Back in April, the Bank of Japan initiated its own quantitative easing program as the central bank’s Governor Haruhiko Kuroda announced a doubling of bond purchases.
The BOJ has decided to hang its hat on what some would call an experimental fiscal policy in an attempt to reverse 15 years of deflation and a long-sluggish economy, but the Japanese government’s unprecedented intervention is not stopping at bond purchases, as it seeks to cut the dead weight from industries that have become bloated and unwieldy.
On Thursday, a group of Japanese lawmakers pressured the Ministry of Economy, Trade, and Industry to devise a plan to compel oil refiners to merge and shrink their production capacity. The logic behind the move is in keeping with the tenor of relatively new Prime Minister Shinzuo Abe’s efforts to reconfigure the segments of the country’s energy industry that are suffering from a glut of competition as well as a surplus of production capacity.
As the shale boom extends out from the US to the rest of the world, Japan’s refiners have already made significant cuts to capacity. In 2010, the METI put in place rules that forced refiners to either build new hydrocracking facilities in order to get the most out of their crude, or to reduce their refining capacity.
This has led to a number of plant closures among the country’s refiners. The country’s largest refiner JX Energy announced plans to shutter its Muroran facility, with a 180,000-barrel per day capacity, by March of next year. And a number of Japanese refiners have already shut down operations; TonenGeneral Sekiyu KK ($5012) shut down two distillation facilities (105,000 barrels per day) during the first quarter of the year, while Cosmo Oil Co. ($5007) closed the 140,000 barrel per day Sakaide refinery last month.
While refiners in the US and elsewhere are seeking to increase production capacity, particularly with regard to shale oil and natural gas, Abenomics has found it necessary to streamline operations before Japan’s oil industry can be in a position to compete with rivals on the continent.
But the problems for Japan’s oil-refiners are as much the result of competition and production capacity surpluses as they are aging facilities. Takeshi Noda, the chairman of the group of lawmakers that are currently debating oil-product distribution, stated in an interview that new government-led restructuring initiatives will help refiners focus on much-needed upgrades and repairs.