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TOKYO, Dec 24 (Reuters) - Cosmo Oil Co Ltd, Showa Shell Sekiyu KK, TonenGeneral Sekiyu KK, and Sumitomo Corp aim to integrate their liquefied petroleum gas (LPG) wholesale and import businesses to become Japan’s top LPG distributor, the four companies said on Tuesday.
The move is the latest in a series of restructurings of energy businesses by Japanese firms to become more cost-effective and win bigger negotiating power to help lower their procurement costs. Tuesday’s announcement confirms a Nikkei report of the move last weekend.
“Through integration of our LPG distribution, procurement and overseas trading operations, we’ll be able to become more efficient and broaden our procurement networks,” Hiroshi Tomita, General Manager at Showa Shell, told a news conference.
The three oil distributors and a trading house will start discussion on details of the integration, with an aim to sign an agreement between April and June next year, and start operation as a new entity between October and December.
With estimated annual sales of 400 billion yen ($3.85 billion) and sales volume of 3.6 million tonnes, the new company will have an about 25 percent share in the local LPG market, topping the current No.1 distributor Eneos Globe Corp, a joint venture of JX Nippon Oil & Energy, Mitsui & Co and Marubeni.
Japan used about 16 million tonnes of LPG in fiscal 2012, mainly by households for cooking and heating water.
“We see the United States as an important source of importing LPG since the prices are low due to increased output of shale gas,” said Shigeki Nara, general manager at Sumitomo Corp.
“We want to diversify our procurement sources. We believe we can help lower LPG retail prices in Japan in the future,” he said.
Japan imported about 85 percent of LPG from the Middle East in the 2012 fiscal year. Import prices are linked to an index set by Saudi Arabia and they have been kept at high level.
The new firm, with an annual import capacity of 3 million tonnes and an overseas trading volume of 1 million tonnes a year, also aims to expand global reach.
“Japanese annual demand has been flat over the past several years. But overseas demand, such as in Southeast Asia, is growing and we see an opportunity there,” said Koji Moriyama, general manager at Cosmo Oil. ($1 = 103.9950 Japanese yen) (Reporting by Yuka Obayashi; editing by Keiron Henderson)