Japan has signed a deal with Saudi Aramco allowing the country to increase the utilisation of its oil storage facilities, and will give the Saudi Arabian company increased access to oil storage in the lucrative Asian market.
A deal between Japan and Saudi Aramco will allow the state-run Saudi Arabian company to store crude oil on the southern archipelago-province of Okinawa. The deal follows a similar agreement with Abu Dhabi in mid-2009. Faced with declining oil demand, Japan has a rising surplus of storage capacity, allowing it to use storage deals to increase utilisation while improving energy security.
The deal between Saudi Aramco and Japan will start in 2011 when the first vessel, which will have a capacity of 1.9mn barrels (bbl), is scheduled to arrive at Okinawa. On the deal, Saudi Aramco will be allowed to store about 600mn litres in Okinawa, equivalent to 3.8mn bbl. The deal will run for three years, in order to allow Japan to restock its crude oil reserves.
Aim of Aramco is to establish storage bases in or near major Asian consuming markets in order to be able to meet spikes in demand quickly. Japan's proximity to China, the engine of global oil demand growth, is crucial in this respect. A storage-sharing deal will also benefit Japan. Its oil demand is declining, with the trend exacerbated by the impact of the global economic crisis, leaving it with surplus storage capacity. Not only will crude stocks from Saudi Arabia raise its storage utilisation rate, but Japan will also have priority access to the stocks in emergencies. Allowing Aramco to stockpile crude at Okinawa will therefore contribute to Japanese energy supply security, a major concern for the government.
The partnership with Saudi Arabia follows a similar agreement with UAE in June 2009, when Japan and the UAE signed a deal to allow the Abu Dhabi National Oil Company (ADNOC) to store crude oil in the Kiire oil terminal operated by Nippon Oil. Also, Japan has first rights to the stocks in emergency situations. As long as Japan maintains its priority access to tap the crude and products stored by third parties in the country in the event of a supply shock, joint storage deals with Middle Eastern producers can be of strong mutual benefit.
The enactment of the Oil Stock Law (1975) established that Japan had to be prepared for disruptions to oil supply. In 1978 the government authorised Japan Oil, Gas and Metals Corporation (JOGMEC) to regulate national oil storage levels. The government maintains a Strategic Petroleum Reserve (SPR), which includes 10 state-controlled storage facilities managed by JOGMEC. Furthermore, the state leases tanks from the private sector to boost its strategic reserves capacity. As well as government-managed reserves, Japanese law obliges private companies to stockpile oil products to cover a mandatory 70 days of their consumption, equivalent to around 308mn bbl in 2009.
A deal between Japan and Saudi Aramco will allow the state-run Saudi Arabian company to store crude oil on the southern archipelago-province of Okinawa. The deal follows a similar agreement with Abu Dhabi in mid-2009. Faced with declining oil demand, Japan has a rising surplus of storage capacity, allowing it to use storage deals to increase utilisation while improving energy security.
The deal between Saudi Aramco and Japan will start in 2011 when the first vessel, which will have a capacity of 1.9mn barrels (bbl), is scheduled to arrive at Okinawa. On the deal, Saudi Aramco will be allowed to store about 600mn litres in Okinawa, equivalent to 3.8mn bbl. The deal will run for three years, in order to allow Japan to restock its crude oil reserves.
Aim of Aramco is to establish storage bases in or near major Asian consuming markets in order to be able to meet spikes in demand quickly. Japan's proximity to China, the engine of global oil demand growth, is crucial in this respect. A storage-sharing deal will also benefit Japan. Its oil demand is declining, with the trend exacerbated by the impact of the global economic crisis, leaving it with surplus storage capacity. Not only will crude stocks from Saudi Arabia raise its storage utilisation rate, but Japan will also have priority access to the stocks in emergencies. Allowing Aramco to stockpile crude at Okinawa will therefore contribute to Japanese energy supply security, a major concern for the government.
The partnership with Saudi Arabia follows a similar agreement with UAE in June 2009, when Japan and the UAE signed a deal to allow the Abu Dhabi National Oil Company (ADNOC) to store crude oil in the Kiire oil terminal operated by Nippon Oil. Also, Japan has first rights to the stocks in emergency situations. As long as Japan maintains its priority access to tap the crude and products stored by third parties in the country in the event of a supply shock, joint storage deals with Middle Eastern producers can be of strong mutual benefit.
The enactment of the Oil Stock Law (1975) established that Japan had to be prepared for disruptions to oil supply. In 1978 the government authorised Japan Oil, Gas and Metals Corporation (JOGMEC) to regulate national oil storage levels. The government maintains a Strategic Petroleum Reserve (SPR), which includes 10 state-controlled storage facilities managed by JOGMEC. Furthermore, the state leases tanks from the private sector to boost its strategic reserves capacity. As well as government-managed reserves, Japanese law obliges private companies to stockpile oil products to cover a mandatory 70 days of their consumption, equivalent to around 308mn bbl in 2009.
