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Aramco Lifts Stake in Japan Refiner

THE WALL STREET JOURNAL: Aramco Lifts Stake in Japan Refiner

Wednesday 22 June 2005

Saudi Oil Firm’s Deal Gives

Showa Shell Wider Access

To Light-Grade Arab Crude

By SHIGERU SATO

DOW JONES NEWSWIRES

June 22, 2005

TOKYO — Saudi Arabian Oil Co., or Saudi Aramco, yesterday completed the acquisition of a 5% stake in Showa Shell Sekiyu KK to boost its overall shares in the Japanese oil refiner to 14.96%, Showa Shell said.

The transaction is part of an agreement signed last year, under which Royal Dutch/Shell Group is to sell 9.96% of shares outstanding in Showa Shell to the Saudi Arabia’s state-owned Aramco.

In a second step, Saudi Aramco has agreed to buy an additional 5% stake in Showa Shell from Royal Dutch/Shell by the end of this year.

The equity deal has enabled Showa Shell to sign a new crude-oil supply contract with Aramco, under which the oil refiner could have access to large volumes of light-grade and gasoline-rich crude oil from the kingdom.

“We’ve boosted our crude imports from Saudi Arabia to about 300,000 barrels a day,” said a Showa Shell spokesman, compared with 140,000 barrels a day to 150,000 barrels a day imported last year.

Showa Shell has said a major benefit from the crude-oil deal with Aramco is the access to large volumes of light-grade crude oil such as Arab Extra Light crude, a popular grade of crude among Japanese oil refiners as it is rich in gasoline and kerosene.

According to traders based in Tokyo, Showa Shell has boosted its imports of Arab Extra Light crude from Aramco to 180,000 barrels a day from about 100,000 barrels a day in 2004.

Showa Shell’s increased reliance on Saudi Arabia as its main crude-oil import source is in stark contrast to efforts by other Japanese oil refiners to reduce their heavy reliance on the Middle East for imports, and diversify their crude-oil supply sources.

In the coming years, Japanese oil refiners are likely to import more light-grade crude oil, and less heavy-grade crude that is rich in heavy fuel oil.

This is because of some projections that Japan’s heavy fuel oil demand is set to further decline in the years ahead. Fuel oil is one of the main fuels used at thermal power plants.

Many Japanese manufacturers have been relocating their factories to China and Southeast Asia, and many others are using clean energy such as natural gas for the main fuel for their in-house power generators.

The country’s power utilities have scrapped several of their outmoded oil-fired thermal power plants, and built gas-fired power plants, in an effort to cut emissions of carbon dioxide from the power plants.

According to the Ministry of Economy, Trade and Industry, Japan’s demand for heavy fuel oil is set to decline by an annual average of 2.5% over the next five years, reaching 48.55 million kiloliters in the year ending March 2009 from 55.66 million kiloliters recorded for the year ended March this year.

The Showa Shell group has three refineries in Japan, with an overall capacity to process 515,000 barrels a day of crude oil.

Write to Shigeru Sato at [email protected]

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