- Japan’s third-largest refiner Cosmo Oil will halt the supply of 1.0% sulfur A-fuel oil in the domestic rack and waterborne markets from as early as September.
- The company is facing a lack of storage facilities to keep its supply of A-fuel oils with different sulfur content — 0.1%, 1.0%, and 0.5%.
- JXTG, which accounts for 40%-50% of domestic bunker fuel supply, is ready to start supplying IMO-compliant bunker fuel by October.
- In the fiscal year to March 31, 2019, Japan’s A-fuel oil demand stood at 11.07 million kiloliters or 190,762 b/d, accounting for about 7% of total oil products demand.
According to an article published in Platts, Japan’s third-largest refiner Cosmo Oil will halt the supply of 1.0% sulfur A-fuel oil in the domestic rack and waterborne markets from as early as September.
Compliance with IMO rule
It has planned to supply bunker fuels that comply with the International Maritime Organization’s sulfur limit rule, a company official told S&P Global Platts Thursday.
The company official with parent Cosmo Energy Holdings, however, declined to elaborate on the matter. Cosmo Oil holds about a 13% share of A-fuel oil supply in Japan.
Lack of storage facility
However, market participants said that Cosmo Oil’s move is related to difficulties in keeping separate tank storage for a wide range of products due in part to the company’s response to the IMO mandate.
The company is facing a lack of storage facilities to keep its supply of A-fuel oils with different sulfur content — 0.1%, 1.0%, and 0.5%, market sources added.
A-fuel oil — a blend of gasoil and fuel oil in a 90:10 ratio — is one of the key products supplied by Japanese refiners used by industrial power plants, coastal vessels as well as construction and agricultural machinery in the country.
Cosmo Oil’s capacity
Cosmo Oil’s latest move came to light after Platts first reported in February that the refinery planned to start supplying 0.5% sulfur bunker fuel from October in response to changes in IMO regulations, with the expansion of the coker at its 100,000 b/d Sakai refinery in western Japan.
Cosmo Oil has a combined 363,000 b/d capacity over three refineries in Japan, with oil terminals in Hakodate in the north and Sakaide in the west.
JXTG also considering supply suspension
Japan’s largest refiner JXTG Nippon Oil & Energy, which has a 48% share of A-fuel oil supply in the domestic market, also told Platts it is considering suspending a part of its supply of A-fuel oil when it starts supplying IMO-compliant bunker fuel.
“We are considering it [to halt A-fuel oil supply],” a company official said when asked whether the company was also suspending its supply of A-fuel oil.
Halting supply of A-fuel oil
According to market sources, JXTG was halting its supply of A-fuel oil, when it starts supplying IMO-compliant bunker fuels, with some customers already informed by the largest refiner.
JXTG, which accounts for 40%-50% of domestic bunker fuel supply, is ready to start supplying IMO-compliant bunker fuel by October, Tsutomu Sugimori, president of parent JXTG Holdings, said on May 13.
Demand for high sulfur fuel oil
Meanwhile, Idemitsu Kosan, which together with its wholly-owned subsidiary Showa Shell has a 34% share of domestic A-fuel oil supply, is the second largest refiner in Japan and it has yet to decide whether to keep its supply of 1% sulfur A-fuel oil beyond January next year. Nevertheless, it has decided to continue supplying high sulfur fuel oil as a bunker fuel even after January.
“We have estimated that a certain amount of demand for high sulfur fuel oil from shipowners would remain. Essentially, those who have installed scrubbers on their tankers,” a company official said.
Increased demand for A-fuel oil
Refiner Taiyo Oil does not supply any bunker fuel oil from its sole 138,000 b/d Kikuma refinery in western Japan — as it does not normally produce any residual fuels — with a 32,000 b/d residue fluid catalytic cracking unit, a company source with direct knowledge of the matter said.
In the fiscal year to March 31, 2019, Japan’s A-fuel oil demand stood at 11.07 million kiloliters or 190,762 b/d, accounting for about 7% of total oil products demand, according to the Ministry of Economy, Trade and Industry data.
Choice to use clean fuel or install scrubbers
The IMO will cap global sulfur content in marine fuels at 0.5% from January 1 next year, down from 3.5% currently. This applies outside the designated emission control areas where the limit is already 0.1%. Shipowners will have to either burn cleaner, more expensive fuels or install scrubber units for burning high sulfur fuel oil to comply with the rule.
Rack oil products are those that are transported by refiners and other independent suppliers over land by tank lorries — loaded from either refinery tanks or secondary tanks outside the refinery. Waterborne oil products are primarily supplied by local refiners and major trading houses in Japan.
On Wednesday, Platts assessed Japan’s rack 1.0% A-fuel oil, or HSAFO, in Kanagawa, Tokyo Bay, at Yen 64,700/kl, or $93.15/b, and waterborne HSAFO in Tokyo Bay at Yen 64,900/kl.
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Source: Platts
