Japan's Idemitsu Kosan to turn Fuji Oil an affiliate to optimize supply, boost carbon neutrality push

Japan's second largest refiner Idemitsu Kosan said April 16 it expects to turn Fuji Oil to its equity-method affiliate after acquiring JERA's 8.75% stake in the latter as it strives to optimize its oil products supply and crude procurements and enhance cooperation toward 2050 carbon neutrality.

Under a capital and business alliance agreement signed in the day, Idemitsu agreed with Fuji Oil to enhance cooperation in the area of oil products business and jointly accelerate efforts towards decarbonization.

As part of the alliance, Idemitsu also agreed to acquire all of JERA's 8.75% stake in Fuji Oil at Yen 2.462 billion ($15.94 million), bringing its stake in the refiner to 21.79% as the largest shareholder.

Idemitsu's acquisition of JERA's stake in Fuji Oil, however, will proceed only after receiving notice from the Japan Fair Trade Commission on not issuing a cease and desist order on the deal, the companies said.

Enhancing cooperation

In the near term, Idemitsu and Fuji Oil will focus on optimizing and consolidating their crude and naphtha procurements, as well as enhance optimizations of their oil products production and supply.

As for crude procurement, Idemitsu's latest move to take Fuji Oil under its arm could significantly enhance trading and logistical efficienc as both companies have long been regular buyers of Abu Dhabi and Qatari light and medium sour crude grades including Murban, Qatar Land, Das Blend and Upper Zakum, a source close to the companies told S&P Global Commodity Insights.

"For instance, instead of buying two separate Suezmax cargoes of Murban, or Das Blend or whatever the Middle Eastern sour crude grades that refineries require, taking a single VLCC would save costs and speed up loading and discharging time," the source with close knowledge of the companies' crude trades and inventory said.

Products supply

The companies will also explore ways to optimize their oil products production and supply to boost their competitiveness, an Idemitsu Kosan spokesperson said.

Idemitsu currently lifts 60%-70% of Fuji Oil's oil products output from its sole 143,000 b/d Sodegaura refinery in Tokyo Bay, which is located close to the former's 190,000 b/d Chiba refinery.

Fuji Oil supplies slightly less than 10% of its oil products output -- mainly gasoline -- to ENEOS, which also has a 1.74% stake in the refiner. The company also supplies 5%-6% of its oil products supply in the form of naphtha to Sumitomo Chemical, with the remainder supplied to Japan Airlines and several trading houses.

The latest move by Idemitsu comes after it said on March 19 that it will boost its stake in refiner Fuji Oil to 13.04% by acquiring all of Sumitomo Chemical's 6.46% stake in Fuji Oil on March 26.

Following the last deal, JERA, which buys low sulfur fuel oil from Fuji Oil for power generation, became the second-largest shareholder in the refiner with a stake of more than 8%, followed by Kuwait Petroleum Corp. and the Saudi Arabian government's holding of over 7.51% each.

Idemitsu, in which Saudi Aramco has an over 7% stake, decommissioned its 120,000 b/d Yamaguchi refinery on March 1, bringing its total refining capacity down to 825,000 b/d over five refineries in Japan.

Joint investment

Idemitsu and Fuji Oil also said they will consider making investments to produce next generation carbon neutral fuels.

Idemitsu plans to start up its 100,000 kiloliters (628,980 barrels)/year alcohol-to-jet technology-based sustainable aviation fuel production plant at its Chiba complex in Tokyo Bay in fiscal year 2028-2029 (April-March).

Fuji Oil said in May 2023 that it has started a front-end engineering design with ITOCHU to produce about 180,000 kiloliters/year of SAF at the Sodegaura refinery in FY 2027-28.

The Japanese government introduced a proposal to mandate the replacement of 10% of its 2030 jet fuel demand with neat SAF, with plans to introduce such regulations by mid-2024.

In November 2022, the Ministry of Land, Infrastructure, Transport and Tourism had set the country's consumption target of neat SAF at 1.71 million kiloliters, or 10.8 million barrels, for 2030.