giving details.
“It’s too early to make the decision to shut refineries,” Watari said. “Circumstances are rapidly changing and we will decide later whether we need to mothball entire refineries.”
The biggest oil-industry merger in Japan since 1999 is meant to cut costs of at least 60 billion yen ($630 million) a year.
Nippon Oil has already shut its 60,000 barrel-a-day refinery in Toyama, central Japan, and has agreed with China National Petroleum Corp. to run Nippon Oil’s 115,000 barrel-aday refinery in Osaka to export fuels to Asia.
Vietnam refineries
Nippon Oil and SK Energy’s parent, SK Holdings Co., formed a partnership in 2007 to compete against Chinese and Indian rivals. The 10-year accord included plans for buying overseas oil fields, joint construction of refining plants in Asia, and the exchange of petroleum products and chemicals.
Vietnam relied entirely on imported fuel until the completion in February of the 148,000 barrel-a-day Dung Quat Bay refinery, which can meet about a third of the country’s needs. Seven refinery projects with combined capacity of as much as 70 million tons a year are being planned to meet regional demand, according to a government statement in December.
Vietnam’s economic growth may reach 5.5 percent this year after slowing to a record low in the first quarter, according to the government.
thanhnien, bloomberg
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