Why is there a 240-day supply of crude oil, but only 2-3 weeks of naphtha?
Naphtha is a basic raw material for petrochemical products, but it is not suitable for long-term storage. Due to its high volatility and tendency to degrade, domestic inventory is limited to just a few weeks of operational stock.
Even in emergencies, naphtha stocks are limited, so the reality is that supply risks are managed by mutually exchanging intermediate products like polyethylene.
This structure, which prioritizes the diversification of procurement and supplementation through intermediate products over stockpiling, stems from the fact that naphtha is a 'chemical raw material' rather than an 'energy source.' So, how does this specific mechanism work? We will look at it in detail below.
The reality of this situation is clearly shown by domestic naphtha operational inventory. The amount is only enough for 2 to 3 weeks.
The background to this is the legal status of naphtha. In Japan, naphtha is classified as a 'petrochemical raw material' rather than a 'fuel,' so it is not subject to national stockpiling like crude oil or other petroleum products. As a result, companies only hold the minimum operational stock necessary to maintain operations.
In situations where the risk of supply disruption increases, such as rising tensions in the Middle East, this figure of 2 to 3 weeks appears to be a fatal vulnerability. However, the essence of the problem is not that it is 'not stockpiled,' but that it 'cannot be physically stockpiled.' Why can't naphtha be stored? The reason lies in the chemical properties of the material itself.
The reasons why naphtha is not suitable for long-term storage can be summarized into three main physical and chemical barriers.
First is its high volatility and explosion risk. It has a wide boiling point range of 35–180°C and evaporates easily even at room temperature. Storage outside of sealed, dedicated tanks is extremely dangerous, and there are significant facility constraints.
Second is the progression of oxidation and polymerization reactions. After a few months, the lighter components evaporate, changing the composition and making it unable to meet the strict specifications required for petrochemical raw materials. Unlike fuel, quality standards for chemical raw materials are strict, and even slight changes in composition are not tolerated.
Third is the formation of rubbery deposits. As degradation progresses, discoloration and deposits occur, making it impossible to feed into the plant.
In other words, naphtha is a material that turns into something 'unusable' the longer it is stored. This characteristic is the fundamental constraint of any stockpiling strategy.
The storage constraints of naphtha become even clearer when compared to other petroleum products.
The recommended usage period for heavy oil is about 3 months, and for kerosene and diesel, it is about 6 months. In contrast, naphtha is equal to or less than that, and is a light mixture classified as having 'extremely high' volatility. Its properties are fundamentally different from heavy oil, which is difficult to evaporate due to its high viscosity, and kerosene/diesel, which have moderate stability.
The difference in usage is also important. While heavy oil, kerosene, and diesel are designed as fuels, the main use of naphtha is as a petrochemical raw material. If it were fuel, some quality change would be acceptable, but as a chemical raw material, naphtha requires precision in composition, so its tolerance for degradation is extremely low.
As a result, naphtha is the lightest and most volatile of similar petroleum products, leading to the conclusion that long-term stockpiling over several years is practically impossible. This is not an operational choice, but a structural constraint derived from the essence of the material.
If a company were to try to stockpile large amounts of naphtha, it would face three walls.
The first is the 'cost wall.' To safely store highly volatile naphtha, massive capital investment and maintenance costs for large-scale cooling, ventilation, and explosion-proof equipment are required. Furthermore, evaporation loss during storage directly pressures profits as a shrinkage cost.
The second is the 'regulatory wall.' Extremely strict management obligations are imposed by the Fire Service Act and the High Pressure Gas Safety Act. As the amount of stockpiling increases, legal compliance costs and management burdens increase proportionally.
The third is the 'quality wall.' The raw material specifications required by the plant side are strict, and degraded naphtha cannot be used as is. There is a risk that disposal or reprocessing will be necessary, turning the act of stockpiling itself into a loss.
With these three walls overlapping, increasing inventory at the corporate level becomes an economically irrational choice. The fact that it is not stockpiled is not due to negligence, but the reality of being placed in an environment where stockpiling is structurally unfeasible.
The idea that 'we should just release the national crude oil stockpile' seems rational at first glance, but the reality is not that simple.
Japan's national crude oil stockpile is of a considerable scale, equivalent to about 240 days. However, even if crude oil is refined, the proportion obtained as naphtha is only 10–20%. The vast majority is produced as gasoline, kerosene, diesel, and heavy oil.
Furthermore, in an emergency, securing fuel that is directly linked to maintaining infrastructure such as transportation, heating, and power generation becomes the top priority. There is an upper limit to refining capacity, and there is structurally little room to prioritize increased production of naphtha.
In other words, while the release of crude oil stockpiles may function as a response to fuel shortages, it cannot be a fundamental solution to naphtha shortages. Between the fact that 'there is a stockpile' and the conclusion that 'the necessary raw materials can be secured' lies the reality of the refining process and yield rates.
Based on these constraints, the industry has adopted a paradigm shift in stockpiling from 'upstream to midstream'.
While inventory of naphtha (liquid raw material) is limited to 2–3 weeks, by holding it in the form of derivatives and intermediate products (solids) such as polyethylene and polypropylene, an inventory level of 2–4 months can be secured. Solid products have stable quality and significantly lower storage costs. It is a shift in thinking to buy time as already processed solid products rather than simply accumulating unstable liquid raw materials that have high degradation risks and storage costs.
This is not just a matter of inventory management. By moving the starting point of stockpiling from 'raw materials' to a 'stage closer to finished products,' it forms the core of the industry's overall resilience strategy to respond to supply disruption risks while avoiding physical and economic constraints.
To summarize the above, the structure of supply risks surrounding naphtha can be condensed into three insights.
First, physical limitations. Due to its high volatility and degradation characteristics, naphtha is structurally unsuitable for long-term storage over several years. This is not a decision-making problem, but a constraint derived from the essence of the material.
Second, unrealistic stockpiling. Due to the triple wall of costs, safety regulations, and quality maintenance, accumulating large amounts of inventory in its raw state is economically and legally unfeasible. The idea that 'it will be solved if we stockpile' does not apply to this material.
Third, optimization through a midstream shift. The strengthening of the supply chain is guaranteed by the utilization of midstream product (derivative) inventory and the diversification of procurement sources. 2–4 months of intermediate product inventory is the realistic solution for a stockpiling strategy.
The problem of naphtha boils down to the question of how to design the 'form' of the stockpile, not the 'amount.' How can we ensure resilience across the entire supply chain while accepting the constraints of the material as a given? That is the answer that this industry has been quietly practicing.