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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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The Value of Empty Space - Japan Secures Oil Supply

Here's an interesting one in the realm of oil security.

As we've discussed, Japan is using a lot less oil these days. In the last year, Japanese consumption dropped 800,000 barrels per day.

That's leaving the country's petroleum infrastructure under-used. Nippon Oil plans to idle 20% of its refineries by 2015.

Oil storage facilities are also sitting empty. And the Japanese government is getting creative in putting this "empty space" to productive use.
The plan is to use spare storage to guarantee secure oil supply.

The pilot for this scheme came in June 2009. Japan's Ministry of Economy, Trade and Industry signed an agreement to "borrow" 600,000 kiloliters (3.8 million barrels) of oil storage from Nippon Oil (no terms have been released for the agreement).

The government then turned around and offered the storage space to Abu Dhabi National Oil Corporation. On very favorable terms (it's unclear if ADNOC is being charged at all for the space).

On December 21, ADNOC delivered its maiden shipment of 300,000 kiloliters of Abu Dhabi crude to the facility. The firm will use Japan as a "foothold" in Asia to conduct oil trading. Having oil stocks closer at hand to China, Japan and other Asian nations allows ADNOC to act quickly when attractive prices appear in these markets.

Here's the kicker. In exchange for providing storage, Japan gets priority purchase rights in case of an energy emergency. If oil suddenly gets scarce, the Japanese have dibs on nearly 4 million close-at-hand barrels.

Not a bad use of empty space.

Here's to making something from nothing.

By. Dave Forest of Notela Resources

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