Japan mulls cost-sharing for crude diversification

The Ministry of Economy, Trade and Industry (Meti) established a working group in late July to bolster the resilience of Japan's petroleum supply chains. This group has proposed a scheme where importers would contribute funds to Japan Oil, Gas and Metals National Corporation (Jogmec). Jogmec would then financially support diversification efforts for crude oil and naphtha imports that avoid the strategic chokepoint.

This diversification is expected to incur higher transportation costs, including increased freight and insurance expenses, compared to shipments through the Strait of Hormuz. The proposed fund would help offset these additional costs and provide greater certainty for importers undertaking such diversification. The specific details of the scheme are still under discussion.

In parallel, the working group has recommended replenishing Japan's strategic petroleum reserves (SPR) during the fiscal year April 2026 to March 2027. Japan had released approximately 90 million barrels from its SPR following the outbreak of the US-Iran war, leaving current stockpiles at around 170 million barrels. These levels are below the International Energy Agency's standards, prompting consideration for replenishment.

Furthermore, discussions are ongoing regarding securing domestic naphtha stockpiles and restoring strategic crude stockpiles to a level equivalent to 90 days of Japan's crude imports by the fiscal year April 2027 to March 2028. This includes considerations for feedstock requirements for domestic naphtha production, with a preference for crude oil stockpiles due to naphtha's volatility.