Japan’s Eneos to shut 81-yr-old Wakayama refinery in 2023 as demand falls

FILE PHOTO: The logo of Eneos Holdings and Eneos Corporation is displayed at the company headquarters in Tokyo, Japan August 20, 2020. Picture taken August 20, 2020. REUTERS/Issei Kato

By Yuka Obayashi

TOKYO (Reuters) -Japan’s biggest oil refiner, Eneos Holdings, said on Tuesday it will shut down its 81-year-old Wakayama refinery in October 2023 as part of a long-term restructuring to adjust to falling domestic fuel demand and growing global competition.

The closure of the Wakayama refinery, with a 127,500 barrels-per-day (bpd) crude distillation unit, will follow the planned shutdown of the company’s 120,000 bpd No.1 CDU at its Negishi refinery, near Tokyo, planned for October this year.

As a result, Eneos, which controls half the market for gasoline and other fuels in Japan, will reduce its refining capacity by 13% to 1.62 million bpd.

“A decline in domestic demand for oil products is inevitable because of factors such as falling population, decarbonisation trend and a shift to electric vehicles,” Katsuyuki Ota, president of Eneos Holdings, told a news conference.

“Our decision to suspend refinery operations in Wakayama was unavoidable, taking into account the declining domestic demand and weakening global competitiveness due to an emergence of new, highly efficient and large-scale refineries in Asia,” he said.

Japan’s refiners have been struggling for years with declining use of fuel at home, and newer refineries in China and South Korea dominating in other markets, and the pandemic has accelerated a structural shift.

Eneos plans to keep 450 workers from Wakayama, which began operations in 1941, by transferring them to other plants and the company is also considering using the site to start new business such as solar or biomass power, Ota said.

Eneos’ refinery run rate, which is now between 75%-80%, is expected to stay above 80% after the Wakayama shutdown, he added.

Still, Eneos will need to cut more capacity as local fuel demand may be falling faster than its 2019 assumption of an annual drop of 2% amid growing pressure to move away from fossil fuels to combat climate change, Ota said.

“Even without an impact from the pandemic, local gasoline demand is expected to fall by 2-3% every year,” Ota said.

“This is not the last round of optimization of our production capacity,” he said, without further details.

(Reporting by Yuka Obayashi and Sakura Murakami; Editing by Kim Coghill & Simon Cameron-Moore)

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