SINGAPORE (Reuters) - Japan’s Cosmo Oil plans to increase diesel output at its Sakai refinery in Osaka, looking to capitalize on an expected jump in demand when a global mandate for ships to switch to cleaner fuels kicks in from 2020, its top executives said.
The company, wholly owned by Cosmo Energy Holdings, is considering adding units such as a desalter that will allow its 100,000-barrels per day crude distillation unit (CDU) to process more heavy oil and maximize diesel output from its delayed coker in Sakai, Cosmo Oil President Hisashi Kobayashi told Reuters on the sidelines of an industry event.
“All of our three refineries will not produce any vacuum residue by the end of 2019,” Kobayashi said as the oil industry gathers in Singapore this week for its largest meeting in Asia.
A desalter removes salt and water from crude before it is processed at a refinery.
The move will allow Cosmo Oil to comply with a third round of directives from Tokyo aimed at keeping the nation’s refining sector competitive, while helping meet an expected surge in diesel demand when ships are required to use cleaner fuels under an International Maritime Organization mandate.
Besides processing vacuum residue from the expanded Sakai CDU, the delayed coker will also receive more feedstock from Cosmo’s refineries in Chiba and Yokkaichi, said Masashi Nakayama, director of Cosmo Oil’s supply unit. The company plans to adjust operations at the 29,000-bpd coker to maximize its diesel output, he said.
He declined to say how much more diesel the unit could produce.
Cosmo Oil expects Asia’s oil benchmark Dubai to steadily rise to $55-$65 a barrel next year on production cuts led by the Organization of the Petroleum Exporting Countries and strong global demand-growth, Kobayashi said. It was just below $55 per barrel last week.
Still, Cosmo Oil expects the market to remain well-supplied until after 2020 as prices at above $60 a barrel could draw new crude streams into the market, he said.
Cosmo Oil will continue to buy 30 percent of its crude in the spot market, its executives said, and it could step up purchases of heavy crude from Latin America and Canada, in addition to traditional supplies from the Middle East to feed its expansion.
“We expect residue fuel demand to tank and middle distillates to surge and that will widen the light-heavy crude price differential,” said Mitsuyasu Kawaguchi, general manager of Cosmo Oil’s crude and tanker department.
The company is on schedule to shut one of its CDUs in Chiba by mid-2018 once a pipeline connection to fellow refiner JXTG Nippon Oil & Energy Corp’s plant is completed, the executives said.
Reporting by Florence Tan; Additional reporting by Osamu Tsukimori in Tokyo; Editing by Joseph Radford