Coping With Earthquakes Aftermath


Although Japans base oil plants were relatively unscathed by the March 11 earthquake and tsunami, impacts will be felt by the island nations finished lubricants industry along with auto manufacturers dependent upon parts made in Japan.

Base Oil
JX Nippon Oils 270,000 barrels per day refinery in Negishi temporarily shut down after the March 11 earthquake. The base oil plant at the refinery has 4,400 barrels per day of API Group I capacity. According to a March 22 Reuters report, JX Nippon Oil restarted the Negishi refinery March 21.

By press time, Lube Report was unable to reach JX Nippon Oil for comment.

Stephen Ames, principal of SBA Consulting, Pepper Pike, Ohio, said base oils were not significantly affected by the tragedy, given that the plants are located well to the south of Sendai. The northernmost are located near Tokyo Bay, some 200 miles away, he said, noting most are further south at Wakayama and Mizushima.

Whilst there were some base oil refinery outages initially, they were precautionary and short term, Ames said. They have been restarted save the one or two that have or are scheduled for turnaround. We have, however, noted some Japanese base oil producers having placed restraints on their near term exports, possibly as contingency measures to support the reconstruction efforts.

According to the Institute of Energy Economics in Japan, new petroleum products totaling 1.1 million kiloliters have been secured, as the country is to import more than 450,000 kiloliters of oil products and cancel exports of around 650,000 kiloliters as emergency measures.

Japan produced about 31,900 barrels per day of lubricant base stocks in 2009, or about 1.7 million metric tons, consultancy Kline and Co. estimated. Thus on total volume, the country is self-sufficient, Milind Phadke, Klines Energy Practice project manager, told Lube Report. However, it is short on Group III base stocks. This was the situation before the earthquake.

Some refineries with base oil plants increased their crude oil capacity throughput.

In its March 23 update, Cosmo Oil said it increased capacity throughput at its Yokkaichi refinery from 125,000 b/d to 175,000 b/d on March 15. The refinery has a base oil plant with 6,800 b/d of Group I capacity. Cosmo said it increased production of oil products at its three refineries in the central to western part of Japan, with delivery prioritized to the earthquake-damaged area.

Finished Lubricants
Ames said the earthquake and tsunami have certainly reduced local demand for lubricants, especially in the Sendai region that suffered the greatest damage.

Not only has transport been paralyzed, lessening the demand for automotive lubricants, but manufacturing has also been heavy impacted and with it industrial lubricants, greases and cutting oils, Ames told Lube Report. I expect finished lube demand in Japan to be markedly down for at least the next two quarters, then climbing as major reconstruction kicks in.

Kline estimated lubricant consumption in Japan totaled 1.6 million tons in 2010. This still represents a significant decline from the pre-recession levels, Phadke said. Japans 2010 lubricant consumption was 57 percent industrial, 28 percent consumer, and 15 percent commercial, according to Klines estimates.

Auto Manufacturing
Toyota in New York issued a statement Friday updating the possible impacts of the earthquake and tsunami in Japan on its supply base. We have communicated to team members, associates and dealers here that some production interruptions in North America are likely, Toyota stated. Its too early to predict location or duration.

The company pointed out that the greatest majority of parts for its North America-built vehicles come from about 500 suppliers in North America. Also, we continue to receive parts from Japan that were already in the pipeline, limiting the immediate impact, Toyota said. We will continue to work closely with suppliers in North America and Japan to minimize any disruptions to Toyotas overall North American operations.

In Japan, Toyota issued a statement March 29 that it was currently inspecting and confirming the status of inventory and suppliers. As a result, depending on vehicle type, there may be a significant impact on our production capabilities, the automaker said.

In a March 29 letter to OEM suppliers in North America, Honda announced a strategy of temporary production adjustments that will vary from plant to plant, based on product mix, parts availability, customer demand and product inventory.

In its letter, Honda said that in North America, starting March 30, it planned to begin adjusting production levels at several U.S. automobile plants to cope with parts supply issues. That will include limiting daily production to four hours each shift at some plants.

Nissan on March 30 said it had been able to resume normal operations at all its Japanese plants except its Iwaki engine plant, where partial operation is planned to resume in mid-April and complete reparation is targeted for the end of April.

The company plans to suspend vehicle production between April 4 and 8 at its Oppama, Tochigi, Kyushu, Shatai and Shatai Kyushu plants. Production will continue during the week of April 4 at its Yokohama plant and at the casting and axle production departments at its Tochigi plant, manufacturing necessary powertrain units for the vehicle plants that are scheduled to resume production later in April.

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