Japan secures jet fuel supply contracts for extra 200 flights/week for winter

Japan has secured jet fuel supply contracts for an additional 200 flights a week bound abroad for winter schedules as part of the country's efforts to alleviate concerns over aviation fuel shortages, sources familiar with the matter told S&P Global Commodity Insights on Sept. 24.

The country's additional jet fuel supply contracts, in terms of weekly flight numbers, will be released by a government-led task force Sept. 26, which will review the progress against its planned steps approved in July and discuss responses to the approaching winter holiday season, the sources said.

Japan's latest efforts to address jet fuel shortages come as the country has seen a record number of foreign visitors this year, boosted by a weak yen against the dollar.

The first follow-up meeting of the task force -- led by the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism -- takes place as part of its commitment to monitor whether the action plans announced in July will improve jet fuel supply situations at each airport for new and additional flights, based on steps undertaken, and to take necessary actions in its planned quarterly meetings.

Cold winter

The meeting also comes at a time when almost all regions of Japan's Honshu mainland are forecast to experience below 30-year average temperatures, with the average temperature in Hokkaido in the north, the Japan Meteorological Agency said Sept. 24, amid a sign of the La Nina phenomenon that tends to cause colder-than-usual winters.

"Refiners have increased their kerosene stock in Hokkaido earlier than usual, with some imports, as refiners struggled to boost inventory there last year due to the disruption of sea transport in stormy weather," an industry source familiar with the situation in Hokkaido said.

"It is highly likely that we will get an adequate amount of kerosene from our main supplier to meet this winter's demand in northern Japan, as temperatures are expected to be lower than last year," a Tokyo-based trader said. "Several traders are considering a plan to import kerosene, as the current crack spread in Singapore is more favorable for importing heating oil."

During a Sept. 19 press conference in Tokyo, Petroleum Association of Japan President Shunichi Kito spoke of the necessity of importing kerosene or jet fuel, both of which have similar specifications, ahead of the winter demand season.

"With the approach of the kerosene demand season, we will be in an import position for kerosene, as current [domestic production] is insufficient, particularly in northern Japan during winter," said Kito, who is also president and CEO of Idemitsu Kosan.

"We will consider and decide our response from options such as boosting imports of kerosene or importing jet fuel," Kito said.

Key supplier

It is possible for South Korean jet fuel/kerosene producers and suppliers to prioritize Japanese buyers when offering spot cargoes in the Asian market during the fourth and first quarters, according to middle distillate marketers at two major South Korean refiners and analysts at Korea Petroleum Association based in Seoul.

South Korea -- Asia's top middle distillate fuel supplier -- exported 6.49 million barrels of jet fuel to Japan in the first seven months, a 66% increase from the 3.9 million barrels sold during the same period a year earlier, according to data from state-run Korea National Oil Corp.

"We have a solid business relationship with Japanese trading companies and refiners ... Apart from delivering term contractual supplies, regular spot cargo tender invitations will be made for Japanese traders, while any surplus barrels will also be set aside for Japanese buying interest, especially during the peak winter jet fuel/kerosene demand season," a marketing manager at a South Korean refiner said.

Japan is among South Korea's top three oil product export markets. The tourism boom in Japan bodes well for South Korean jet fuel suppliers, and ample kerosene supplies will be available for sale during the winter season, analysts at KPA said.

South Korea's heating fuel exports to Japan typically spike during the November-February cold season. Kerosene exports to Japan could reach around 20,000 b/d in the fourth quarter and exceed 24,000 b/d in the first quarter of 2025, according to market analysts and fuel marketing sources at three major South Korean refiners surveyed by Commodity Insights.

In South Korea, kerosene accounts for a small portion of the country's overall heating energy source during the winter. Households and the commercial sector in the country primarily rely on gas and electricity for winter heating.

Approved actions

Japan on July 19 approved a set of short- and mid- to long-term action plans to address aviation fuel shortages in the country, including an exemption allowing refiners to raise their production capacity over July-September, paving the way to cover supply losses from other refineries that were shut for scheduled maintenance.

Japan allowed refiners to adjust their production capacity to compensate for losses due to planned maintenance under a special treatment given in the country's refining regulations.

The government said then that the special treatment would allow refiners to produce jet fuel equivalent to 140 flights a week bound for Asia over July-September.

As part of the short-term measures, Japan said then it also expects trading houses and refiners to import jet fuel and deliver the purchased barrels directly to refueling tanks at airports, with the first cargo arriving in July at Narita Airport, which is equivalent to the supply for 300 flights bound for Asia.

In the short term, Japan said it expects to secure additional tank truck transport capacity by refiners to transport about 15,000 kiloliters (94,347 barrels) a month of jet fuel from refineries, equivalent to about 150 flights a week bound for Asia, to local airports from July.

The country will likely secure a total of three clean product tankers for jet fuel transport from turning ocean liners to Japan-flagged coastal ships, with two ships turning to coastal tankers by the end of 2024 and building a new ship in the longer term under initiatives by refiners and coastal shippers from July.

Japan's coastal shipping regulations require ships to be Japan-flagged and operated by Japanese crews.

Japan's policy response to the jet fuel shortages comes as the country witnessed a record number of foreign visitors -- about 3.14 million people in June, according to MLIT.

If the first half momentum continues, the number of foreign visitors could jump to 35 million for the year, surpassing the 31.88 million seen prior to the pandemic in 2019, MLIT said in a report presented at the ministerial meeting July 19.

In the long run, Japan is aiming to attract 60 million foreign visitors by 2030.