Japan gasoline demand to fall as leisure travel slumps

A Japan Airlines aircraft flies behind a gas flare in a factory in Kawasaki, south of Tokyo August 31, 2010.

SINGAPORE/TOKYO (Reuters) - Japan's gasoline sales this year could post the steepest slide in at least 30 years after a deadly earthquake and tsunami in March killed citizens' appetite for leisure travel while the nation struggles to control a nuclear radiation leak.

The slump may prompt refiners to pare output, forcing Japan to step up imports of other products such as diesel, needed to run trucks and cranes for reconstruction, and fuel oil to generate power. It will also shrink a market for South Korea, which has been selling gasoline in the past few months to help meet Japan's immediate requirements.

"I expect gasoline demand to fall by about 7 percent in 2011 as people are avoiding driving for leisure in sympathy with residents affected by the disaster," said Osamu Fujisawa, an independent oil economist based in Japan.

"Next year, gasoline demand will rebound a little, but not to a great extent since the economic growth prospects are not expected to be that strong."

A fall of 7 percent would translate into an estimated consumption of around 935,000 barrels per day (bpd) in 2011, or about 110,000 tonnes, down from about 1 million bpd in 2010, he said. Most analysts agreed gasoline sales would post a sharp fall this year, with Fujisawa making the steepest estimate.

Japan's gasoline consumption has been steady at around 60 million kiloliters, or 337.4 million barrels, since 2000, according to data compiled by Reuters. Sales had steadily risen from 1980 to post the first decline in 2005.

Year-on-year changes this decade have mostly varied between a gain of 1.9 percent and a fall of 1.7 percent, except for a fall of 4.2 percent registered in 2008.

"Japan has a history of being well balanced in gasoline," said John Vautrain, director of energy consulting firm Purvin & Gertz. "It has a refinery industry which is able to make very high quality products which are underutilized as their base demand for fuel is declining."

Some Japanese refiners are already planning to cut capacity to avoid an oversupply, Fujisawa said. Top refiner JX Holdings Inc (5020.T) and Idemitsu Kosan Co (5019.T), the third-largest, will lead in cutting runs with others following suit, he said.

Crude throughput in May has fallen by 13 percent from a year earlier, as availability of products surged following a ramp up in output in April due to a government request to provide enough fuel in areas hit by the earthquake and tsunami.

BOOSTING EXPORTS

Another scenario would be to step up exports of gasoline by keeping runs unchanged to ensure ample availability of diesel and fuel oil, analysts said. Refiners may opt for this route if profits from processing crude into fuels are healthy, they said.

Refining margins in Singapore, a regional benchmark, rose to $9.20 a barrel on Wednesday compared with an average of $6.42 a barrel in the last year and $7.83 in the last 15 days.

Japanese refiners have been boosting exports of gasoline in the past few years to take advantage of healthy margins and rising demand for fuel in emerging nations such as China and India, analysts said. Overseas shipments of the fuel have been rising steadily since 2007, more than doubling in 2010 to about 37,900 barrels per day, according to Reuters data.

"Japanese refiners have ample capacity to produce gasoline over and above domestic demand," Fujisawa said. He expects gasoline exports this year to be 30,000 bpd despite the shutdown of some plants following the quake.

Domestic gasoline consumption also came under pressure after Japan last month scrapped a 1,000 yen ceiling on weekend highway tolls as the government seeks funds for reconstruction.

Sales of the fuel plunged nearly 18 percent in the first weekend after the scrapping of toll discounts.

"The discount was helping stem a decline in gasoline demand, so the decline should accelerate without them," said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo.

Gasoline consumption had fallen consecutively for three years from 2006, recovering 0.3 percent in 2009 and 1.4 last year, according to Reuters data.

The Institute of Energy Economics for Japan IEEJ.L expects reconstruction efforts to kick-start in the latter half of this year, and forecasts the nation's total oil demand, excluding oil for power generation, to decline overall.

"Truck transportation and in-house power generation will be up due to reconstruction, which should push up gas oil demand, but won't have much impact on gasoline," Akuta said.

IMPORTS - A BLIP

Gasoline supplies became scarce right after the March 11 quake as six refineries making up 31 percent of the nation's total capacity, and almost all oil terminals in the northern region, halted operations.

But supplies were normal in about a month after that, and all but two quake-shut refineries have resumed operations.

South Korea partly helped plug the gap immediately after the quake, boosting import volumes far higher than Japan's 2010 monthly average of 67,000 tonnes.

Cosmo Oil (5007.T) alone bought some 150,000 tonnes of South Korean gasoline for July deliveries.

Top refiner JX Holdings will restart its quake-affected 145,000-bpd Sendai refinery only next year.

Cosmo Oil has yet to confirm when it will be able to restart its quake-hit 220,000 barrels per day (bpd) Chiba refinery.

(Additional reporting by Jasmin Choo Editing by Manas Goswami and Clarence Fernandez)