Japan will start counting half of the crude oil stored by Saudi Arabia and Abu Dhabi in leased storage capacities in the country toward its secondary strategic petroleum reserves from as early as August, sources at the Japanese Ministry of Economy, Trade and Industry said Thursday.
METI expects to issue a notice of implementation of its new framework in less than one month after a draft of the idea was approved Wednesday at its oil and natural gas subcommittee, the sources said.
After rounds of policy discussions, METI has decided to count half of the leased storage capacity held by producing countries, which currently comprise by Saudi Arabia and Abu Dhabi, as secondary national SPR, the sources said.
This development will give a new status for the framework, which started in 2009 -- known as the joint crude storage by producing countries -- after reviewing the status of the storage, which has been prioritized to supply the stored crude to Japan in times of supply emergencies, the sources said.
Under the joint crude storage agreements, Abu Dhabi and Saudi Arabia, Japan's top two suppliers, can use Japanese tanks, paid by the Japanese government, for commercial purposes in exchange for assigning priority to supplying the crude oil to Japan in an emergency.
Under the latest development, METI has set a "reference volume" for the first time for the half of crude stored by the producing countries over the next five fiscal years starting in fiscal 2014-15 (April-March).
Under the plan, METI intends to count 850,000 kiloliters (5.35 million barrels) or half of the current crude storage capacity held by Saudi Aramco and the Abu Dhabi National Oil Company for Japan's secondary national SPR, the sources said.
The secondary national SPR volume will rise to 1 million kl from fiscal 2015-16, following an agreement between Japanese Prime Minister Shinzo Abe and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nayhan during the prince's visit to Tokyo in February.
METI and ADNOC have not yet agreed on the terms of the new deal, including duration and location of the storage in Japan, but Abu Dhabi's leased crude storage capacity will jump by 43% from around 700,000 kl currently to 1 million kl or 6.29 million barrels once the details are finalized.
Last month, METI and ADNOC agreed to continue talks to discuss their earlier agreement to expand the emirate's leased crude storage capacity in Japan as the previous deal was expiring at the end of June, Platts reported earlier.
The agreement came ahead of the scheduled June expiry of a two-year crude storage deal between METI and Abu Dhabi's Supreme Petroleum Council, following the original three-year deal signed in 2009. That deal was signed by ADNOC with then-Nippon Oil -- now JX Nippon Oil & Energy -- to store 620,000 kl of crude at the refiner's terminal at Kiire in southwestern Japan.
Last December Saudi Aramco increased its leased storage capacity at Okinawa in southwestern Japan to 1 million kl, up from 800,000 kl earlier under a new three-year deal.
The storage idea was first proposed in 2007 when Japanese Prime Minister Shinzo Abe, during his first term as premier, met with Saudi Arabia's King Abdullah in Riyadh.
At the end of May, Japan held 50.40 million kl of crude and oil products in the national SPR, comprising 49.10 million kl of crude and 1.3 million kl of oil products, which equates to 111 days of consumption, according to METI.
The country also held 37.98 million kl in privately held SPR, comprising 19.18 million kl of crude and 18.80 million kl of oil products, which equates to 86 days worth of consumption, METI added.
Japan began stockpiling oil in 1972, when the private sector informally started storing oil equivalent to 50 days worth of consumption, or 17 million kl of oil products and 16 million kl of crude. The government set up its strategic reserves in 1978, starting with supplies equivalent to 88 days worth of consumption.
