Rule Relaxed Only for Domestic Refiners : Japan to Allow Gasoline Imports

The Ministry of International Trade and Industry announced Thursday that starting next year Japan will permit the importation of gasoline, kerosene and gas oil, but only domestic refiners will be allowed to import these products.

Toshihiko Tanabe of the ministry’s Petroleum Bureau said the move will allow Japan’s market for gasoline “to be determined by market forces,” but a continuing ban on imports by service station owners and trading companies not involved in refining makes it clear that imports are likely to be severely restricted.

Industry sources predicted that initial gasoline imports will not amount to more than 5% of demand.

Japan imports virtually all of its petroleum, including large amounts of crude oil, which it refines into gasoline and other products.

Thursday’s move was designed to align Japan with other advanced nations that import refined petroleum products from Middle East oil countries that are moving into the refining business.

Only one of Japan’s more than 30 refining firms, Idemitsu Kosan, favored freeing imports of gasoline, which is at present the only product the oil firms are able to sell at a profit here.

The Petroleum Federation immediately called the trade ministry’s decision to allow gasoline imports “indeed regrettable.”

Tanabe said that with some firms operating at only 65% of refining capacity, the oil industry as a whole lost $583.3 million in the first half of 1985.

Although Japan imports naphtha, fuel oil and liquefied petroleum gas and ranks as the third-largest importer of refined oil products, its ban on imports of gasoline, kerosene and gas oil has served to divert refined petroleum products to Europe and the United States.

As a result, U.S. and European oil firms have been forced to scrap more refining facilities than Japan.

Behind in Scrapping Plants

Since the second round of sharp increases in the price of oil in 1979-80, refiners in the United States have reduced production capacity by 17.9%, while cutbacks in the European Economic Community have averaged 27%, Tanabe said. Japan, by comparison, has scrapped only 16.3% of its refining capacity.

“We are behind other countries in the speed of scrapping our excess facilities,” Tanabe acknowledged. He added that the freeing of gasoline imports will allow Japan “to contribute to the balancing of world trade in oil products.”

The trade ministry plan, presented in the form of a recommendation from the ministry’s Petroleum Council, calls for the scrapping of facilities capable of refining between 700,000 and 1 million barrels of crude a day by April, 1989. Tanabe said the scrapping will amount to between 15% and 20% of Japan’s current refining capacity of nearly 5 million barrels a day.

Tanabe said imports will begin as early as next April, or as soon as Parliament approves enabling legislation.

He said the trade ministry will press each of the oil refiners to determine how much of its facilities it will scrap, but he added that “the scrapping will be carried out on their own initiative.”

He refused to say whether the trade ministry will issue import permits to any firm that refuses to join in the scrapping program. The ministry will offer financial assistance to firms that agree to take part.

At present prices, imported gasoline is cheaper than gasoline refined in Japan, a factor that will encourage refiners to import at least part of their stocks in order to increase profits, even though they will still have enough refining capacity after the scrapping to meet Japan’s needs, Tanabe said.

Asked what share of Middle East refined oil products Japan is likely to import, Tanabe said, “We cannot quantify it.” The Petroleum Council also recommended that the ministry carry out an integration of major oil distributors in connection with the scrapping plan.