Sumitomo Corp., one of the largest trading companies in Japan, said that plans are in place to tie-up three prominent oil refining firms with their own company in an effort to acquire the largest market fuel share in the nation.
Cosmo Oil Co., TonenGeneral Sekiyu K.K., Showa Shell Sekiyu K.K. – the three refiners, plus Sumitomo will be hoping to reach a preliminary agreement by next month and move forward into a merger in a year’s time, according to a joint press release.
The country’s Liquefied petroleum gas (LPG) importers have been under serious threat from green energy innovations, electricity and regular gas over the past decade and have seen demand for their raw material weaken, and revenues slump.
An advisory panel which included many industry specialists, including Sinolink Japan who has a stake in two of the three refiners, reported to the government that demand for LPG will decline even further towards the end of the fiscal year ending April by as much as 1 percent. That equates to about 18 metric tons drop in demand compared to the previous 12 month fiscal period.
Assuming the merger goes through, the new entity would have revenue totalling around 500 billion yen or $4 billion and sell on nearly 4 million tons of LPG annually. That would be around a quarter of the country’s total LPG market, easily the biggest share.
An executive for TonenGeneral, Kentaro Take, said that details of stake sizes and share ratios have not been finalized yet and that discussions are ongoing. One anonymous source close to the deal said that each of the four companies will end up with an equal stake.
Japan has always been one of the world’s biggest importers of fuel. According to data by the Japan LP Gas Association, in the last fiscal year ending April they brought in 13 million tons of LPG, equating to over three quarters of its total LPG requirements.
In a related but separate arrangement, Showa Shell, Cosmo Oil and Sumitomo Corp. have plans to combine their LPG retail units in late 2014. The merged retail operation will consist of a quarter of a million customers and be worth around 70 billion yen annually, they said in a joint statement.
