Major Japanese oil companies Showa Shell Sekiyu and Japan Energy Corp. are winding up talks aimed at forming a broad business alliance. The partnership would be the second largest oil group in Japan, behind the combine announced earlier this month by Nippon Mitsubishi Oil Corp. and Cosmo Oil Co. Ltd. (OGJ, Oct. 18, 1999, Newsletter).
Meanwhile, Nippon Mitsubishi Oil and Idemitsu Kosan Co. are to expand their agreement for mutual supply of oil products starting next April.
Showa Shell-JEC
The comprehensive alliance between Showa Shell and Japan Energy will be conducted in four sectors: refining, crude oil procurement, distribution, and lubricants.
Showa Shell and Japan Energy began cooperation in operating their oil distribution and storage facilities last January (OGJ, Feb. 15, 1999, Newsletter). But because the tie-up excludes marketing and sales, the two have kept their respective brand names and maintained their own gasoline stations.
The alliance was aimed at cutting costs for the two companies, which have been hit hard by a slump in product prices, they said.
Now, the two firms will form a team to study further joint operations. They expect to announce a detailed plan next March.
Although the current vision involves only forming a broader alliance, a senior Showa Shell source said that an eventual full-blown merger between the two "is not impossible to conceive."
On the thorny issue of possible refinery closures, the Showa Shell source warned that the two companies have difficult talks ahead of them: "Overcapacity is a fact. But closing just one train is meaningless. If a closure has to be made, it must involve the whole site."
Nippon Mitsubishi-Idemitsu
Meanwhile, Nippon Mitsubishi Oil and Idemitsu Kosan will expand their mutual supply of oil products starting next April.
The original deal, signed in April 1996 between Idemitsu and the former Nippon Oil Co., provides for the two companies to trade gasoline and kerosine in equal amounts from their respective refineries (OGJ, Nov. 11, 1996, Newsletter). Now they will increase their mutual supply to about 95,000 b/d of oil products in fiscal 2000, up 37.5% from the current year's estimated amount.
To beef up the supply, Nippon Mitsubishi is expected to add two affiliated refineries, Koa Oil Co.'s and a refinery in Muroran, Hokkaido, to the arrangement. In return, Idemitsu will boost shipments from its refinery in Aichi prefecture.
