Volume 3, issue #2 - 22-01-1998

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Saudi Aramco pushing crude export to Japan

Nov. 26, 1997 If Saudi Aramco provides Japanese customers with price incentives in seeking extra crude sales, domestic refining majors are poised to increase their purchases to some extent, the refinery traders say.
"Only provided that price incentives have a significant appeal," Satani of Nippon Oil says. "It could be an option that we will convert some spot purchase of Saudi grades to term contracts," Satani says.
Although domestic refinery giants could increase their Saudi crude purchases, such increases would have a tight cap because these companies are already sourcing 20-35 % of their total requirement in Saudi Arabia, industry players say.
"Because our term-crude suppliers are already balanced and comfortably diversified, we can only increase imports from Saudi within our spot purchase proportion which represents 15-20 % of our total crude imports," Cosmo's Kusakabe says.
Industry players suggest Saudi Aramco's push to double crude exports to Japan is best served by targeting sales to foreign-affiliated Japanese refiners, whose parent companies usually don't supply them with Saudi crude.
Japan's crude imports from Saudi Arabia are mostly spread among domestic heavyweights such as Nippon Oil, Idemitsu, Cosmo and Japan Energy Corp., but foreign affiliated refiners - Showa Shell Sekiyu K.K. and Tonen Corp. of Exxon Corp. and Mobil Corp. - typically run only small volumes of Saudi crude.
Japanese traders agree the key to supplying Saudi crude to foreign affiliated Japanese refiners is modification of its sales formula for Asian destinations to be more competitive with U.S.- and Europe-bound sales.
"As long as the massive differentials between the East- and West-bound crude price formula remains in place, the international oil majors have no reason to buy expensive Saudi east-bound crude to supply their Japanese affiliates," says a trader with a foreign affiliated Japanese refiner.
Ever since the August cut in the Saudi lighter crude price formula for Asian destinations, Exxon and Mobil have started allocating Saudi's light grades to its Japanese affiliate Tonen.