japanese energy supply strategy in the context of growing...
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1
Japanese Energy Supply Strategy in the context of
Growing Regional Demand
Shigeya KatoSenior Managing DirectorShowa Shell Sekiyu K.K.
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2Contents
1. Transition of Japanese Oil Industry
2. Japanese Primary Energy Transition
3. Issues at Stake
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1. Transition of Japanese Oil Industry
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4Japanese Oil Supply/Demand Balance
Main Product= Mogas, Jet, Kero, GO(Motor/Industrial), Fuel Oil. – Excl. Naphtha
1st
Oil Shock2nd
Oil Shock
Available Capacityon Stream-day basis
Domestic Demand
Mainpro Production
Crude Intake
1,400
900450
Idle Capacity by Shutdown
Era of “High Growth”Mil.bbl/d
Era of “Deregulation”Era of “Redundancy”6
5
4
3
2
1
0
1962
1970
1978
1982
1986
1990
1994
1998
1966
1974
2002
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5Demand is Whitening
2009
F
1980
F
1985
F
1990
F
1995
F
2004
F
2000
F
2005
F
Mil bbl/d
0
1
2
3
4
5
Fuel Oil
Naphtha
Industrial Gas Oil
AGO
Kero/Jet
Mogas
Forecast
Japanese Oil Demand Transitionby product
Total 3.12Mb/DWhite 2.34 (75%)FO 0.78 (25%)
Total 3.85Mb/DWhite 3.49 (91%)FO 0.36 (9%)
Data :METI
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6
-10
-
10
20
30
40
50
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
US$/bbl Japanese Wholesale Market Price (RIM) Crack Spread from JCC+Tax
12Months Moving average
Gasoline(Ron90)
LSWR
HSFO(S3.0)
Middle DistillatesMiddle Distillates
Product Price (1) Domestic MarketJa
n-87
Jan-
88
Jan-
89
Jan-
91
Jan-
86
Jan-
90
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7
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Gasoline(Ron90)
Middle DistillatesMiddle Distillates
LSWR
HSFO(S3.0)
RIM Compared with Import Parity12Months Moving average
RIM – Import US$/bbl
Import Data : Premium&Freight is estimated by SSSKK
Product Price (2) Import
20
15
10
5
-
-5
-10
-15
Jan-
91
Jan-
92
Jan-
93
Jan-
94
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8Outline of Japanese Oil Industry Transition1. Refinery Capacity
-> Adjusted to product demand
2. Product Market-> Margin reduced to international level
-> Industry structure has changedfrom Distorted Local Market Orientedto Ubiquitous Market Oriented
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9
2. Japanese Primary Energy Transition
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10
Oil
Coal
Gas
New EnergiesNuclear
Hydro
77% 72 51 4342
15
20
18 18
1818
1014
15
METI’s Outlookfor 2010
ReferenceCase
EnergyConservation
Case
Mil.KL (coe)
1st Oil Shock2nd Oil Shock
417444
597
Primary Energy in Japan700
600
500
400
300
200
100
0
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
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11
3. Issues at Stake
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12What are Issues at Stake?1) Social responsibility = Environment
2) Price stability
3) Supply security
4) Investment
5) Return
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131) Social Responsibility = Environment
a. Low sulfur product
b. CO2 reduction
c. Land remedy
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141) Environment a. Low Sulfur Product
0
100
200
300
400
500
2002 2004 2006 2008 2010
USA
Europe
Japan
China
Korea
ppmMogas
0
100
200
300
400
500
2002 2004 2006 2008 2010
USA
Europe
Japan
China
Korea
ppmAutomotive Gasoil
Regulation by GovernmentVoluntary Rule by Industry
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151) Environment b. CO2 Reduction
33,0
00
35,3
20
36,8
70
38,6
10
40,0
50
40,4
70
41,6
20
43,8
10
43,2
20
43,7
80
43,6
40
43,8
30
43,4
00
43,8
50
CO2 kT
-
5
10
15
20
25
CO2 / Refinery Total Throuphput Ton / KKLs
CO2 Emission
CO2 Ton / Refinery Total Throuphput
CO2 Reduction Effect
CO2 Reduction
50,000
40,000
30,000
20,000
10,000
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: PAJ
