Japan's largest refiner JXTG Nippon Oil & Energy is looking to boost flexibility in its crude oil procurements by reducing its term commitments in this low-price environment, while expanding its products exports to account for 20-30% of its refining capacity in the next few years, a senior company executive told S&P Global Platts.
Current term crude commitments 'around 60%' of imports
Active buyer of US, Mexican, Colombian and Ecuadorian crude
Aims to export 20-30% of refining capacity
"Under the current bearish market, we are trying to increase our freedom and flexibility [in procurements] by lowering our term ratio," executive vice president Takashi Hirose said in an interview Wednesday on the sidelines of the Platts Asia Pacific Petroleum Conference in Singapore.
JXTG Nippon Oil & Energy, the refining arm of JXTG Holdings, was established in April as a result of the merger between JX Holdings and TonenGeneral and has a combined refining capacity of 1.93 million b/d across 11 refineries in Japan.
Hirose said JXTG's consolidation of JX and TonenGeneral's crude procurement operations has been "surprisingly smooth."
"Actually, we were not very different from each other," Hirose said. "Both our companies had been trying to increase flexibility to process various crude grades, not only [grades] from the Middle East."
JXTG, an active buyer of US crude oil, has been taking cargoes from the US every few months whenever economics are favorable, and it has also been buying from other producers in the Americas, including Mexico, Colombia and Ecuador, Hirose said.
US CRUDE IMPORT ECONOMICS
The weakness in NYMEX WTI prices this year has played a key role in boosting US-Asia crude flows this year, industry executives said during the APPEC conference.
The spread between front-month Dubai crude swaps and same-month WTI swaps flipped into positive territory on January 4, when it was assessed at 4 cents/b, for the first time since October 28, 2015, when it was assessed at 48 cents/b, Platts data shows.
The spread has remained positive for most of this year, averaging $2.14/b so far in the third quarter, compared to $1.29/b in Q2 and $0.51/b in Q1, after having spent Q4 2016 at a discount of $1.62/b.
A weaker WTI versus Dubai spread typically makes various North American crude grades priced against WTI more competitive in Asia.
JXTG'S TERM CRUDE IMPORTS AT 60%
Looking forward, JXTG will continue to emphasize flexibility in its crude procurement contracts until market conditions change, Hirose said, adding that the company's current term crude procurement ratio stands "at around 60%."
Asked about the balance of JXTG's crude imports, Hirose said "it comes from a combination of spot [and] framework -- under which we agree to take a certain volume if prices are right."
"This way we have freedom," he added.
JXTG's term ratio in its crude oil procurements is among the lowest in Japan, where some local refiners have also increased their spot crude procurement ratio by cutting term imports in recent years to increase their flexibility.
The ratio of spot purchases in Japan's total crude oil imports rose to 32.5% in the first half of 2017, from 30.5% a year ago, driven by increased arbitrage procurements from the US and Kazakhstan, according to oil industry information obtained by Platts.
SEPTEMBER PRODUCTS EXPORTS 20% OF REFINING CAPACITY
JXTG, meanwhile, has been actively exporting oil products in recent months, and its exports comprising gasoline, gasoil and jet fuel averaged 380,000 b/d in September, Hirose said.
"The exported volume was huge as it equated to the capacities of more than two refineries," said Hirose, adding that its exports accounted for roughly 20% of its refining capacity.
Hirose added that JXTG's oil products export volumes in September increased compared to the same month a year ago due to the impact of recent US hurricanes that took several US Gulf Coast refineries offline.
The Asian jet fuel market was firmly supported by an open arbitrage window to move cargoes from the region to the US West Coast in the aftermath of Hurricane Harvey.
Cash differentials on the FOB Singapore jet fuel cargo climbed for six straight sessions into positive territory over the last week of August, peaking at 16-month high of plus 20 cents/b on August 30. The cash differentials last dived into negative terrain on July 10.
