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UPDATE 2-Japan refinery outages to curb crude demand, buoy diesel
* Idemitsu shuts 220,000 bpd CDU at Chiba refinery after fire
* Brings total sudden, extended shutdowns in Japan to 560,000 bpd
* Shutdowns to reduce crude demand, may lift diesel premium (Recasts; adds market impact, quotes)
By Osamu Tsukimori and Florence Tan
TOKYO/SINGAPORE, July 20 (Reuters) - Japanese oil refiner Idemitsu Kosan Co has shut a third of its capacity after a fire, the latest outage in Japan that could reduce the country's crude demand and curb fuel exports.
The outage occurred just a few days after Japan's largest refiner JX Nippon Oil & Energy Corp started shutting down a refinery in western Japan for an unexpected safety check that could last a few months. Another refiner, Cosmo Oil Co , has extended indefinitely maintenance on a crude unit at its Chiba plant.
Without definite restart schedules, the total of 560,000 barrels per day (bpd) in sudden and extended shutdowns of refining capacity could reduce demand for Middle East crude, as well as curbing the country's diesel exports and buoying regional premiums for the product.
"It's bad, bad news for crude, but good for products," a Singapore-based oil trader said.
The outages have offset the restarts of some units that were shut for maintenance in the second quarter, traders said.
Sentiment in the Middle East crude market is already weak as the global economic slowdown has hit demand, they added.
Idemitsu Kosan said it immediately shut the 220,000 bpd No. 2 crude distillation unit (CDU) at its refinery in Chiba, east of Tokyo, on Thursday evening after a fire struck near the CDU's naphtha circulation lines.
The fire had been extinguished by early Friday morning, it added. There were no injuries.
The CDU is likely to be shut for some time pending an investigation into the incident, a fire department official said, though he did not give a schedule for any restart.
Some secondary units are still operating, including a 45,000 bpd fluid catalytic cracking (FCC) unit, an Idemitsu official said.
He added that there has been no impact on product shipments from the refinery, including truck and marine shipments, but traders expect overall diesel exports from Japan to fall below normal following the refinery outages.
This could lift diesel prices at a time when maintenance at a refinery in Singapore and an increase in Australia's demand have pushed July spot premiums to their highest in more than 15 months.
Idemitsu on average exported about two 300,000-barrel cargoes of diesel a month over January to May this year, a Singapore-based trader familiar with the North Asian market said.
For July, the company is expected to load a similar amount of diesel but had no jet fuel exports scheduled.
At least one cargo could likely be delayed or cancelled if the CDU shutdown lasts for long, traders said.
"They will probably prioritise covering shorts in the domestic market before looking at exports," said the trader.
Idemitsu's shutdown is not expected to impact naphtha and low sulphur fuel oil (LSFO), traders said.
No naphtha crackers were shut while high stockpiles of the light product in Chiba could also cushion the impact of refinery shutdowns, a naphtha trader said.
The refiner also has term contracts to import LSFO, a fuel oil trader said.
Idemitsu operates four domestic refineries with total CDU capacity of 640,000 bpd. The other three refineries are all operating. (Additional reporting by Ramya Venugopal and Jessica Jaganathan; Editing by Joseph Radford)
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