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Bloomberg: Showa Shell May Merge LPG Unit With Japanese Rivals (Update1)

By Shigeru Sato

June 26 (Bloomberg) — Showa Shell Sekiyu K.K., the Japanese refining unit of Royal Dutch Shell Plc, plans to merge its liquefied petroleum gas wholesaling business with rival companies as local demand growth slows, a company official said.

Showa Shell is reviewing its LPG operations because domestic demand may not sustain growth, the official said by phone from Tokyo today, asking not to be named in keeping with company policy. He didn’t identify potential partners.

Japanese LPG importers and wholesalers are combining their operations to cut costs and compete with suppliers of liquefied natural gas, an alternative fuel. Mitsui & Co. and Marubeni Corp. agreed on June 12 to merge their LPG units in 2008 to challenge Astomos Energy Corp., Japan’s largest LPG distributor. The cost of importing LPG last year was 56 percent higher than LNG.

“The global LPG market is experiencing high price levels,” Ken Otto, senior vice president at Purvin & Gertz Inc., said at the 11th Annual Asia LPG Seminar in Singapore. “High prices have slowed LPG demand growth in developing markets.”

Japan’s LPG demand growth may be as slow as 1 percent annually in the next three fiscal years, according to data from the Japan LPGas Association.

By contrast, natural gas consumption, led by strong demand from industrial users, rose 4 percent in the year ended March 31, marking the 29th consecutive year of gains since 1978. Japan has 215 natural gas distributors.

Cooperation

Cooperation with rivals is vital to maintaining the wholesaling business in Japan, the official said.

Showa Shell sells 1.35 million metric tons a year in Japan’s wholesale market, accounting for about 8 percent of domestic demand.

In 2006, Japan’s LPG import costs averaged $576 a ton on a cost, freight and insurance basis, or $11.7 per million British thermal unit, compared with the average cost for LNG at $369 a ton, or $7.1 per million British thermal unit, according to Saudi Aramco, the world’s largest LPG exporter.

Mergers and acquisitions between Asia’s LPG importers and the consolidation of the business in Japan have prompted changes in the way the fuel is supplied and distributed, Ahmed A. Al- Fuhaid, marketing manager for LPG and sulfur at Saudi Aramco, said today at the seminar in Singapore.

Astomos Energy was formed in December 2005 by the merger of Idemitsu Kosan Co.’s LPG unit, Idemitsu Gas & Life Co., with Mitsubishi Liquefied Petroleum Gas Co. and Mitsubishi Corp.’s LPG division. Idemitsu has a 51 percent stake in the venture.

LPG, comprising propane and butane, is used in Japan as a cooking and auto fuel. Natural gas is widely used as a cooking and heating fuel, and burned at thermal power plants.

To contact the reporter on this story: Shigeru Sato in Singapore at [email protected] .
Last Updated: June 26, 2007 05:04 EDT

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