The Japanese fuel crisis

One consequence of the Japanese earthquake and tsunami that is not receiving as much press as the ongoing struggle to cool the damaged reactors, but which continues to influence more people is the lack of fuel. Nine of the Japanese refineries were damaged and put out of action, and this dropped the amount of fuel being refined from 4,500,000 bd down to 3,100,000 bd. (Note that the Guardian report I quoted earlier was off by a factor of ten.) The lack of fuel for transportation affects not only those in the disaster area, but also those away from it, since food and fuel itself depend on transport to move it to customers around the country.

"What we urgently need now is fuel, heavy and light oil, water and food. More than anything else, we need fuel because we can't do anything without it. We can't stay warm or work the water pumps," said Masao Hara, the mayor of Koriyama city, in Fukushima prefecture.

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The refineries that remain in production are responding to the need. Idemitsi Kosan has raised production at its four refineries by 83,200 bd (from 87% to 100% production) and Cosmo Oil has raised production at its two operating refineries by an additional 80,000 bd but this does not match the size of the problem.

There are several different aspects to the problem, first the oil has to come ashore. With ports closed and unable to re-open for possibly months, shipments from the Middle East, which supplies 80% of Japan’s need, have now been curtailed until the situation becomes clearer. Within the country the Japanese Government has released around 8 million barrels of oil from their strategic reserve. It is also shipping 250,000 barrels of refined product to the area affected by sea (though this runs into the issue of how to get into the ports and distribution network). At Chiba some of the port has been able to re-open ) but not the terminal that fed to the Cosmo refinery (since that had burned).

Then the oil must be refined, there are 29 refineries in Japan, and Wikipedia lists them as follows. (I have modified the list to show which ones have had a status change).

▪ Chiba Refinery (Cosmo Oil) (Cosmo Oil), 240,000 bbl/d (38,000 m3/d) CLOSED BY EARTHQUAKE & BURNING
▪ Yokkaichi Refinery (Cosmo Oil), 175,000 bbl/d (27,800 m3/d) INCREASING PRODUCTION
▪ Sakai Refinery (Cosmo Oil) (Cosmo Oil), 80,000 bbl/d (13,000 m3/d)
▪ Sakaide Refinery (Cosmo Oil), 140,000 bbl/d (22,000 m3/d) INCREASING PRODCTION
▪ Muroran Refinery (Nippon Oil Corporation (NOC)), 180,000 bbl/d (29,000 m3/d)
▪ Sendai Refinery (Nippon Oil Corporation (NOC)), 145,000 bbl/d (23,100 m3/d) CLOSED BY EARTHQUAKE
▪ Negishi Yokahama Refinery (Nippon Oil Corporation (NOC)), 340,000 bbl/d (54,000 m3/d) CLOSED BY EARTHQUAKE
▪ Osaka Refinery (Nippon Oil Corporation (NOC)) 115,000 bpd
▪ Mizushima Refinery (Nippon Oil Corporation (NOC)), 250,000 bbl/d (40,000 m3/d)
▪ Marifu Refinery (Nippon Oil Corporation (NOC)) 127,000 bpd
▪ Toyama Refinery (Nihonkai Oil/Nippon Oil Corporation (NOC)), 60,000 bbl/d (9,500 m3/d)
▪ Kubiki Refinery (Teikoku Oil), 4,410 bbl/d (701 m3/d)
▪ Chiba Refinery (Kyokuto) (Kyokuto Petroleum/ExxonMobil), 175,000 bbl/d (27,800 m3/d) CLOSED BUT RESTARTED
▪ Kawasaki Refinery (TonenGeneral Sekiyu/ExxonMobil), 335,000 bbl/d (53,300 m3/d) CLOSED BUT GETTING READY TO RESTART
▪ Wakayama Refinery (TonenGeneral Sekiyu/ExxonMobil), 170,000 bbl/d (27,000 m3/d)
▪ Sakai Refinery (TonenGeneral) (TonenGeneral Sekiyu/ExxonMobil), 156,000 bbl/d (24,800 m3/d)
▪ Nishihara Refinery (Nansei sekiyu/Petrobras), 100,000 bbl/d (16,000 m3/d)
▪ Keihin Refinery (Toa Oil/Shell), 185,000 bbl/d (29,400 m3/d)
▪ Showa Yokkaichi Refinery (Showa Yokkaichi/Shell), 210,000 bbl/d (33,000 m3/d) SENDING PRODUCT OVERLAND
▪ Yamaguchi Refinery (Seibu Oil/Shell), 120,000 bbl/d (19,000 m3/d)
▪ Sodegaura Refinery (Fuji Oil Campany), 192,000 bbl/d (30,500 m3/d) INCREASING PRODUCTION
▪ Kashima Refinery (Kashima Oil Campany/Japan Energy), 210,000 bbl/d (33,000 m3/d)CLOSED BY EARTHQUAKE
▪ Mizushima Refinery (Japan Energy) (Japan Energy), 205,200 bbl/d (32,620 m3/d)
▪ Shikoku Refinery (Taiyo Oil), 120,000 bbl/d (19,000 m3/d)
▪ Ohita Refinery (Kyusyu Oil), 160,000 bbl/d (25,000 m3/d)
▪ Hokkaido Refinery (Idemitsu Kosan), 140,000 bbl/d (22,000 m3/d) INCREASING PRODUCTION
▪ Chiba Refinery (Idemitsu) (Idemitsu Kosan), 220,000 bbl/d (35,000 m3/d) CLOSED BY EARTHQUAKE BUT BACK ON LINE AND INCREASING PRODUCTION
▪ Aichi Refinery (Idemitsu Kosan), 160,000 bbl/d (25,000 m3/d) INCREASING PRODUCTION
Tokuyama Refinery (Idemitsu Kosan), 120,000 bbl/d (19,000 m3/d) INCREASING PRODUCTION

