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Japan imports first oil from U.S. in years as shale opens market

🕐 3 min read

Tsuyoshi Inajima and Yuji Okada (c) 2014, Bloomberg News. TOKYO — Japan imported U.S. oil for the first time in four years as companies find ways around a four- decade ban on American exports and the Asian nation seeks to cut its dependence on Middle East suppliers.

Japan, which relies on Saudi Arabia for 33 percent of its supply, imported about 300,000 barrels of oil from the U.S. last month, the first shipments since at least June 2010, according to data from the Ministry of Finance. Cosmo Oil Co. last month received the country’s first cargo of U.S. condensate, a lightly processed form of crude, Katsuhisa Maeda, a Tokyo-based company spokesman, said Thursday.

A surplus of light, sweet crude from shale formations has boosted U.S. production to the highest in more than three decades and spurred exports. That’s reshaping decades-old trading routes and helping Asian refiners diversify away from some members of OPEC, which meets Thursday amid speculation the group is losing influence in global oil markets.

“The exports of processed condensate to Asia increases regional supply to the benefit of refiners who can then diversify their sources of crude oil,” said Andy Lipow, president of Lipow Oil Associates LLC, an energy consulting firm in Houston. “I expect the U.S. will be exporting close to 300,000 barrels per day of processed condensate by the end of 2015.”

Enterprise Products Partners LP is offering to export 600,000 barrels a month of condensate to Asia next year and South Korea imported 1.6 million barrels of oil from the U.S. and Canada in September and October.

Japan relies on the Middle East for 83 percent of its oil imports, and South Korea is dependent on the region for more than 87 percent of its crude supply, according to the U.S. Energy Information Administration.

The U.S. banned most crude exports in 1975, with a few exceptions including shipments to Canada. Exports of refined products such as gasoline and diesel fuel are unrestricted. Policy makers are under pressure to lift the export ban as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central U.S., including the Bakken in North Dakota and the Eagle Ford in Texas.

The U.S. Bureau of Industry and Security classified condensate that was processed in a stabilizer with a distillation tower as a petroleum product, according to a letter received by Enterprise Products from the agency.

The U.S. export ban is a “fairly permissive regulatory framework” that allows exports to Canada, with Mexico likely to follow within a year, after which some free-trade partners may gain access, Ed Morse, Citigroup Inc.’s global head of commodities, wrote in a report this month.

U.S. oil output rose 0.8 percent in the week ended Nov. 21 to 9.08 million, the most since at least January 1983, when the weekly data series from the Energy Information Administration began. The EIA has monthly data going back to 1920 and that shows production at highest level since February 1986.

With global oil price mired in a bear market, representatives from the 12-member Organization of Petroleum Exporting Countries are scheduled to meet Thursday in Vienna to determine whether the group, which pumps about 40 percent of the world’s oil, needs to cut output to prop up prices.

Houston-based Enterprise has two term contracts with Japanese traders Mitsui & Co. and Mitsubishi Corp. for condensate supply through the end of 2014, a person who participates in the market said in August. SK Innovation Co. bought one cargo from Mitsui for November delivery and is seeking more, an official at the South Korean refiner said last month.

Cosmo Oil classified the imported condensate as crude oil, according to Hisashi Kobayashi, a senior managing executive officer at the company. The company received 300,000 barrels of the ultra-light oil last month.

“Because condensate was categorized as product in the U.S., we had consulted with the custom authority,” Kobayashi said in Tokyo on Nov. 17. “There was a consensus with the custom authority that we can classify U.S. condensate as crude oil.”

Condensate purchases from the Middle East by Japanese refiners are typically classified under crude oil categories.

Robert Francis
Robert is a Fort Worth native and longtime editor of the Fort Worth Business Press. He is a former president of the local Society of Professional Journalists and was a freelancer for a variety of newspapers, weeklies and magazines, including American Way, BrandWeek and InformatonWeek. A graduate of TCU, Robert has held a variety of writing and editing positions at publications such as the Grand Prairie Daily News and InfoWorld. He is also a musician and playwright.

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