Analysts point to synergy between Korea's refining capacity and Japan's massive crude reserves as the backdrop for the leaders of Korea and Japan agreeing to pursue swaps of crude oil and petroleum products. A swap is a cooperation framework in which the product in short supply during a supply crisis is lent and later repaid in kind. It means Korea can export petroleum products to Japan based on its strong refining capacity, while borrowing from Japan's stockpiled crude.
On the 21st, a refining industry official said of the decision by Korea and Japan to pursue crude oil and petroleum product swaps, "It effectively reaffirms that domestic refiners' petroleum refining capacity is among the world's best."
Korea is not an oil producer, but its refining capacity to process imported crude into petroleum products such as gasoline, diesel, and kerosene is among the best in the world. The country's four refiners—SK Energy, GS Caltex, S-Oil, and HD Hyundai Oilbank—are equipped to process a total of 3.2 million barrels of crude per day. By daily refining capacity, Korea ranks fifth in the world after China, the United States, Russia, and India.
In particular, the refining facilities of SK Energy and GS Caltex have capacities of 840,000 barrels and 800,000 barrels, respectively, ranking second and fourth in the world for a single plant. Korean refiners leverage economies of scale to lower production unit costs.
Buoyed by this, petroleum products refined domestically have become one of Korea's five main export items. In 2025, petroleum products exported during the year totaled $45.5 billion, ranking fourth among export items after semiconductors, automobiles, and general machinery.
From January to March this year, despite restrictions on petroleum product exports due to the U.S.-Iran war, export value increased as international petroleum product prices rose, making it the No. 3 export item. Even oil-producing countries such as the United States and Australia buy petroleum products from Korea.
Japan, by contrast, has seen its refining capacity decline significantly. According to the Petroleum Association of Japan, the daily petroleum refining capacity of 19 refineries in Japan is 3,110,400 barrels, less than Korea's. Until the 2000s, Japan's refining capacity was about 5 million barrels per day, far outpacing Korea.
Over the past 20 years, Japan has implemented policies to reduce dependence on oil. To prevent a decline in profitability due to lower operating rates at refining facilities, it also deliberately cut refining units. On top of that, facilities have aged. The share of upgrading units is lower than Korea's.
Japan instead has a strength over Korea in crude stockpiles. According to the U.S. Energy Information Administration (EIA), as of last December, Japan held 263 million barrels of crude reserves, the third largest in the world. While it falls short of China, which boasts the world's largest crude reserves at 1.397 billion barrels, and the No. 2 United States at 413 million barrels, it is more than triple Korea's 79 million barrels.
In this context, Japan's oil demand has been steadily declining. The International Energy Agency (IEA) tallied that Japan's oil demand peaked between April 1999 and March 2000 and has since fallen more than 40%. It also projects demand will drop another 40% by 2050. If Japan maintains its current stockpiles, by 2050 it would be storing about 350 days' worth of domestic consumption.
Judging that it is becoming more difficult for individual countries to secure energy security on their own, Japan has viewed cross-border sharing and securing of refining capacity as a pan-Asian solution. Prime Minister Sanae Takaichi named this "POWERR Asia" and unveiled it on Apr. 15. POWERR Asia is short for "Partnership on Wide Energy and Resources Resilience."
POWERR Asia includes about $10 billion in financial support from Japan to the Association of Southeast Asian Nations (ASEAN) region. That amount could purchase crude and petroleum products equivalent to about 1.2 billion barrels and corresponds to the region's one-year import volume. POWERR Asia also focuses on building new crude storage facilities and establishing a joint response framework for emergency crude releases.
Nikkei said, "Japan has the capability to produce most petroleum products, so it only needs to focus on procuring crude," while adding, "Japan also faces a naphtha shortage, producing only about 40% of demand domestically, so a pan-Asian approach, including sharing and complementing refining capacity across borders, is a rational solution."