Oil report

UPDATE 1-Reuters Summit-Nippon Oil looks to oil product exports

(For other news from the Reuters Global Energy Summit, clickhere)

TOKYO, June 2 (Reuters) - Nippon Oil Corp 5001.T, Japan's top refiner, is considering moving forward by one year to March 2010 its plan to boost oil product export capacity, its president told Reuters on Monday.

The boost to 260,000 barrels per day will be conducted in stages from the current 230,000 bpd, Shinji Nishio said, speaking as part of the Reuters Global Energy Summit from Tokyo.

The company’s exports though will lag its capacity expansion, with the plan to double shipments to 120,000 bpd by 2010/11 from 60,000 bpd in the year ended March 2008. The extra export capacity is essential to allow for a flexible and agile export strategy, Nishio said.

“We may decide to move forward the schedule,” said Nishio, adding that the final decision will be made depending on oil demand. “The cost will be several billion yen.”

Japanese refiners led by Nippon Oil have more than doubled oil exports since 2004 to counter flagging oil demand at home, which has been shrinking around 4 percent per year since 2006.

“The high oil price is denting demand, and as for gasoline, there’s an increased ratio of fuel-efficient mini-cars on the streets and the number of registered vehicles are on the decline,” Nishio said. “We are concerned about the long-term outlook.”

Amid the backdrop of Japan’s shrinking oil demand, core export shipments of gasoline, naphtha, jet fuel, kerosene, gas oil and fuel oil totalled 15.9 million kilolitres (274,000 bpd) in the year ended March 2008, up 50 percent from a year earlier, an official with the Ministry of Economy, Trade and Industry (METI) said.

That means Japanese exports are equivalent to about 7 percent of Japan’s total domestic oil sales and 6 percent of Japan’s crude refining capacity of 4.9 million bpd.

“Japan’s oil demand is set to decline 2 percent per year through 2010, while the rest of Asia is set to grow 4-5 percent a year, so Japan can ship the domestic surplus overseas,” Nishio said.

Nippon Oil was also considering exports of gasoline to the United States to fill peak summer demand in the world’s biggest oil consumer, but Nishio said it was difficult due to the variety of gasoline specifications that exist in the country.

He added that it has considered building a refinery overseas like the recent deal in Vietnam by rival Idemitsu Kosan Co 5019.T, but added that it does not make economic business sense now "due to high materials prices."

“It would cost about 1 trillion yen ($9.5 billion) for a 200,000 bpd refinery,” he said.

He also said at current prices of around $130 a barrel, oil is losing its edge against energy alternatives.

“What we’re most concerned about is that, with high prices of around $130 a barrel, oil cannot have an advantage as a fuel against other energy sources,” Nishio said.

“The oil price is entering a critical level for us. Oil will self destruct.”

Nishio added that its oil refining and sales business is likely to continue being in the red, like many rivals, for the current business year ending March 2009 in part because it was unlikely to keep up refining margins in the face of rapidly rising oil prices. (For summit blog: ($1=105.05 Yen) (Reporting by Osamu Tsukimori; Editing by Michael Urquhart)