DISCORD ON DEMAND SUNK TRILATERAL OIL PLAN

DISCORD ON DEMAND SUNK TRILATERAL OIL PLAN

Differing outlooks on oil demand in Japan and overseas seem to have led to the disagreement that scuttled the Saudi-Japanese-U.S. plan for a major oil- refining venture here.

Saudi Arabian national oil company Aramco, Nippon Oil, Nikko Kyodo Co., Arabian Oil and Caltex of the United States were to have set up a company with total refining capacity of 450,000 barrels a day. The refiners involved in the plan would have processed Saudi Arabian crude, providing Aramco with a market and guaranteeing import-dependent Japan a steady source of supply.Nissa Petroleum Corp., which was set up by Caltex and the Japanese oil companies to handle the project, informed Aramco on Oct. 27 of its withdrawal.

The project would have included construction of a 150,000-barrel-a-day refinery at Kudamatsu, in Yamaguchi Prefecture in western Japan. It also would have included the purchase of Nippon Oil's 150,000 b/d Muroran refinery in northern Japan's Hokkaido and Nikko Kyodo's 95,000 b/d Chita refinery in central Japan's Aichi Prefecture. The Chita refinery would have been upgraded to 150,000 b/d.

"The main reason (for the abandonment) is our side," said a Japanese source close to the joint project. "The partners, including an American firm and three Japanese market competitors, could not reach an agreement."

A spokesmen for the three Japanese oil companies said Nippon Oil and Nikko Kyodo disagreed over when to build the only new refinery called for in the project plans. Nippon Oil wanted to build the Kudamatsu refinery on land it already owns "as soon as possible," a spokesman for that firm said.

Nikko Kyodo, however, wanted to postpone building the Kudamatsu refinery, ''possibly indefinitely," the Nippon Oil spokesman said.

Behind the disagreement on timing lies the companies' different outlooks about the Asian oil demand. The Nippon Oil spokesman said his company expects 1 percent to 2 percent annual growth in demand for oil products.

Given Nippon Oil's sales capacity, he said, such an expansion in demand would mean Nippon Oil would need to add to its primary distillation capacity ''fairly soon."

"Now we've got to start again and reconsider the Kudamatsu refinery project" on our own, he said.

The Nikko Kyodo spokesman said his company had a different view of demand growth both domestically and in Asia. He said the agreement initiating the project called for the Kudamatsu refinery to be built "as fast as financially possible," not simply "as fast as possible."

A spokesman for Arabian Oil declined to say whether his company had favored building the Kudamatsu refinery immediately.

The abandonment of the plan leaves open the possibility of other Japanese companies becoming involved in refining projects with Saudi Arabia, industry sources said.

"This is a chance for other oil companies to get good ties with Saudi Arabia," a Japanese analyst said. "They might make a move."

He said the Ministry of International Trade and Industry appears to favor continued efforts to set up a joint refinery.

"They're trying to find another bridegroom for Saudi Arabia," he said.

Hideaki Kumano, vice minister of MITI, said Monday that the cancellation of the project is "very regrettable." Speaking at a regular news conference, Mr. Kumano said the current sluggish demand for oil was one factor behind the cancellation.

He said MITI is willing to help promote fresh bilateral cooperation between Saudi Arabia and Japan on the private level as well as on the government level because of the importance of Japan's relationship with Saudi Arabia.