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Japanese refiner and bunker supplier Idemitsu Kosan Co. has announced that it plans to upgrade a fluid catalytic cracking (FCC) unit in Chiba in a move that will lead to a reduction in fuel oil output at the refinery.

Japan's third-largest oil refiner says that it will spend 16 billion yen ($148.2 million) to upgrade the 45,000 barrels per day (bpd) fluid catalytic cracking (FCC) unit at its refinery in Chiba, east of Tokyo.

The upgrade project, which is scheduled for completion in 2011, will reduce the facility's production of heavy fuel oil by 200,000 kilolitres per year (kl/year). Meanwhile, production of naptha and propylene will be increased by 260,000 kl/year.

The decision to reduce fuel oil output follows a period of lower market rates for the product. In May, the company sold what is reported to be its first spot cargo of heavy fuel oil in three years as stocks at the Chiba refinery were high and production was at full capacity.

At the time of the cargo sale, lower demand from the Chinese market had already lead to an oversupply of fuel oil in Asia. Idemitsu's rare 30,000 parcel of heavy fuel oil put further pressure on a market already saturated with product, which resulted in deteriorating price spreads between fuel oil and Dubai crude.

In November 2007, the refiner said it wanted to raise production at its Chiba and Aichi refineries in order to triple export capacity. Reports said Idemitsu was planning to raise exports of gasoil, jet fuel and gasoline from 1 million to 3 million kl/year.

Idemitsu Kosan Co. Ltd. is Japan's third largest refiner and a leading marine fuels and lubricants supplier in the local market, covering all major Japanese ports.

The decision to reduce fuel oil output is likely to have an impact on the company's bunkering business. With less heavy fuel oil being produced, availability and sales of marine fuel could be affected after the upgrade project is completed in 2011.