Japanese oil product demand is forecast to decline by an average 1.5pc/yr over the next five years, with the country's 2050 carbon-neutral target accelerating electrification and decarbonisation efforts.
Japan's economy, trade and industry ministry (Meti) predicts that overall domestic oil product consumption will drop to 2.44mn b/d in the April 2026-March 2027 fiscal year, down by 7.1pc from an estimated 2.6mn b/d in 2021-22. Demand will likely continue to fall until 2026-27, following a recovery from a Covid-19-triggered slump in the 2021-22 fiscal year.
Japan's carbon-neutral goal is prompting electric vehicle (EV) expansion and a move to alternative fuels such as hydrogen and ammonia. This is expected to accelerate a decline in the country's oil product demand on a mid- to long-term basis, Meti said.
Gasoline demand is forecast to drop to 703,000 b/d in 2026-27, down by 9.8pc from 779,000 b/d in 2021-22, pressured by increased fuel efficiency and the EV shift. The government last year set a target for new commercial vehicles that are smaller than 8t by weight to be fully electrified or powered by carbon-neutral fuels after 2040. Japan also pledged to ban the sales of new gasoline-only cars and shift to passenger EVs by 2035.
Naphtha consumption is expected to decline to 692,000 b/d in 2026-27, down by 5.7pc from 733,000 b/d in 2021-22 on the back of weaker domestic demand. The 2026-27 forecast is also lower than 2020-21 demand of 693,000 b/d.
Diesel demand is projected to inch down by 0.3pc from 554,000 b/d in 2021-22 to 552,000 b/d in 2026-27. The decline is not as much as the fall in demand for other oil products, as the number of commercial trucks are increasing.
Kerosine demand is forecast to drop to 206,000 b/d in 2026-27, down by 14.2pc from 240,000 b/d in 2021-22, because of the country's fuel transition and energy efficiency improvements, as well as efforts to limit global warming.
Heavy fuel oil demand is expected to fall to 214,000 b/d in 2026-27, down by 18.8pc from 263,000 b/d in 2021-22. A decline in the country's working population in the agriculture and fisheries sectors and a fall in the number of coastal vessels, as well as a shift to alternative fuels, will likely slash fuel oil demand.
Jet fuel is only refined oil product for which demand is expected to rise over the next five years, following a slump triggered by the pandemic. Meti forecasts domestic aviation fuel use to rise to 77,000 b/d in 2026-27, up by around 28pc from 60,000 b/d in 2021-22. But the 2026-27 demand figure remains lower than the pre-pandemic level of 89,000 b/d in 2019.
Meti expects LPG demand, excluding its use for power generation, to increase over the next five years at an average growth rate of 0.8pc/yr from 2021-22 to 2026-27. Meti sees LPG use in 2026-27 rising to 13.1mn t, up by 4.3pc from the 2021-22 demand estimate of 12.6mn t.
LPG use in the industry and petrochemical sectors could increase towards 2026-27 amid an economic recovery from the Covid-19 pandemic. Demand for the city gas additive may also firm on the back of rising imports of US LNG with lower calorific values. But household demand is expected to fall because of a declining population and increased fuel efficiency of LPG equipment. Weaker household use of LPG could outweigh rebounding commercial demand. Meti also sees autogas demand declining with a continued fall in taxis on the road.
