Japan Oil Demand Falling.

A switch from oil-fired power will see Japan's oil demand drop by 2.4% in fiscal 2007-08. The Japanese Institute of Energy Economics (IEEJ) says in a new report the country's oil product sales in fiscal 2007-08 would total 222.43m kilolitres (1.4 bn barrels or 3.8m b/d). That will mark the fifth straight year of declining demand, a trend which is not expected to end soon as the ultra-efficient economy pushes more fuel-saving measures and the population shrinks. Weak domestic demand is forcing refiners to consolidate or invest billions of dollars in export-oriented upgrades.

Reuters on Dec. 15 quoted Shigeru Suehiro, senior economist at IEEJ, as saying Japanese oil demand was falling as high oil prices prompted industrial users and power firms to switch off oil-fired generators and switch to buying electricity from the grid or using natural gas. Sales in the current fiscal year to March 2007 are set to fall 3.5% from last year to 228 million kilolitres. Suehiro said: "Electricity use is growing in large firms because it's cheaper than...in-house generation". He added that Japanese homeowners, who burn as much as 1m b/d of kerosine for heating during the height of winter when demand spikes, were increasingly turning to electricity for their heating needs.

Demand for electricity is set to grow 2.4% in the next fiscal year, building on a 1.8% rise this year, as the economy grows. Demand for utility gas is set to grow a stronger - 5.5% in 2007-08. Japan's economy, which had been largely stagnant over the past decade, is expected to grow 1.9% in the current fiscal year, followed by 2% growth projected next year. The IEEJ forecasts assummed WTI price averaging around $60-$65/barrel.

Domestic sales of gasoline, which make up about a fifth of Japan's fuel use, are projected to slip 0.6% in the next fiscal year following a 1.1% decline in 2006-07 amid strong demand for small cars and improved fuel economy. Oil traders said demand this year was particularly weak due to a rainy, mild summer season which deterred holiday driving and limited the need for fuel-intensive air conditioners.

Sales of other consumer fuels such as kerosine, gasoil and fuel oil also are set to fall again in the next fiscal year. Naphtha sales, however, are seen rising 0.7% after a projected 0.3% fall this year due to a rise in the output of ethylene, a basic building block for the chemical sector.