The Strait of Hormuz continues to be blocked, causing a petrochemical feedstock supply crisis for several Asian countries. Japan, in particular, is facing a shortage of over 90% of its Middle Eastern crude oil supply, directly threatening its naphtha-based petrochemical feedstock system. Ethylene and propylene plants have been forced to reduce operating rates, and deliveries of synthetic resins and synthetic rubber have been delayed. Japan has urgently released strategic reserves and is seeking resources globally, while simultaneously accelerating its renewable energy transition. The chemical industry is facing a profound restructuring of its feedstock structure.
Japan's petrochemical industry is highly dependent on Middle Eastern naphtha as a feedstock for cracking. According to the Japan Petroleum and Chemical Industries Association, approximately 85% of the country's ethylene production capacity uses naphtha or condensate supplied from the Gulf region as feedstock, and almost all of these feedstocks are transported through the Strait of Hormuz. The de facto blockade of the strait has led to widespread delays or cancellations of naphtha deliveries to major Japanese companies such as Mitsubishi Chemical, Mitsui Chemicals, Sumitomo Chemical, and Idemitsu Kosan since late March. The cracking unit operating rates of the Chiba, Yokkaichi, and Mizushima petrochemical complexes have plummeted from over 90% to 60%-70%, with some smaller units temporarily shutting down.
The impact of the feedstock supply disruption is rapidly spreading downstream. The decline in Japanese ethylene, propylene, and butadiene production has directly led to reduced output of polyethylene, polypropylene, polyvinyl chloride, acrylonitrile-butadiene-styrene terpolymer (ABS) resin, and synthetic rubber. A supply shortage of synthetic rubber for tires (styrene-butadiene rubber and cis-butadiene rubber) has emerged, prompting several chemical companies to announce force majeure measures, reducing contract volumes by 10% to 15% for downstream customers. Simultaneously, delivery times for specialty materials such as epoxy resin and polyimide film used in electronic packaging and circuit boards have been extended by more than two weeks.
Naphtha spot prices rose 35% after the outbreak of the conflict, further squeezing the profits of Japanese companies. In early April, Japan's Ministry of Economy, Trade and Industry assessed that if the strait blockade continued for more than three months, the annual loss in ethylene production capacity could reach 1.2 million tons, approximately one-fifth of domestic production. Current naphtha inventories at companies average only 11 days' worth, and some manufacturers have begun replacing 10% of their cracked feedstock with liquefied petroleum gas (LPG) and have coordinated the rerouting of three oil tankers.
Following the outbreak of the Middle East conflict, the Japanese government and chemical companies quickly activated a multi-tiered emergency response mechanism. Starting March 16, Japan began releasing 90 million barrels of strategic petroleum reserves from its national and private reserves, with approximately 15% earmarked for petrochemical feedstocks, prioritizing the operation of cracking units. Simultaneously, the Ministry of Economy, Trade and Industry (METI) allowed refineries to adjust process parameters, diverting more straight-run naphtha to chemical applications, and temporarily relaxed gasoline aromatics content standards, prioritizing benzene, toluene, and xylene produced by catalytic reforming units for chemical production.
Regarding the second round of strategic fuel reserve releases, METI's Crisis Coordination and Coordination Officer, Narumi Hosokawa, stated that if the current situation remains unchanged, crude oil supply may continue to tighten, and the government will make a decision at an appropriate time. Since March 16, Japan has begun releasing private reserves, temporarily reducing wholesalers' inventory obligations from 70 days to 55 days for one month.
To fill the supply gap, global sourcing efforts are also underway. Japan is increasing its purchases from non-Middle Eastern regions, typically importing 450,000 kiloliters of naphtha monthly, but this is expected to double to 900,000 kiloliters in April. Mitsui Chemicals and Sumitomo Chemicals have restarted negotiations with Venezuela's state-owned oil company, PDVSA, in an attempt to restore heavy naphtha supplies, although this feedstock requires more complex pretreatment, it could still partially fill the gap. Idemitsu Kosan has increased imports of ethane and propane from the US Gulf Coast for the light feedstock modification of its cracking units. In the Japan-US Alaska energy cooperation project, Japan has specifically allocated 25 billion yen to build a small-scale cracking pilot unit in Hokkaido to assess the chemical suitability of Alaskan North Slope crude oil. Furthermore, increased coal imports from Australia and Indonesia are not only used for power generation, but some coal-to-olefins (CTO) projects have also been temporarily activated, despite their high costs and carbon emissions, as a "backup plan" included in the emergency system.
Long-Term Transformation: Exploring Diversified Pathways for Chemical Feedstocks
The current feedstock supply crisis is driving a deep adjustment in the feedstock structure of Japan's chemical industry. One noteworthy trend is the accelerated diversification of feedstocks by Japanese petrochemical companies. Mitsubishi Chemical announced an investment of 120 billion yen to build an ethylene demonstration plant using bioethanol as feedstock by 2028. Sumitomo Chemical and Idemitsu Kosan are collaborating to advance the chemical recycling of waste plastics, planning to produce 100,000 tons of cracked oil annually starting in 2027 for direct feeding into the cracking furnace. The Japanese government has included "unconventional crude oil processing technologies" as a key area of support under the Green Innovation Fund, covering Canadian oil sands bitumen refining and catalytic cracking to increase propylene production.
The deployment of renewable energy also indirectly impacts the carbon footprint of the chemical industry. The Japan Chemical Industry Association has proposed a carbon neutrality roadmap for 2050, clearly outlining a gradual reduction in reliance on Middle Eastern naphtha and a shift towards biomass, recycled carbon, and ethane/propane from the United States and Canada.
