Asia’s Oil Supply and Demand and Energy Securityeneken.ieej.or.jp/en/seminar/aef2004/pre_niimi.pdfTonenGeneral Kygnus Sekiyu 50.2% Shareholding Product supply 10% Shareholding Kyushu

Asia Energy Forum 2004


Asia’s Oil Supply and Demandand Energy Security

Haruyuki NiimiChairman

Showa Shell Sekiyu KK


Japanese Oil Industry

Showa Shell Alliance (2000)RefiningDistributionProcurementJapan Energy

Idemitsu Idemitsu

Nippon Oil Alliance (1999)ProcurementRefiningDistributionLubricants

Kyushu Oil

Cosmo Oil

Showa Shell

Japan Energy

1999Nippon OilNippon Mitsubishi

Mitsubishi Oil

Cosmo Oil

ExxonMobil Group

TonenGeneral

Kygnus Sekiyu

50.2% Shareholding

Product supply

10% ShareholdingKyushu Oil

Esso Sekiyu 2002

Mobil Sekiyu

Tonen 2000

General Sekiyu

Mitsui Oil

Kygnus Sekiyu

Taiyo Oil


Japan’s Primary Energy Supply

million KL (coe)700

588

77% 72%

417

Oil

Coal

GasHydroNuclear

New energies

1st Oil Shock2nd Oil Shock

of oil every day.Importing ca 3 VLCC of oil every day.

60012%

500444

14%

40019%

300

20050%

Importing ca 3 VLCC 100

00265 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01

Source: METI


Primary Energy Supply in Major Countries (2003)million KL (coe)

1,800

40%

23%

19%

49%

33%

38%

33%

36%

34%

50%

HydroNuclearCoalGasOil

Oil share1,600

1,400

1,200

1,000

800

600

400

200

0USA China Russia Japan India Germany Canada France UK S.Korea

Source: BP


Whitening Product Mix in North East Asia

70%

74%

78%

82%

86%

90%

1996 1997 1998 1999 2000 2001 2002 2003

Japan

Korea

China

Key factorsChinese gasoil increaseKorean naphtha increaseJapanese fuel oil decline

Key factorsChinese gasoil increaseKorean naphtha increaseJapanese fuel oil decline

White Fuels Ratio ([Gasoline+Nap+Middle Distillates] / Total Fuels)

Source: IEA, Korea Petroleum Development Corp


Decreased Oil Share in Japanese Import

trillion JPY50

Total import amount (CIF)

Oil Share in Total Import

44%

15%

Crude & product import amount (CIF)

ExR = JPY250/USD

ExR = JPY116/USD

50%

45 45%

40 40%

35 35%

30 30%

25 25%

20 20%

15 15%

10 10%

5 5%

0 0%0399 0197959391898785838179777565

Source: PAJ


Increasing Oil Dependence on Middle East

100%

0

5

10

15

20

Asia Pac Supply Deficit (right axis)

(mln bpd)

Japan

Korea

China

China became net importer of crude

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

Source: BP, PAJ, Korean Petroleum AssociationChina OGP etc


Excess Refining Capacity in Japan

77%

79%

81%80%

83%

79% 79%

81%

78%77%

79%

81% 81%83%

2,500

3,000

3,500

4,000

4,500

5,000

5,500

FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

4,530

4,030500

5% for turnaround

Topper Utilisation

Crude Intake

Topper Capacity

kbpd

Source: PAJ


Differences in Refining Configulation in NE Asia

China Korea Japan01,0002,0003,0004,0005,0006,000Total CD Unit Capacity kbpd

600CD Unit Capacity / Refinery kbpd

5004003002001000

China Korea Japan

CrackingHydro Desulphur.Platformer

01020304050607080

Proportion to 2ndary Units against CD %

Source: IEEJ


Review on Japanese Oil Policy

☺ Reduce Oil Dependency 1973 CurrentOil share in primary energy 77% 50%Efficiency (prim energy/real GDP) 100 66

☺ Prepare for Emergency 1973 CurrentCrude oil stockpiling ca 30 d 180 d

Reduce Dependency on ME1973 Current

Crude oil dependency on ME 78% 89%

Secure Equity Crude1998 Current

Share of equity crude import 15% 10%Strategy consistent with business viability ???


Oil Demand Outlook in North East Asia

JapaneseDemand

9.2 12.2

14.0 15.9

RegionalNet Import

Chinese Production

“Another Japan” will emerge

million bpd25

20

ChineseDemand

15

10

KoreanDemand

5

0 1990 2001 2010 2015 2020Source: EIA IEO2004


Changing Market Environment in NE Asia

WTO

KoreaDeregulation ongoingImport tariff eliminated for Japan after FTA

ChinaDeregulation just started (import being freed)Import tariff lessenedEnergy security becoming key issue

FTA

KyotoProtocol

JapanDeregulation completedImport tariff eliminated for Korea after FTAImport tariff scheduled to either eliminated or lessened


Product Specs Affect Oil Trade Flow?

Chinese DieselChinese Diesel

Chinese GasolineChinese Gasoline

Japanese GasolineJapanese Gasoline

Japanese DieselJapanese Diesel

Korean GasolineKorean Gasoline

Korean DieselKorean Diesel

10ppm

30ppm50ppm

150ppm

350ppm

ppm10,000

1,000

100

10

1 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: JPECRemark: Chinese specs above are for Beijing & Shanghai.


