Japan will start formal policy discussions July 28 to introduce a fourth round of refining regulations aimed at boosting the processing volume of vacuum residue, with preferential treatment expected for efforts to decarbonize the refining process, sources told S&P Global Commodity Insights July 26.
About the new regulation
The new regulations would likely follow the framework of the third round of regulations, with new elements relating to decarbonization efforts by refiners to be considered as part of the regulatory response, the sources said.
The refiners’ potential use of blue and green hydrogen instead of gray hydrogen in the refining process could be considered among the decarbonization efforts, the sources added.
The third round of regulations required refiners to achieve a national target vacuum residue ratio, the daily residual processing volume as a percentage of the daily crude processing volume, of 7.5% by the end of March 2022.
Given a significant drop in Japanese refiners’ refining volumes in the past two years because of the pandemic-led demand slump, Petroleum Association of Japan President Tsutomu Sugimori said March 22 that “It will be difficult to achieve.”
“However, we are in the midst of emergency situations such as the coronavirus pandemic and the Ukraine issues, so that we expect to see some sort of mitigation,” Sugimori added at the time.
Previous regulations
The third round of regulations introduced in 2017 focused on increasing processed volumes at residue cracking units across Japan’s refining fleet with improvements in productivity. The previous two rounds of regulations had led to a reduction in Japan’s overall crude distillation capacity.
The third round of regulations required refiners to increase processing volumes of vacuum residue by the end of fiscal year 2021-22 (April-March) from baseline average volumes processed over FY 2014-15 to FY 2016-17.
Under its definition, vacuum residue has a true boiling point of more than 565 degrees Celsius. This includes atmospheric residue, vacuum residue, vacuum gasoil and other residues processed at fluid catalytic cracking and residue fluid catalytic cracking and cokers.
In order to comply with the third round of regulations, refiners had been expected to revamp their facilities, including carrying out work to upgrade pumps and change catalysts to be able to process more residues at units such as FCCs, RFCCs and cokers by the end of March 2022.
Japan’s nameplate refining capacity was 3.5188 million b/d across 22 refineries as of March 31, 2017 down 7.1% from 3.7897 million b/d earlier, following local refiners’ response to the earlier rounds of refining regulations.
The country’s operable refining capacity stood at 3.4578 million b/d across 21 refineries at the end of March 2022.
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Source: SP Global
