Nippon Oil seeks first fuel export term deals

TOKYO, March 12 (Reuters) - Top Japanese refiner Nippon Oil Corp (5001.T) is close to clinching its first long-term fuel export deals with oil majors and traders as shrinking domestic demand forces it to step up overseas sales, industry sources familiar with the talks said on Wednesday.

While Nippon Oil has long-standing arrangements to process crude on a tolling basis for other companies, it has always exported any surplus supplies from its 1.2 million barrels per day (bpd) of capacity by selling into the spot market.

But with demand in the world's third-largest oil consumer falling as younger drivers seek out more fuel-efficient cars, Japanese refiners are investing in new port facilities and infrastructure to sell more of their product overseas.

Industry officials said talks for an annual supply deal were well underway. A company spokesmen declined to elaborate.

"Spot product exports will continue," said a Nippon Oil spokesman. "But the exports under a long-term contract will help stabilise exports and (refinery) operations."

Nippon Oil has increased its fuel export capacity by 30,000 bpd this business year to 230,000 bpd, but said in January that actual exports would come to only 116,000 bpd, down from a previous estimate of 128,000 bpd. That's still up by more than a fifth from the previous year, however.

The winter's warm weather underscored the need for more export flexibility, as refiners who were unable to sell surplus heating fuel were forced to curb production instead.

The spokesman said Nippon Oil may boost international sales further in the next business year by investing in its Muroran refinery in Hokkaido, northern Japan, to allow it to export gas oil in addition to jet fuel and kerosene.

The move is seen aimed at the fast-growing regions of Asia, including China and India, but Nippon Oil spokesmen did not rule out the United States or Europe.

Japan's total oil product sales in 2007 dipped 4.2 percent from a year earlier led by the drop in kerosene and fuel oil, Ministry of Economy, Trade and Industry data showed.

Any long-term export deal would be separate from its deals with Chinaoil, trading arm of PetroChina (0857.HK) (PTR.N), and Japan's Idemitsu Kosan Co. Ltd. (5019.T), under which Nippon Oil processes crudes at its refining system for both companies to compensate their capacities. [ID:nT23526]

The Nippon Oil group, including affiliates such as Nihonkai Oil, has a refining capacity of 1.217 million bpd, about a quarter of Japan's total. (Reporting by Osamu Tsukimori)