CAPITAL: Tokyo

MONETARY UNIT: Yen

REFINING CAPACITY: 4,497,660 b/cd

OIL PRODUCTION: 13,700 b/d

OIL RESERVES: 58.5 million bbl

GAS RESERVES: 1.4 tcf

Japan`s ruling Liberal Democratic Party (LDP) planned to reduce the nation`s oil import tariff over 4 years from fiscal 2002-03 to 2006-07 to ×170/kilolitre from ×215/kilolitre.

LDP said that after 2006-07, the tariff would be abolished. The change was part of annual revisions to the nation`s tax system.

The government earlier planned to lift the tariff in 2002-03, but shortfalls in tax revenues had forced a postponement.

The LDP had also proposed a reduction in oil product taxes from 2002-03.

Tariffs for gasoline, kerosine, and gas oil would be cut by about 10%.

Also, Japan`s Ministry of International Trade and Industry said it would reduce the oil industry`s mandatory oil stockpile to help operators cut costs.

Under the mandatory stockpile system, Japan`s oil firms had to store oil equal to at least 70 days` worth of supply, while taking the risk of oil price fluctuations.

It cost the private sector ×70 billion/year to maintain the current storage level, according to a MITI estimate. Meanwhile, an International Energy Agency report said Japan must reduce oil consumption and diversify supplies in order to guarantee energy supplies and meet environmental needs.

The IEA recommended Japanese National Oil Corp. invest in global oil projects and ensure its domestic refining industry had the capacity to produce gasoline and heating fuels "during emergency periods" without relying on imports.

The IEA said gas was a "high-cost fuel" for the country and not an ideal source of energy for power generation. To develop the gas industry, Japan should develop the distribution network and find cheaper LNG imports.

Companies

Showa Shell Sekiyu and Japan Energy Corp. were discussing a broad business alliance to cut costs.

The partnership would be the second largest oil group in Japan, behind the combine announced earlier in 1999 by Nippon Mitsubishi Oil Corp. and Cosmo Oil Co. Ltd.

Showa Shell and Japan Energy planned to cooperate in refining, crude oil procurement, distribution, and lubricants. They had begun coordinating their oil distribution and storage in January 1999.

But because the combine excluded marketing and sales, the companies were to keep their brand names and maintain their own gasoline stations.

Meanwhile, Nippon Mitsubishi Oil and Idemitsu Kosan planned to expand their mutual supply of oil products. The original deal, signed in April 1996 between Idemitsu and the former Nippon Oil Co., provided for the two companies to trade gasoline and kerosine in equal amounts from their respective refineries.

They planned to increase their mutual supply to about 95,000 b/d of oil products in fiscal 2000, up 37.5% from the current year`s estimated amount.Nippon Mitsubishi was expected to add two affiliated refineries, Koa Oil Co.`s and a refinery in Muroran, Hokkaido, to the arrangement. In return, Idemitsu would boost shipments from its refinery in Aichi prefecture. The merged Nippon Oil and Mitsubishi Oil would have a network of about 14,700 service stations, 4,400 employees, and 25% of Japan`s fuel market, surpassing Idemitsu Kosan Co. Ltd.`s 16% market share. The new company was expected to become Japan`s largest refiner. The Nippon Oil group had 1 million b/d of capacity, about 580,000 b/d of which was wholly owned. The Mitsubishi Oil group`s crude processing capacity was 475,000 b/d.

The Royal Dutch/Shell Group planned to sell its stakes in two chemical joint ventures in Japan with Mitsubishi Chemicals Corp. and JSR Corp. because of poorer-than-expected performance.

Shell planned to sell its 50% share in an epoxy resin business with Mitsubishi and a thermoplastic rubber plant equally owned with JSR.

Nippon Mitsubishi Oil Corp., Japan`s largest oil refining and marketing company, said it would stop processing crude oil at its Kawasaki refinery to save $41.35 million/year.

Separately, a venture was considering the feasibility of a gas pipeline from Russia to Japan. The study was expected to take 3 years.

Participants were Exxon Japan Pipeline, Japan Sakhalin Pipeline FS Co., Itochu Corp., and Marubeni Corp. Japan Sakhalin Pipeline would be the operator with 75%, and Exxon Japan Pipeline would have 25%.

The pipeline would run to northern Japan from the Russian border south of Sakhalin Island. Sakhalin gas fields had proved reserves of 10 tcf.