Japan increased its crude imports from the US amid bilateral trade talks, but refinery configurations and logistical constraints are likely to cap the extent of Japanese refiners' use of US oil.
"We know that in light of President Trump's intentions, there has been discussion about Japan's potential purchase of US crude," a representative from Japanese refiner Idemitsu said at a company result briefing earlier this month. "From that perspective, we are also exploring diversification possibilities and have made a small purchase."
The Idemitsu representative's comment came after recent Japan-US trade talks around US president Donald Trump's threats of tariffs. Japan will expand its energy purchases from the US under a bilateral trade agreement announced in late July. The agreement remains ambiguous on whether there will be an increase in crude oil purchases, an official from the country's trade and industry ministry (Meti) said.
Japan's purchases of US crude rose while the trade talks were taking place. The country bought 190,000 b/d of US crude in May, a 180pc rise from a year earlier, data from Meti show. This is the largest monthly volume of crude that Japan has imported from the US since December 2018, based on Argus' records of Meti data.
But procuring US crude poses specific challenges for Japanese refiners, such as longer voyage times and limitations arising from refinery configurations. Idemitsu intends to study the barriers to transporting oil from the US Gulf coast to Japan, as the route takes more time than transporting from the Middle East, and the Japan-US voyage often passes the Panama Canal, where cargo capacities are limited and congestion may occur. The company is also examining the difference in properties of US crude compared with Middle Eastern crude.
Dependence on Middle East crude
"We are importing and studying US crude, aiming to mitigate our heavy dependence on the Middle East, thinking, ‘What if something happens?'" the Petroleum Association of Japan's president Shunichi Kito, who also serves as representative director and chairman of Idemitsu, said in July.
The higher volume of US crude in May reduced the share of Middle East crude in Japan's total imports that month to 90.5pc, down from 95.3pc a year earlier. But Japan subsequently cut its purchases from the US to 9,300 b/d in June, a 95pc drop from May, which again raised its share of Middle East imports to 97.7pc.
Japanese refiners are only exploring US crude and will not switch to it immediately, because their refinery configurations are designed to process Middle Eastern crude, said Kito.
"Frankly, we have no major alternative to Middle Eastern crude," he said, adding that "probably no units can process 100pc-pure US crude in Japan."
Importing a large amount of US crude is difficult from an economic perspective because of the disadvantages of the Japan-US oil route compared with the Middle East route, said the Idemitsu representative during the aforementioned company results briefing.
