May 7,2008  From Bloomberg

May 7 (Bloomberg) -- Nippon Oil Corp., Japan's largest refiner, said it agreed to form a refining venture with PetroChina Co., expanding their alliance to capture growing Asian demand.

The companies will consider jointly operating Nippon Oil's 115,000 barrel-a-day refinery in Osaka as part of the venture, Nippon Oil President Shinji Nishio told reporters today. The venture, in which the Japanese company will hold a 51 percent stake, will probably start by April 2009, he said.

Nippon Oil and PetroChina are working together to expand in Asia and utilize the Japanese refiner's surplus capacity. Demand is waning in Japan while increasing elsewhere in Asia, as emerging economies such as China consume more oil products. The deal comes during a visit to Japan by Chinese President Hu Jintao.

``This is the first step for us and PetroChina to cooperate to do Asian business together,'' Nishio said. ``Our plan is to turn the Osaka plant into a hub for exports.''

Shares of Nippon Oil jumped as much as 8.4 percent, or 60 yen, to 778 today and traded at 774 yen at market close in Tokyo, their biggest gain in eight months. PetroChina declined 4.6 percent to HK$11.56 at 4 p.m. in Hong Kong.

Under an agreement signed today, Nippon Oil will operate the Osaka plant while PetroChina will handle the purchase of crude oil and sales of refined products.

The Osaka refinery has a capacity to export about 40,000 barrels a day of refined products, mainly gasoil and jet fuel, Nippon Oil Director Mihio Ikeda said.

``This tie-up will allow us to secure routes so we can have a steady export of fuels,'' Nishio said.

China Consumption

China's oil consumption will rise to 600 million tons, about 12 million barrels a day, by 2020 and the country needs to double its refining capacity to meet demand by then, PetroChina Co. Vice President Shen Diancheng said yesterday.

PetroChina approached Nippon Oil last year to form the oil- processing venture as part of plans to secure refined products and acquire technology to operate plants efficiently, Nippon Oil's Nishio said.

``This could be a leading model in future for cooperation'' between Japanese and overseas refiners, he said. ``Demand in Japan is set to decline about 3 percent annually from now.''

Japanese businesses and households are shifting to alternative fuels such as natural gas because of rising oil prices and environmental concerns. Oil climbed to a record $122.73 a barrel in New York yesterday and is up 98 percent from a year ago.

Declining Demand

Refined oil-product demand in Japan dropped 2.4 percent in the year ended March 31, according to the trade ministry, exceeding an earlier forecast of 1.8 percent a year to March 2012.

Nippon Oil on April 2 said it will process 40 percent more oil for PetroChina International Ltd., a unit of China's biggest oil producer, in the year ending March 31, 2009. It will process 70,000 barrels a day, up from 50,000 barrels a day.

Mao Zefeng, PetroChina's Hong Kong-based spokesman, didn't immediately answer calls to his mobile phone. Beijing-based PetroChina spokesman Yuan Xinxiang said he's not aware of the project. Liu Weijiang, who speaks for parent China National Petroleum Corp., didn't immediately answer calls seeking comment.

Editor: Haijing Qu