By MARI IWATA
TOKYO -- Cosmo Oil Co. said Tuesday that it will permanently close the 140,000 bpd Sakaide refinery in western Japan by July 2013 to meet a government regulation that encourages refining capacity cuts amid falling local demand.
The Ministry of Economy, Trade and Industry set rules in July 2010 requiring refiners to raise residual cracking capacity to a designated percentage of crude refining capacity, as calculated by a formula, by March 2014.
By closing the refinery, Cosmo expects to save Y10 billion a year in costs.
The closure wouldn't affect its crude-oil purchasing volume very much because Japan's oil demand is already weak, company executive officer Hiroshi Kiriyama told reporters.
We don't think domestic demand will rise, Mr. Kiriyama said, adding that exporting refined products will likely remain difficult, as a number of new refineries are coming online in the Middle East and Asia.
The company will have to cut additional capacity likely by March 2014 to meet the regulation, he added.
Japanese power utilities have been using large amounts of fossil fuels to make up for idled nuclear power capacity since an accident at the Fukushima Daiichi nuclear power plant in March 2011.
But most of the extra thermal power demand has so far been met with liquefied natural gas, which is cleaner and relatively less costly than oil.
Showa Shell Sekiyu KK permanently closed its 120,000 bpd Ogimachi crude distillation unit near Tokyo on Sept. 20, 2011.
Idemitsu Kosan Co. plans to permanently shut a 120,000 bpd crude distillation unit at its Tokuyama refinery in western Japan in March 2014.
JX Nippon Oil & Energy Corp., Japan's largest refiner by capacity and a unit of JX Holdings, plans to permanently shut 200,000 bpd of crude refining capacity by the deadline, but the company hasn't decided which facility it should shut.
Dow Jones Newswires