Merger activity may be in the doldrums in the oil and gas upstream, but it's red-hot in Japan's refining sector now that international oil companies have made for the exits. But creating larger entities is only the first step in redressing the troubled balance sheets of Japan's refiners as the country's oil demand heads further south. Next up - further diversification, both overseas and at home. Japan's refining sector looks set to consolidate from five large players to three by 2017-18. The country's two largest refiners - JX Nippon and TonenGeneral, where Exxon Mobil cut its majority stake in 2013 - are rumored to be in merger talks that would create a 2.1 million barrel per day giant. Showa Shell and Idemitsu meanwhile signed a memorandum of understanding last month to merge after Royal Dutch Shell sold a 33.24% stake in Showa Shell to Idemitsu for 169 billion yen (US$1.36 billion), retaining just 1.8% of the Japanese company (EIF Aug.5'15). The resulting firm will have acombined refining capacity of nearly 1 million b/d. Cosmo Oil will be left in third place among Japan's refiners, with a capacity of 452,000 b/d.
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