Japan min heads to Saudi targeting oil supply pact Two countries to establish hotline-report

TOKYO, Feb 8, (RTRS): Japan’s trade minister heads to Saudi Arabia on Friday for talks on securing extra oil, an official said, after a report the two will set up a telephone hotline to allow one of the world’s top importers to seek emergency supply from OPEC’s biggest producer. A hotline would allow Japan to quickly seek additional oil supplies in the event of extraordinary circumstances such as terrorist attacks, Middle East unrest or a spike in the price of oil, Japan’s Nikkei newspaper reported.


Oil markets have been on edge for months over the security of Middle Eastern supplies amid mounting tensions between the West and Iran over Tehran’s disputed nuclear programme, with Brent crude prices averaging above $111 a barrel last year. A move by Japan to be first in line to tap Saudi oil could further stoke oil supply concerns among other leading oil importers.
“Saudi Arabia has large spare supply capacity, so the big purpose of this visit is to request that they are ready to deal with supply instability in global oil markets by raising production,” an official in Japan’s Ministry of Economy Trade and Industry told Reuters.


The official, who spoke on condition of anonymity, declined to say whether Trade Minister Toshimitsu Motegi would request a hotline, but said the previous trade minister made a similar request for supply assurances in 2011.
“These are the things that Japan has conveyed to the Saudis in oil relations for a long period, say 10 to 20 years,” the official said. “The request will be made but no one knows whether it will develop into something more detailed because the meeting has not been held yet.”
Motegi will fly to Riyadh later on Friday, according to the Ministry. He will also travel to the United Arab Emirates.
Although Saudi Arabia retains significant spare crude oil production capacity, its exports are falling due to growing domestic oil demand and plans by the kingdom to expand refineries to export more refined products.


“If true, it shows how nervous importers are due to the fragility in the Middle Eastern situation, particularly Asian buyers,” said Amrita Sen of oil consultancy Energy Aspects.
Crude imports from Saudi Arabia accounted for 31 percent of Japan’s total in 2012, with shipments rising 5 percent from a year earlier to 1.14 million barrels per day, partly offseting a 39.5 percent decline in Iranian crude imports.
Japan has relied on cooperation with Western oil importing countries through the International Energy Agency to ensure oil supply security since the 1970s.
As one of the most oil import-dependent countries in the industrialized world, analysts say it has always been acutely vulnerable to the prospect of a sudden halt to crude shipments.
Japan is not the only large Asian country at risk in the event of an oil supply shock. China and India are both increasingly reliant on imported oil to fuel their economies and both have far less access to emergency stockpiles than Western importers.


Asia’s top economies have also been less able to rely on Iranian imports.
Iranian oil exports fell by 1 million barrels per day by the end of 2012 due to Western sanctions aimed at forcing oil importers, like Japan, to reduce their purchases of Iranian crude.
In retaliation, Iran has at times threatened to cut off shipments of oil or block major shipping routes.
Additional restrictions imposed by the United States took effect this week and there are few signs that a negotiated settlement to the dispute is at hand.
Iran’s Supreme Leader Ayatollah Ali Khamenei dismissed an offer of direct talks made by US Vice-President Joe Biden this week.


Emergency
The Nikkei report did not specify how much oil Japan might be able to request from Saudi Arabia in the event of an emergency under the proposed oil supply agreement.
Nor did it specify on what terms Japan would be able to secure more oil nor whether a request for emergency supplies would be binding on Riyadh.
OPEC heavyweight Saudi Arabia has repeatedly pledged to supply global markets with enough oil to meet demand. But the kingdom has traditionally guarded its sovereignty over its energy resources and has often rebuffed calls from oil consuming nations to produce more oil to depress high prices.
Saudi Arabia, which currently pumps approximately 9.05 million bpd, maintains the ability to produce up to 12.5 million bpd if needed, the only significant amount of spare oil production capacity worldwide.


Japan has grown increasingly reliant on fossil fuels since the Fukushima nuclear disaster in 2011, which has led to the shutdown of most of the country’s nuclear power plants.
Saudi Arabia signed a deal with Japan in 2010 to store 3.8 million barrels of crude in the Asian nation’s Okinawa Oil Base for emergency supplies to the kingdom’s customers in the region.
China’s Sinochem Corp in March last year loaded a cargo from the Okinawa facility due to shipping delays at Saudi’s largest crude export terminal in Ras Tanura.

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