Japanese oil refiners will be able to secure sufficient substitute crude and petroleum products to replace Middle Eastern supplies through the summer, the head of an industry association said on Wednesday.
Shunichi Kito, president of the Petroleum Association of Japan, said that U.S. crude is becoming the main substitute while efforts continue to procure crude from Saudi Arabia and the UAE via routes that bypass the Strait of Hormuz.
Some Japanese companies are sourcing crude from Latin America, including Mexico, Ecuador and Venezuela, as well as from Alaska and Russia’s Sakhalin-2.
“We are responding through a combination of drawing down national reserves and sourcing alternative supplies,” Kito said.
“We expect no procurement problems during the peak summer demand season.”
Kito noted that very large crude carriers (VLCCs) cannot transit the Panama Canal when transporting U.S. crude, forcing some shipments to travel via the Cape of Good Hope, a journey of about 55 days – more than twice as long as the Middle East route.
The longer route would significantly raise costs, leaving refiners with little choice but to pass them on to customers, he said.
Before the U.S.-Israeli war on Iran blocked most oil transport through the Strait, Japan relied on the Middle East for about 95% of its crude imports. It will need to cut that dependence over the long term, Kito said.
Refiners are currently analysing the properties of alternative crude grades, adjusting blending ratios and refining them within existing equipment constraints.
Going forward, Japan will need to strengthen crisis preparedness through a combination of procurement diversification, refinery modifications and expanded use of non-fossil fuels such as biofuels, he said.
(Reporting by Yuka Obayashi and Hina Suzuki; Editing by Edwina Gibbs)