Japan’s gasoline demand almost at pre-pandemic levels after subsidy

The head of the Petroleum Association of Japan (PAJ) said the country’s subsidies for gasoline had helped restore demand close to pre-pandemic levels in May and June.

The government adopted the temporary subsidy program in January to ease the blow from high crude prices because of tight global supplies, exacerbated by the Ukraine conflict.

“The subsidies are having a great effect and consumers are benefiting greatly,” PAJ President Tsutomu Sugimori told a news conference, while giving the details on demand.

The subsidy – over 40 yen a liter as of this week – has kept current gasoline prices at around 174 yen a liter, below a peak they reached in 2008.

Sugimori said he did not know what price level would cause a drop in gasoline demand, but consumers would be clearly discouraged from buying gasoline if retail prices rose above 200 yen ($1.5) a liter.

Sugimori, also chairman of Japan’s biggest oil refiner Eneos Holdings, said the nation’s refinery capacity would continue to decline as demand was falling about 2% a year due to the ageing and shrinking population.

Eneos plans to shut down its 81-year-old Wakayama refinery in October 2023 as part of a long-term restructuring.

Last week, oil refiner Idemitsu Kosan said it would terminate Yamaguchi refinery in western Japan of its affiliate Seibu Oil by March 2024, cutting its group capacity by 13%.

Asked about demand for fuel oil used to generate electricity in the summer, when tight power supply is predicted, Sugimori said Eneos received 83% higher demand in April-September against a year earlier, but it could only provide 56% higher supply.

“Despite a surge in coal prices, coal is still cheaper than oil (as power generation fuel). But oil is still economically superior to LNG,” he said.