(The last four refinery increases in production will add another 83 kbd to the total.)

By the end of the month it is expected that the recovery will only be to 3.4 mbd although this will still leave the country some 1 mbd short of the refined fuel it needs.

At present only one LNG terminal, at Shinminato, remains closed, but it is unlikely that this will reopen in the near term. The rest are operational, and LNG cargoes will be made available from a number of sources, if needed.

Japanese LNG ports

The northeast coast ports of Hachinohe, Sendai, Ishinomaki and Onahama are so severely damaged that they are not expected to return to normal operations for months.

Looking at a map (from Stratfor showing the power plants, and the road layout, the damage to the distribution network with the destruction at Sendai illustrates the problem in gaining access to the damaged area and in sending in new fuel. Food to parts of Ishinomaki has had to be delivered by helicopter, and for a town of 160,000 this is not nearly enough.

As the Independent reports

On the drive north out of Sendai city in northeast Japan, a slip-road takes you to a motorway that would normally be filled with traffic but was this week a scene of destruction to rival the most far-fetched Hollywood disaster movie. A thick coating of mud had been deposited at the toll booth, along with smashed vehicles, motorbikes and heavy machinery from a nearby factory. Beyond the booth, the road rose up to meet the highway and a panoramic view of the blitzed landscape below, where a jumble of hundreds of cars, trucks and splintered debris stretched as far as the eye could see. In the background, thick black smoke billowed from fires burning at a damaged oil refinery near the city bay.

Japanese infrastructure (Stratfor)

There are trunk pipelines running from the main LNG terminals, to assist in distribution.

Japanese trunk pipelines and LNG terminals

Fuel needs are not just for gasoline and diesel for vehicles. With the bitter cold that remains over much of the north of Japan, and no electric power, kerosene is also needed for heating. For domestic heating many homes rely on kerosene stoves to heat individual rooms in use, rather than using central heating. Stocks had been falling, before the earthquake, due to the severe winter this year. And with stocks being sent to help refugees, there are now shortages in other parts of Japan.

While there are some indications that the nuclear problems may be being brought under control, the problems of fuel shortage and the cascading problem of food, fuel and other resource distribution that it brings with it, are likely to remain in Japan for several weeks, as the crisis continues.

A Comment on this weeks TWIP

As I noted last week, today is the weekly review of petroleum from the "This Week in Petroleum" (TWIP) at the EIA. There is not a lot that is of special concern this week. As I noted in my post yesterday, we are at the point where demand should start to kick up a little as we go from the relatively quiet period at the start of the year into the ramp up to the summer driving season. Normally we would also be starting to see a little easing off in the weather, with warmer days reducing the demands for heating. (And in that regard it has rained so much that it is hard to wade over to the wood pile for logs, and so the current warm spell is appreciated).

The EIA comments on the data are focused more on the heating oil aspect of the situation, explaining why the cold spell has not been reflected in a change in retail prices.

Two factors may offer an explanation for the smaller decline in retail heating prices. The first is the relative strength of the global distillate market. Distillate fuel includes both heating oil and diesel. In the United States, heating oil makes up a relatively small portion of the domestic distillate market while diesel fuel makes up most of the remainder. This is true for much of the rest of the world. Until fairly recently, distillate prices have shown surprising strength compared to other petroleum products due to strong global demand for distillate. As a result, distillate prices did not fall as much as crude oil prices.