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161) Environment c. Land Remedy
Number of Service Stations Number of Depots
60,421
56,444
50,067
292
202
Number of Service Stations
Number of Depots
60,000 300
55,000 275
25050,000
22545,000
20040,000
17535,000
15030,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
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172) Price StabilityUtilization of refining capacity in conjunction withwidering gap between product demand and refining capacity in the Pan-Pacific
a. Standardization of product specs-> Make arbitrage work
b. Cooperation between producing and consuming countries to cope with heaving slate of crude oil
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182) Price Stability - Japanese Crude Slate
Japan’s Crude Slate - Lighter and SourerAPI
1.15%
White Oil Demand RatioSulfurAPI
Refinery modernisationcompleted
Diesel sulfur 500 ppmDiesel sulfur2,000 ppm
Diesel50 ppmS
78.7%
81.0%
82.4%83.3% 83.3%
84.2%84.9% 86.0% 86.3%
84.5%
Sul content (wt%)35.6
35.5 1.50%
35.4 1.45%
35.3 1.40%
35.2 1.35%
35.1 1.30%
35.0 1.25%
34.9 1.20%
34.8FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03
Remark: White Products Ratio is on CY basis. Source: PAJ, IEA
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192) Price Stability
SweetSour
- Significant Change in Crude Production (2004)
kbbl/d
RussiaChad
KazakhstanEcuadorCanada
Eq. GuineaAngola
VietnamSudan
TurkmenistanIndia
CongoGabon
NorwayYemen
ArgentinaColombia
OmanUS
UK North Sea
-200 -100 0 100 200 300 400 500 600 700
Source: Shell
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203) Supply Security
Enhancement of strategic reserve in light of growing dependency on Middle-East
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213) Supply SecurityVol Mil. bbl
Others
Mid-East
ME Ratio67.9
88.5
Ratio %1st Oil Shock2nd Oil Shock
79.5
- Japanese Crude Dependency on Mid-East
5,000 100
954,000
90
853,000
802,000 75
701,000
65
600
1973
1976
1978
1980
1982
1986
1988
1990
1992
1994
1996
1998
2000
1984
2002
Source: METI
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223) Supply Security - Security of Sea Lane
Malakka Strait
PhilippinesHolmes Strait
Source: Fujitsu research institute
40
30
20
10
0
1995 99 2003 07 11 15 19
2
1
0
■Oil/Korea□Oil/Japan■Oil/China(IEA)
Bil.MTMalakka Traffic Expectation
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- Japanese Oil Stock Transition3) Supply Security
Mil.bbl700
Crude (Private)
Product&Feedstock (Private)
Obligation (Private)
Crude (National)
Target (Private+National : Image)
70Days
90Days
(35days)
600
500
400
300
200
100
0
1979
1981
1987
1989
1991
1993
1995
1997
2001
2003
1983
1985
1999
Source: PAJ
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244) Investment
No more “Boom-and-Bust”
-> Investment for value creationnot for volumetric expansion.
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254) Investment on Secondary Unit in JapanJapanese CDU Capacity Mil.b/d Upgrading Units Capacity Mil.b/d
Japanese CDU Capacity kb/d
FCC Capacity kb/d
Coker Capacity kb/d
10.4%
20.4%
1.7% 3.0%
0
1
2
3
4
5
619
85
1987
1989
1991
1993
1995
1997
1999
2001
2003
0.0
0.5
1.0
1.5
2.0
2.5
3.0
28.6%
47.4%
HD Capacity kb/d
Source: PAJ
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265) Return
Fair return on investment for the sake of socially acceptable and sustainable growth.
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275) Return
- foreign capital in Japanese Main Oil Companies
500
123 128
28.3%
34.8%
2001 20040%
10%
20%
30%
40%
50%
Fore
ign
Cap
ital R
atio
Others
ForeignCapital
Foreign Capital Ratio400
200
300
Bil.
Yen
100
0
Source: financial statement reports
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285) Return - ROE by Industry25%
Oil/Coal
All Manufacturer
All Industry
20%
15%
10%
5%
0%
-5%
-10%
1995 1997 1999 2001 2003Source: 財務省法人企業統計
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ConclusionAcceleratedly growing importance of cooperation among North-East countries