BMI View: Continued push for greater consolidation and efficiency in the refining sector will further reduce Japan's refining capacity through to 2017. T he government's preference to shift to cleaner energy sources - such as nuclear energy and renewables - for power generation , coupled with fuel efficiency gains in the automotive sector, will gradually curb oil and oil products consumption over the next decade . Demand for LNG will remain elevated in the short to medium term as Japan continues to fill in the nuclear void.
|e/f = BMI estimate/forecast. Source: Petroleum Association of Japan (PAOJ), EIA, BMI|
|Crude, NGPL & other liquids prod, 000b/d||17.2||17.0||16.8||16.6||16.3||16.1||15.8|
|Dry natural gas production, bcm||2.6||2.8||2.7||2.5||2.4||2.3||2.2|
|Dry natural gas consumption, bcm||125.8||126.5||128.3||129.2||130.8||131.3||131.9|
|Refined products production & ethanol, 000b/d||3,531.0||3,095.6||3,101.8||3,108.0||3,114.2||3,120.5||3,126.7|
|Refined products consumption & ethanol, 000b/d||3,657.7||3,511.6||3,476.7||3,442.1||3,407.8||3,373.9||3,347.1|
The main trends and developments we highlight for Japan's oil & gas sector are:
Japan's refining capacity fell by 400,000b/d following the introduction of a law on heavy residue cracking. This will cut Japan's refining capacity to 3.9mn b/d in 2015, down over 1mn b/d from the early 2000s. BMI believes that this will fall even further to 3.7mn b/d by 2017.
Government policy appears to be intentionally pushing for industry consolidation, as 'operational alliances with other refiners' is one of the factors that refiners will be assessed on to determine if they have met government standards.
The reduction in refining capacity will see a gradual cutback in Japan's crude oil imports over the next decade, which we forecast will decrease from 3.08mn b/d in 2014 to 3.14mn b/d in 2024.
Challenges in the domestic refining sector will drive an increasing number of Japanese refiners to pursue investment opportunities abroad, in particular, in the Asian emerging markets such as Indonesia and Vietnam.
The shift away generation from oil for power, and efficiency gains in the automotive sector, will weigh down on Japan's refined fuels consumption. This will see a decline in the country's total petroleum consumption, from 3.5mn b/d in 2014 to 3.2mn b/d in 2024.
LNG imports will remain elevated through to 2020 due to increased demand from the power sector. However, it will decline thereafter as the government re-introduces nuclear power generation. The rising prominence of renewables energy will also erode LNG's share in Japan's power mix.
Efforts to develop and commercialise Japan's unconventional resources are ongoing, following a successful production test of methane hydrates conducted by Japan Oil, Gas and Metals National Corporation in 2013. In April 2014, Japan Petroleum Exploration announced it had begun commercial production of shale oil from an acid stimulated well at Onnagawa in the Akita Prefecture. The company also completed a horizontal well at the Fukumezawa oil field in May 2014, where the first application of multi-stage hydraulic fracturing in Japan is expected towards the end of 2014. The company plans to start fracturing late November 2014, but as of July 2015 the fracturing is yet to start.
In October 2014, new potential financing also came forward as a consortium of 11 Japanese oil companies and contractors is to finance a medium- to-long-term offshore production test aimed at generating gas from methane hydrates. Each company is offering its technologies and know-how to the project to eventually come up with a commercial development.