The second factor may be related to events of the past summer. The summer is when heating oil customers are typically offered contracts to lock-in prices for the upcoming winter. The price for residential heating oil reached its historic peak last July, averaging $4.53 per gallon. Some heating oil customers may have been anxious about those unusually high prices and wanted to shield themselves from possibly higher prices in the winter. When a customer locks in a contract with a heating oil company, the company often enters into a similar contract with a wholesaler, guaranteeing they will be able to supply that customer with enough heating oil for the winter at a stable price. (This type of commitment is even required by law in Connecticut.) Moreover, many heating oil companies buy some of their heating oil in the off-season to ensure an adequate supply for the winter, regardless of any pre-arrangement with their customers. So another reason heating oil prices this winter have not fallen as quickly as crude may be that some of the volume heating oil dealers (and customers) bought earlier was quite expensive. Thus, a portion of this additional expense may have been passed on to the customer during this heating season.

A clear bottom seems to be developing for crude prices both in the spot price
And contract markets

(Source EIA)

But with domestic production rising above last year, and imports remaining at last years level, domestic stocks continue to rise. In January the Strategic Petroleum Reserve added another 0.7 million barrels as part of the Royalty in Kind program (RIK), though some of these stocks may be exchanged later in the year . There was, however, a slight downtick in the amount going to refineries. Over on the gasoline page this resulted in a drop in gasoline produced, relative to last year, even though demand was seen as having returned to last years level. Imports remain below last year, though they are climbing, and the combination led to a reduction in the gas in storage, though it has returned to near the middle of the five-year range. This may well, in part, be what is reflected in the pickup in gasoline prices.

Looking at the distillate plots, demand is still below last year, though sneaking upwards, while production is still a little ahead of last year. The net result is that stocks remain above the 5-year average, which may be in part why (as the quote above notes) prices have remained relatively stable.



(Source EIA)

It will take a little while to see if the normal changes in demand still occur this year.

The Weekly Petroleum Report

Every week the EIA puts out updated production charts for the past year. On Wednesdays those for petroleum, including crude oil and gasoline, are posted, and then on Thursday one can get information on the natural gas situation. These are useful charts, as much for showing the current situation in contrast to earlier years, and also to bring in the seasonal effects that are not always recognized if one just looks at the numbers for a month. Looking at these every week isn’t necessarily needed, but regular visits to both sites are well worth taking the time. For example let’s begin with what has happened to gasoline demand over the last year.
US Gasoline Demand

One can see, looking at the comparison of the patterns of the last two years how dramatic the slump was as the recession took hold in the US as we went into the Fall. But one can also see how, over the past three months, the demand has come closer to previous use at this time, and now appears almost coincident with that of a year ago.

The next interesting thing to do, having seen what demand is doing, is to see how it is being met. Gas can either be refined domestically, or it can be imported after refining. And one can see that the domestic refining of gas recovered more quickly than the demand:
US Production of Gasoline

It has been in the import of gasoline that the drop-off in demand has been handled.
Gasoline imports

Yet even here the product is coming in at close to the same level as it was a year ago, indicating that this particular part of the economy has no longer been hurt as much, in volume, as one might have thought. Now it is true that is does not all have to be used, but if one looks at the volumes that are held in stock, the quantity is less than last year, and so, although there has been a build in stocks, it is well within the average values for the past five years.

Gasoline stocks

I should note that by May of last year the country had seen a steady decline in the number of miles driven, relative to 2007, because of the increase in the price of gasoline, so that needs to be remembered in this analysis.

Taking a step further back into the process, gasoline coming out of the refinery is only a part of the product, and so we look at what is going into the refineries. In relative terms we again see that dip in volume that came in at the end of September, and which we have been assigning to the recession.
US Refinery inputs

But now it is important to look at the regions of the country to see how the refineries in each region has been coping. And in looking there we see another cause for the drop in refinery operations.
Regional Refinery inputs

Notice that they all remained stable, apart from the Gulf Coast. And if you remember there were two significant Hurricanes that affected production in the Gulf this past summer. I have used a plot from the Natural gas page (which I will chat about tomorrow) to show when they occurred.
Showing the arrival of two hurricanes.

So one steps back to consider where the crude oil that went to the refineries came from.

Domestic supplies are again back to normal, and stabilized fairly rapidly after September.

Domestic crude oil production

While imports are also back to historic levels. Note they also fell since there were issues with getting oil into Gulf refineries.
Crude Oil imports

And since they recovered somewhat quicker than demand, stocks of crude have risen above the five-year average.

Crude stocks of oil

Which has allowed the Administration to begin pumping oil into the Strategic Reserve again.

And the thing is, looking at these figures, it does suggest that if demand is returning to earlier levels, then supplies may tighten again, and prices will then start back up. So that is why we will keep dropping by these EIA pages and noting what they tell us in the months ahead.