May 31, 2018 / 3:05 PM / a year ago

Japan's Idemitsu says no oil refineries will close in touted merger

TOKYO (Reuters) - Japan’s Idemitsu Kosan (5019.T) does not expect to close any domestic oil refineries as part of its long-delayed merger with smaller rival Showa Shell Sekiyu 5002.T even as local demand for oil continues to fall.

Idemitsu Kosan's President and Chief Executive Officer Shunichi Kito speaks during an interview with Reuters at the company's headquarters in Tokyo, Japan May 21, 2018. REUTERS/Kim Kyung-Hoon

That comes as Idemitsu, Japan’s No.2 oil refiner by sales, battles to overcome entrenched opposition to the touted merger from its founding family at a time when the country’s refining market is going through the biggest shake-up in its history.

The two refiners have struck a business alliance ahead of the possible merger, integrating the so-called loading programs they use to buy crude and working to jointly operate their seven group refineries.

“Idemitsu has already reduced refineries by half to three and will not close any more,” CEO Shunichi Kito told Reuters in an interview last month.

JXTG Holdings (5020.T), the dominant player in a country where a falling population is using ever more efficient vehicles, was formed last year out of the merger of JX and TonenGeneral. It has been considering closing at least one of its 11 domestic refineries.

“Seven refineries for Idemitsu and Showa Shell would balance domestic demand. (Integration or elimination) would be unlikely to happen to us,” he said.

Kito said he could not give a timeline for the proposed merger with Showa Shell as there has been little progress in its talks to win approval from the founding family.

Meanwhile, he also said Idemitsu was considering a minor upgrade to a secondary refining unit in response to the International Maritime Organization’s move to ban use of high sulphur fuel.

He added that the firm planned to raise its overseas oil sales to roughly match domestic levels by 2020/21, pushing to compensate for a projected 30-40 percent decline in local gasoline demand by 2030.

Idemitsu currently operates two filling stations in Vietnam, where it participates in the 200,000 barrels-per-day Nghi Son oil refinery project, and wants to increase that to 10 as it mulls the best way to expand in the country.

Kito said it would also consider how to enter the gas stand business in nearby nations such as Cambodia, Laos and Myanmar.

“I expect acquisition, capital participation or a tie-up will be an effective way rather than building it from scratch,” he said.

Reporting by Osamu Tsukimori and Taiga Uranaka; Editing by Joseph Radford

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