Ship­ping sav­ings tempt Ja­pan to dab­ble in Sakhalin oil

The Weekend Australian - Travel - - Resources -

NIP­PON Oil, Ja­pan’s largest re­finer, has signed a long-term con­tract to buy Rus­sian oil from Sakhalin is­land, the first such agree­ment by the coun­try’s re­fin­ers in a drive to di­ver­sify sup­ply from the Mid­dle East.

Nip­pon Oil will pur­chase one ves­sel of oil, or 720,000 bar­rels, ev­ery quar­ter from the $13-bil­lion Sakhalin-1 project start­ing this year, ac­cord­ing to sources that de­clined to be iden­ti­fied be­cause the deal is con­fi­den­tial. Quan­ti­ties and other con­di­tions will be re-ne­go­ti­ated within three years.

Ja­pan gets 87 per cent of its crude oil from the Mid­dle East and can re­duce costs for the fuel by buy­ing from Sakhalin, a four-day sea jour­ney to Ja­pan com­pared with more than two weeks from the Per­sian Gulf. Dubai crude oil, a price bench­mark for Asian buy­ers, has surged 64 per cent in the past 12 months.

‘‘ Buy­ing oil from Sakhalin is an ob­vi­ous op­tion be­cause it’s so close to Ja­pan; the buyer can ben­e­fit from lower ship­ping costs,’’ Hiro­fumi Kawachi, an en­ergy an­a­lyst at Mizuho In­vestors Se­cu­ri­ties, says.

Crude ex­ports from the Exxon Mo­bil Sakhalin-1 project be­gan in Au­gust 2006, af­ter it com­pleted pipe­lines from the is­land to DeKas­tri ter­mi­nal on the Far East­ern coast of Rus­sia. The dis­tance from the port by sea to north­ern Ja­pan is about 1040km, com­pared with 10560km from Ja­pan to Saudi Ara­bia.

All six ma­jor Ja­panese

re­fin­ers, in­clud­ing Idemitsu Kosan and Showa Shell Sekiyu K K, have bought in­di­vid­ual car­goes of so-called Sokol crude oil from Sakhalin to test the light, low­sul­phur grade oil, which pro­duces more higher-priced fu­els such as petrol and jet fuel. To­nenGen­eral Sekiyu K K, a re­fin­ing unit of Exxon Mo­bil, buys Sokol from its par­ent.

The amount Nip­pon Oil pur­chases will ac­count for less than 1 per cent, or about 8000 bar­rels a day, of the com­pany’s re­fin­ing ca­pac­ity of 1.15 mil­lion bar­rels a day.

‘‘ In terms of vol­umes, the Mid­dle East­ern sup­pli­ers are still dom­i­nant, yet it’s good to de­velop a rich port­fo­lio of sup­pli­ers,’’ Kawachi says.

Nip­pon Oil will buy the crude un­der con­tract from Sakhalin Oil and Gas De­vel­op­ment, which owns 30 per cent of Sakhalin-1.

Sakhalin Oil & Gas De­vel­op­ment is a con­sor­tium be­tween Ja­pan’s gov­ern­ment and com­pa­nies. The gov­ern­ment holds 50 per cent of the ven­ture, while Itochu and its unit own 18.12 per cent. Ja­pan Pe­tro­leum Ex­plo­ration has 14.46 per cent and Marubeni 11.68 per cent.

Exxon Nefte­gas, an af­fil­i­ate of Exxon, owns 30 per cent of Sakhalin-1 and is op­er­a­tor of the project that has es­ti­mated re­cov­er­able re­serves of 2.3 bil­lion bar­rels. Other part­ners are two af­fil­i­ates of Rus­sia’s OAO Ros­neft that own a com­bined 20 per cent and In­dia’s state-owned oil com­pany ONGC Videsh that also has 20 per cent.

Ja­pan’s im­ports of Rus­sian crude oil are ex­pected to rise as other projects boost pro­duc­tion.

The OAO Gazprom-led Sakhalin-2 oil and gas ven­ture com­pleted pipe­lines in Novem­ber last year to an ice­free oil ex­port ter­mi­nal at Ariva bay, south of Sakhalin is­land.

The pipe­lines will al­low the $22 bil­lion Sakhalin-2 project to ex­port oil through­out the year, be­cause ice in the north blocks tanker traf­fic in win­ter.

Im­ports of Rus­sian oil to Ja­pan quadru­pled in 2007 to 6.99 mil­lion kilo­litres (44 mil­lion bar­rels) com­pared with 1.71 mil­lion kilo­litres a year ago, ac­cord­ing to the latest data from the trade min­istry. Bloomberg

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