Japan oil firms lift annual spending on refineries, cut exploration
Some Japanese oil companies have raised their capital investment plans for the year that started on April 1, putting money into refineries and other downstream projects, while others have focused on cutting spending on exploration and production.
The offset of the refinery expenditures and some large upstream developments has lifted the planned total investments by Japan’s five refiners and developers to 1.24 trillion yen ($10.9 billion) for the 2017/18 fiscal year, up 0.3 percent from the previous year, Reuters calculations showed.
That compares with a 15 percent drop the previous year as the companies continued to deal with domestic oil consumption that has been in decline since a peak hit in 1999 due to a shrinking population and adoption of other energy sources.
“With the decline in gasoline use due to hybrid vehicles and so on, the oil industry is in a tough environment where they have to tackle supply surplus and face smaller margins,” said Kaname Gokon, strategist for commodities brokerage Okato Shoji.
Adjustments to oil plants to meet those domestic market realities look to be driving some of investments.
Idemitsu Kosan on Monday, for example, raised investment plans for the 2017/18 year by 38 percent to 98 billion yen because of a large scheduled plant maintenance.
And while Japan’s biggest refiner, JXTG Holdings, is curbing investment by about 30 percent over the next three fiscal years to around a total of 1 trillion-1.1 trillion yen, it is prioritising the mid to downstream, or refining, sectors.
JXTG, formed on April 1 by a merger of JX Holdings Inc and TonenGeneral Sekiyu KK, is cutting its aggregate upstream investments roughly by half during the next three years to around 300 billion yen.
“In the upstream sector we will carry out investment in a limited number of low-risk projects,” JXTG Holdings President Yukio Uchida said.
Inpex Corp likewise is cutting its exploration expenditures by 50 percent, while boosting development spending.
Globally, an oil price slump that began in mid-2014 has caused top oil companies to curb upstream investments and drastically cut costs.
Cosmo Energy Holdings has said it will raise its capital investment by 6 percent, but Director Kenichi Taki projected a steep decline in spending in the business year from April 2018 as main investments such as for an offshore oilfield in Abu Dhabi, come to a breather.
Both Cosmo and JXTG said they expected investment figures to drop in the years following this one after a temporary rise in spending for ongoing large projects.
($1 = 113.6100 yen)
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