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Energy

Japan oil majors seek safer supply via Abu Dhabi exchange

JXTG and Inpex to invest in market that bypasses volatile Strait of Hormuz

TOKYO -- Leading Japanese energy groups JXTG Holdings and Inpex will invest in a new crude oil exchange in the United Arab Emirates, seeking a route around a risky bottleneck for the Asian economy's oil supply, Nikkei has learned.

JXTG, Japan's biggest petroleum refiner, and Inpex, the country's top oil and gas driller, are expected to purchase single-digit stakes in ICE Futures Abu Dhabi, set to open in the first half of 2020.

Royal Dutch Shell, BP and PetroChina are also among the nine investors in the exchange, which holds significance for its location amid rising Middle East tensions.

Oil traded through the exchange will be transported via an overland pipeline to the Port of Fujairah, a shipping terminal in the UAE that faces the Gulf of Oman. This route avoids the volatile Strait of Hormuz.

Waters in and around this strait were the scene of attacks on oil tankers during the spring and summer. Iran also has threatened to shut access to the waterway in response to tensions with the U.S. Roughly 80% of the crude oil used in Japan goes through the Strait of Hormuz, the Petroleum Association of Japan says.

JXTG and Inpex will be the first Japanese companies to invest in a crude oil exchange.

The pair are finalizing the terms of the investments with the primary founders of the market: Abu Dhabi National Oil Co., or Adnoc; and Intercontinental Exchange, also known as ICE. The new exchange will trade in Adnoc's Murban crude oil.

The United Arab Emirates is the world's eighth-largest oil producer, according to BP. For Japan, the UAE represents the second-biggest source of oil next to Saudi Arabia.

ICE, which is the parent company of the New York Stock Exchange, expects to make Murban crude a benchmark through the new exchange. Murban would compete with West Texas Intermediate, as well as Brent and traditional Asian benchmark Dubai crude.

Japan recently approved the deployment of Maritime Self-Defense Force personnel to conduct survey operations around the Gulf of Oman.

The decision followed American urging to join a U.S.-led coalition in patrolling the waters in and around the Strait of Hormuz. Tokyo, one of the few U.S. allies with close relations with Iran, will not participate directly in that effort.

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