Oil Stockpiling in EA and Pacific (excl. LPG)

JapanDemand 4,690kb/dStock 170days(National 90 + Commercial 80)

KoreaDemand 2,000kb/dStock 70days(National 32 + Commercial 38)

ChinaDemand 4,650kb/dStock 21daysCrude Prod 3,410kb/d

AustraliaDemand 730kb/dStock 55daysCrude Prod 520kb/d NZ

Demand 130kb/dStock 60days

ThailandDemand 770kb/dStock 36days(*)Crude Prod 150kb/d

MalaysiaDemand 440kb/dStock 30daysCrude Prod 730kb/d

SingaporeDemand 690kb/dStock 30days

IndonesiaDemand 1,110kb/dStock 30days(*)Crude Prod 1,110kb/d

VietnamDemand 200kb/dStock 30daysCrude Prod 350kb/d

TaiwanDemand 860kb/dStock 75days(*)(National 15 + Commercial 60)

PhillipineDemand 280kb/dStock 40days(*)Crude Prod 20kb/d

BruneiDemand 10kb/dStock 21daysCrude Prod 210b/d

East Asia and OceaniaDemand 17.1Mil.b/dCrude Prod 6.6Mil.b/dStock 75days of demand

122days of import

Source: FACT Inc.Asia Pacific Energy Research Center

*- set in statutory


Sea Lane is Regional Security Issue

Malacca Strait& Indonesia

PhilippinesHolmes Strait


More than $30/bbl of Tax Imposed on Crude

14.7%

12.5%

16.5%

11.7%4.3%

24.7%

8.2%3.4%LPG

Nap

Kero

Diesel

AFO

CFO

yield

0

0

32,100

026,000

53,800

-2,0409,800

Tax rate(yen/kl)

2,210Crude duty + Pet Tax

Tax(B yen)

522

79-39

3,139

263

1,251

ConsTax(B yen)

26

4-2

157

13

63

Total 5,215 261+ = Y5,475B

4,067kbpd

$33.5/B

(110Y/$)

Crude4,067kbpd

Mogas

Jet


Outline of Environmental Problems & 3Rs

CO2 fromincineration

Energy saving & CO2reduction through 3Rs

Energy & resource saving through 3Rs

Global Environmental ProblemsGlobal Environmental ProblemsGlobal Environmental Problems

Regional EnvironmentalProblemsRegional EnvironmentalRegional EnvironmentalProblemsProblems

Energy & Energy & resource resource savingsaving

Problems relatingProblems relatingto Waste & 3Rsto Waste & 3Rs

•Global warming•Acid rain•Ozone depletion•Marine pollution•Destruction of tropical rain forest•Extinction of wildlife species•Pollution in developing nations

•Air pollution•Water pollution•Soil contamination•Noise, vibration, malodor

•Energy saving•New energies•Alternative energies

Source: METI


Japan’s Contribution to Regional Energy Security

Fully utilising its most modernised refining assets in the region

Sharing best practice of

its most advanced stockpiling system

its world leading energy conservation technologies

its effort for creation of a recycling-oriented society (“3Rs” promotion)


Mutual Understanding as Platform for Relation

!

?

!

?Business

ValuePeople

HistoryCulture


Backup


Strategic Direction of Japanese Energy Policy

In RealityConcerns more on Nuclear SafetyChanging demand mix- industrial demand declining but retail demand increasingRemaining unchanging high dependency on Middle East for economic reasonAccelerating leadership in environmental improvement

“3Es Policy”

Economic EfficiencyMarket Liberalisation

EnvironmentEnergy ConservationSulfur-free Fuels

Energy SecuritySource DiversificationAdequate StockpilingRelation with Oil Producers

More NuclearLess OilLower Dependence on Middle EastEfficient Energy Supply

Source: METI


Upstream, Uphill Battle?!

12.6%

13.3%

11.0%

12.1%13.0%

14.1%14.2%

15.1%

14.7%

14.9%

15.4%13.3%

13.2%11.5%

10.3%9.9%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03

kbpd

Total Crude Import

Equity Crude

Share of equity crude

AOC’s rights terminated

Come on stream…..FY05? Sakhalin I (250kbpd)FY08? Azadegan (250kbpd)

Source: METI


Japan’s Crude Slate Lighter & Sourer

White Oil Demand Ratio

Sulfur

API

Refinery modernisationcompleted

Diesel sulfur 500 ppmDiesel sulfur2,000 ppm

Diesel50 ppmS

78.7%

81.0%

82.4%83.3% 83.3%

84.2%84.9% 86.0% 86.3%

84.5%

34.8

34.9

35.0

35.1

35.2

35.3

35.4

35.5

35.6API

1.55%Sul content (wt%)

1.50%

1.45%

1.40%

1.35%

1.30%

1.25%

1.20%

1.15%FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

Remark: White Products Ratio is on CY basis.

Source: PAJ, IEA


Unmatching Product Mix and Refinery ConfigulationMogasNaphthaKR/JetGasoilFueloilOthers

Refinery CapacityChina Korea

7,0007,000

6,000

-

1,000

2,000

3,000

4,000

5,000

6,000

5,000

4,000

1980 2001 2007 2010

kb/d

kb/d

3,000

2,000

1,000

-1980 2001 2007 2010

Japan NE Asia Total16,000

-

1,000

2,000

3,000

4,000

5,000

6,000

7,00014,000

12,00010,000

kb/d

kb/d 8,000

6,000

4,0002,000

-1980 2001 2007 20101980 2001 2007 2010

Source: IEEJ

Documents

Asia’s Oil Supply and Demand and Energy Securityeneken.ieej.or.jp/en/seminar/aef2004/pre_niimi.pdfTonenGeneral Kygnus Sekiyu 50.2% Shareholding Product supply 10% Shareholding Kyushu