Japan has committed to increasing its purchases of American energy products as part of a trade agreement finalized in July 2023. However, the country’s refining industry has raised concerns that existing infrastructure is not equipped to process 100% U.S.-sourced crude oil. This development follows President Donald Trump‘s announcement on social media of what he termed “a massive Deal with Japan,” which he claimed could be the largest trade agreement ever established between the two nations.
The trade agreement includes a reduction in tariffs on Japanese goods imported to the United States, dropping from a proposed 24% to a finalized 15%. This new rate, effective from August 1, 2023, represents a significant change from the initial 25% tariff suggested by President Trump earlier in July. The White House has emphasized that the deal will facilitate a “major expansion of U.S. energy exports to Japan.”
Despite these ambitions, Japanese refiners face several challenges in increasing crude oil imports from the U.S. Current logistical constraints, including longer shipping routes and higher transportation costs, complicate the situation. The specifications of Japan’s refineries are another hurdle, as they are primarily designed to process crude from the Middle East.
In a statement reflecting the industry’s predicament, Shunichi Kito, president of the Petroleum Association of Japan, noted, “Frankly, we have no major alternative to Middle Eastern crude.” He further commented that “probably no units can process 100%-pure U.S. crude in Japan.” Kito also serves as the representative director and chair of Japanese refiner Idemitsu.
In light of the ongoing trade negotiations, Japan did increase its imports of U.S. crude to approximately 190,000 barrels per day in May 2023, marking a remarkable surge of 180% compared to the same month in 2022. According to official data from the Japanese industry ministry, this represented the highest monthly import level of U.S. crude in Japan since December 2018. However, this increase was not sustained, as import volumes decreased in June.
Despite the uptick in U.S. crude purchases, the Middle East continues to dominate Japan’s oil supply, accounting for approximately 95% of imports. The persistent reliance on Middle Eastern crude highlights the complexities involved in transitioning to American oil sources, even as trade relations evolve.
As Japan navigates these challenges, the refining industry remains focused on exploring potential adjustments to increase American crude imports. The ongoing developments will be closely monitored as both nations work to solidify their trade relationship and energy security in an evolving global market.
