-East Japan in 2024; "2024 issues" to be serious-

The Japan domestic market was significantly affected by the situation of the grant in 2023. We heard voice for 2024 from trading houses, major dealers, local dealers and importers.

【Hokkaido】
ENEOS announced to reduce sales quota for major dealers by 10% from last year up until March 2024. The company is reluctant to import as the yen depreciated against the dollar and the present grant would be given until spring in 2024. In addition, with supply/demand of coastal tankers tightening year by year, supply of vessels is small. In October 2023, there was plenty of kerosine in Keihin, which were failed to be transferred to Hokkaido. This pulled down the Keihin market and supported the Hokkaido market.

Following the working-style reform law, overtime working hours by truck drivers would be regulated from April 2024. To deal with so-called "2024 issue", many wholesalers would amend freight rates and stably secure lorries by chartering in Hokkaido. But market players were still concerned about disruptions of transportation caused by heavy snow. A major dealer was worried about it, saying that difficulties in transportation might be more clearly seen in 2024. A dealer affiliated to a trading house said, "There could be huge difference among players depending on measures they take."

According to the Japan Meteorological Agency, Hokkaido is forecast to experience mild weather in January to February and El Nino would continue until April. This winter would likely be warm and this might reduce kerosene demand.

【Tohoku】
Retailers and service stations (SS) have been integrated and abolished. This movements might be accelerated in 2024. This is quietly going on in other areas as well but rapidly realized especially in the Tohoku area. Business is not succeeded due to a lack of successors in the oil industry and is not profitable on the back of decreasing sales in areas other than urban areas and a shortage of workers in many companies. In fact, more managers are said to be receiving offers for M&A in the Tohoku area.

In October 2023, Nakagawa Sekiyu merged with its subsidiary Idemitsu Retail Sale. Nakagawa Sekiyu, a dealership in Idemitsu group runs 19 SSs in Iwate, Miyagi and Akita prefecture and is headquartered in Iwate prefecture.
In November 2023, Matsushita Shoten, a dealership in ENEOS group, Kakujoyamaguchi Shoten and Sato Nenryo, dealerships in Idemitsu group, merged their SSs into one SS in Yamagata prefecture. The new SS "Maisuri Shirataka" started business. Merger was carried out beyond corporate groups.

【Keihin】
The market moved depending on governmental decision on the grant policies in 2023. Several market players definitely said that forecasts about the grant were more important than supply/demand fundamentals.

2024 issue and exit strategy from grant
The Japanese government stated that it would finish the grant on Apr 30 but many market players are uncertain about it. In November 2023, the National Diet discussed whether to abolish freezing the trigger clause. If the grant is finished on Apr 30 in the midst of a tourist season, retail prices for gasoline and gasoil might move sharply. The retail market was confused in 2008 as the trigger clause was invoked and then froze. In 2011, long lines were made at SSs after the Great East Japan Earthquake. Cars would likely make long lines at SSs during the Japanese Golden Week holidays depending on the extent of change in prices. Market players are researching and preparing for the business chance, considering whether to build stocks and checking trend in the society.

From April, upper limit of overwork working hours would be regulated in the construction, logistics, transportation and healthcare industry. Due to so-called "2024 issue", lorry companies transporting fuels, and land transport and bus industry consuming gasoil would surely be affected. Prior to the regulations, a rise in shipment fees, a revision of travel distance and a reduction in service are much discussed in the industry. The moves would pick up speed from April onwards and supply/demand fundamentals might vary in the Tokyo Metropolitan area, where large volumes of gasoil are consumed.

Status of refinery operation to be issue in 2024
In 2023, for streamlining of refineries and oil terminals, barters among importers were revised and spot shipment volumes were adjusted. Also, some players were researching about these movements in the Keihin area. ENEOS stopped refining at its Wakayama refinery in October 2023 and Idemitsu Kosan planned to stop refining at its Yamaguchi refinery in March 2024.

As for importers, ENEOS reached agreement with SK Innovation in South Korea on joint operations of reining facilities. Idemitsu Kosan already decided to reduce its refining capacity by 300,000 bbls per day (b/d) by 2030 including its 120,000b/d Yamaguchi refinery. The company is presently considering at which refineries and crude distillation units (CDU) it should reduce the refining capacity.

Cosmo Energy HD was earlier requested to streamline its refineries by its major shareholder, former Murakami Fund. But major LPG supplier Iwatani bought equities from former Murakami Fund and became the biggest shareholder. As a result, discussions on the way of operating refineries temporarily seem to have stopped but this is left to be talked about in the industry in 2024.

Future about society with next-generation energy
On the other hand, how to operate SSs were also discussed in 2023. A fundamental revision of design and roles of SS and collaboration with new business were talked about. Many players were trying to find next directions. However, existing fuels, EV, hydrogen, bio diesel, concepts of "vehicles" among consumers and purpose of existence of SSs are far from image of society with next-generation energy. SS offering car washing and coating without refueling facilities, SS to appeal next-generation vehicles, environmentally friendly SS using local wood, SS as rental space for bicycles and small-sized EVs... These are only new ideas in the experimental step. What kind of SSs would grab consumers' hearts? Market players would continue pondering in 2024.