Japan’s oil diversification drive opens routes for Nippon Yusen

Shipping line Nippon Yusen is in talks with Japanese refiners to help them import oil from Latin America and Africa as they try and diversify their supply away from the war-hit Middle East.

Discussions are at early stage, but those regions could become increasingly important sources of crude for Japan, Nippon Yusen CEO Takaya Soga said in an interview.

The refiners “are working hard to determine if places like Brazil, Mexico and Africa can truly serve as reliable sources,” he said.

Japan, which got more than 90% of its oil from the Middle East before the U.S.-Iran war, has been forced to reassess its energy procurement after the conflict disrupted shipping in the Strait of Hormuz. The country sought alternative supplies, primarily from the U.S., while also drawing on its strategic stockpiles to avoid shortages and price spikes.

Nippon Yusen is already transporting U.S. crude to Japan and is seeing more demand on that journey, Soga said. The shipping line’s customers are also exploring alternative routes for Saudi Arabian crude, including via the Mediterranean Sea, he said.

So far, the shipper has been able to pass on the increased costs and longer travel times involved on these routes to customers, and discussions have been “quite reasonable,” Soga said.

While traffic through Hormuz was at a virtual standstill in the early days of the war, flows have recovered in recent months. About 6 million to 8 million barrels a day of crude are now being shipped through the world’s main oil conduit, according to estimates from oil traders.

However, the diversification drive is unlikely to reverse even if the strait fully reopens, because the importance of not being too reliant on the Middle East is “now recognized,” Soga said.

Nippon Yusen is also looking at risks posed by maritime chokepoints, including the Panama and Suez Canals, and the Taiwan Strait, he said. More emphasis will be put on geopolitical risk in the next long-term business plan, Soga said.

Meanwhile, the CEO said it remained largely business-as-usual for liquefied natural gas deliveries, given Japan’s relatively low dependency on the Middle East for the super-chilled fuel.