Japan Poised to Import Jet Fuel as Refinery Cuts Lift Prices

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Japan’s two biggest airlines are poised to import jet fuel for the first time in at least six years as the country’s shrinking refining capacity pushes up domestic prices.

Japan Airlines Co. and ANA Holdings Inc. may begin buying the aviation fuel from abroad starting in April for overseas flights from Tokyo’s Narita airport, according to officials at the carriers. For the first time in a decade, the companies are paying domestic refiners a premium to regional benchmark prices in long-term supply contracts.

JX Nippon Oil & Energy Corp. and Idemitsu Kosan Co. will shut refineries next year amid closures that have reduced Japan’s processing capacity by 27 percent in the past thirty years. That’s driving up the cost of domestic jet fuel and prompting airlines to look further afield for supplies.

“We are likely to begin full-scale jet imports in fiscal 2014 or after,” Kazunori Kidosaki, a Tokyo-based spokesman at Japan Airlines, said by e-mail. “We are concerned about rising prices of jet fuel from Japanese refiners because they are expected to continue cutting refining capacity.”

Narita International Airport Corp., the state-run operator of the airport known as NAA, forecasts fueling volumes to grow

2.6 percent to 4.79 million kiloliters in fiscal 2013 amid increasing traffic, according to a statement posted on its website. Volumes rose 9.8 percent in the previous fiscal year.

Japan Airlines, the country’s second-largest carrier, stopped buying fuel from overseas in 2007 after prices from local oil refiners fell below those of imports, according to Kidosaki. Japan Airlines shipped in about 600,000 kiloliters a year at that time through Narita Airport Storage Plant Association, an alliance formed by JAL, ANA, Air Canada, Delta Air Lines Inc. and Cathay Pacific Airways Ltd., he said.

Fuel Sales

Japan’s bonded jet fuel sales totaled 7.4 million kiloliters in fiscal 2012, up 3.4 percent from a year earlier, according to data compiled by the Petroleum Association of Japan. That’s about 127,000 barrels a day.

Airlines agreed last year to pay as much as a few cents a gallon above benchmark prices in Singapore for annual supplies of bonded jet fuel, or tax-exempted aviation petroleum sold only for overseas flights. That was the first time in at least a decade that airlines paid a premium, up from a discount of 6 cents to 9 cents.

Jet fuel swaps in Singapore have averaged $122.23 in 2013 compared with $126.59 last year. They were at $120.83 a barrel yesterday, down 3.6 percent this year.

Jet Costs

“ANA is considering to start jet fuel imports because of recent steady prices”, Ryosei Nomura, a Tokyo-based spokesman said by e-mail. “We have never imported fuel in the past.”

ANA, Japan’s largest carrier, raised its forecast for jet-fuel expenses for fiscal 2013 to 363 billion yen ($3.7 billion) on Oct. 30, up 21 percent from a year earlier and 4.6 percent higher than its projection in July. Japan Airlines expects fuel costs for fiscal 2013 to rise 14 percent from last year to 281 billion yen, the company said Oct. 31.

Fuel is supplied to the airport by pipeline from Chiba Port Aviation Fuel Terminal on the coast of Tokyo Bay, owned by NAA. The terminal has 13 tanks with a total storage capacity of 95,000 kiloliters. Four berths can handle tankers loading a maximum of 8,000 metric tons, according to Osamu Nakamura, a Narita-based spokesman at NAA. Oil product tankers are typically 50,000 tons.

Marubeni Storage

The five-company association known as NASPA leases storage tanks at an adjacent terminal owned by Marubeni Ennex Corp., Kidosaki from Japan Airlines said. Berths at the terminal are big enough to receive 50,000-ton tankers, according to data posted on Marubeni Ennex’s website. Marubeni’s terminal is connected to the Chiba facility by pipeline.

JX will stop refining operations at its 180,000 barrel-a-day Muroran refinery in northern Japan in March 2014 while Idemitsu will close its 120,000 barrel-a-day Tokuyama plant the same month.

Japan’s trade ministry predicts the country’s jet fuel demand will increase 3.5 percent in fiscal 2013, according to forecasts released in June, the highest growth among oil products.

Japan Airlines shares rose 2 percent to 5,640 yen in Tokyo trading today and are up 52 percent this year. ANA gained 1.4 percent.

(Updates with share prices in 16th paragraph.)
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