(EnergyAsia, October 28 2010, Thursday) — Faced with declining domestic consumption, a rising currency and mounting financial losses, Japanese oil companies are racing to reduce their combined 4.8 million b/d refining capacity.

The government has added to the industry’s burden with its recent regulation that refiners raise the rate of their heavy oil-cracking capacity to 13% by March 31 2014 from the current 10%. This would require the industry to make massive new investments to upgrade their refineries to process heavy crude oil.

The Economy, Trade and Industry Ministry has set a deadline for the refiners to submit their plant upgrading plans by end October. The refiners have the option to either reduce capacity by closing existing facilities to meet the increased upgrading ratio or proceed to invest with little hope of recouping their investment costs.

JX Holdings Inc plans to close down a 270,000 b/d plant in Negishi in Yokohama’s Isogo Ward as part of a medium-term plan to idle 400,000 b/d of its 1.8 million b/d capacity. Cosmo Oil Co is expected to close some of its smaller refineries while Idemitsu Kosan and Showa Shell Sekiyu are planning to reduce output by around 100,000 to 120,000 b/d.