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According to the Japanese Agency of Energy and Natural Resource
(AENR), Japan imported around 27 million barrels of crude oil in
June 2019 from the United Arab Emirates. This is very close to the
number that IHS Markit Commodities at Sea
calculated based on crude oil tanker movements between the two
countries. Commodities at Sea can already
provide the numbers for July, with a decline of 3% to observe in
terms of barrels per day month-on-month, as July only reached
855,000 b/d, lower than June's levels of around 882,000 b/d. This
means the market share of UAE in Japanese imports once again
dropped below 30%, after surpassing it in June.
Meanwhile, the country's exposure to barrels from the Middle
East Gulf remains high, which results in concern around the
escalating tensions in the region in parallel to the tanker attacks
since June. Tokyo is understood to have been considering a US-led
maritime security coalition for the Strait of Hormuz to protect
interests of Japanese ships and ensure normal crude supply. The
country's government has been trying to secure the safe navigation
of Japanese tankers without damaging its relationship with Iran.
One of the two tankers attacked in mid-June is operated by a
Japanese shipping company, while the Middle East Gulf continues to
supply more than 80% of Japan's crude oil imports, as displayed by
data from IHS Markit Commodities at Sea.
However, Tokyo refused to send any warships into the Strait of
Hormuz, just days after South Korea decided to participate.
We also need to highlight that Tokyo's decision not to join the
coalition might have been affected by its problematic relationship
with Seoul, as Japan recently dropped South Korea as a "preferred
trading partner". This followed the decision of a South Korean
court to order Japanese firms to pay compensation to Koreans over
forced wartime labour.
And it's not only the United States and South Korea that Japan
has been in a diplomatic crisis with, as Russian Prime Minister
Dmitry Medvedev recently visited the disputed Kuril Islands, known
as Iturup in Russian and Etorofu in Japanese, which has been
occupied by Russia since the end of the second world war. Japanese
imports of Russian crude oil have declined by around 12% for the
first seven months of 2019, year-on-year, although July 2019 levels
have been higher than a year ago. Volumes have been highly
volatile, driven by the price differentials of Russian grade
Sokol.
Elsewhere, the country's largest refiner JXTG Nippon Oil &
Energy has been trying to diversify away from Middle Eastern
suppliers due to the risks in the region. With a combined refining
capacity of 1.93 million b/d and 11 refineries across Japan, the
company has the biggest share in the country's imports. Its crude
storage capacity is estimated to exceed 46.23 million barrels.
Its compatriot refiner Fuji Oil expects to reduce crude
purchases by 1.3 million barrels by the end of September amid
issues at secondary refining units at its Sodegaura refinery in
Tokyo Bay, which has a capacity of 143,000 b/d. This has been the
major importer of Iranian crude oil in Japan, having imported
around 20% of its requirements from Iran before the end of
sanctions. It now has plans to switch to other suppliers in the
Middle East Gulf by the end of 2019, once operation returns to
normal levels. The company needs to replace around 30,000 b/d.
Posted 13 August 2019 by Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime, Trade & Supply Chain, S&P Global Market Intelligence
