After years of economic malaise spurred a wave of cutbacks, closures and mergers, reshaping the refining industry in the world’s fourth-biggest oil using nation, Japan’s Cosmo Oil Co. is reckoning with the aftermath.

While two of its rivals combined to form JXTG Holdings Inc., and another two — Idemitsu Kosan Co. and Showa Shell Sekiyu KK — are in the process of merging, Cosmo is emerging from the revamp with its independence intact. It’s now considering buying Canadian oil for the first time ever, evaluating the upgrade of some refineries so that they are capable of processing more of such new types of crude, and looking to tie up with Chinese independent processors to jointly ferry supplies from far away.

Shares of Cosmo Energy Holdings Co., the company’s listed parent, have more than doubled over the past year, and in August posted their biggest monthly gain since debuting under a new holding structure in October 2015. While relatively weak crude prices, a gain in refining margins due to strong regional demand, and disruptions from hurricanes in the U.S. boost Asian processors’ performance, the Japanese firm is assessing how to leverage potential new sources of oil and deal with changing regulation as domestic consumption continues to shrink.

“If we get some stable supply sources from the western side of the American continent, that would be a game changer,” Hisashi Kobayashi, president of Cosmo Oil, said in an interview in Singapore. “So far we have not been purchasing Canadian crude.”

More Canadian oil is expected to be available from the country’s west coast after 2019 when Kinder Morgan Inc.’s Trans Mountain pipeline expansion project is completed. Supplies transported via the conduit to the coast would make it more economically viable for Asian refiners to then ship the supply to their plants.

Refiners in the world’s top oil-consuming region, including Chinese independent processors known as teapots, are sourcing more oil from across the world as OPEC-led output curbs limit the group’s exports and make barrels priced off Middle East benchmark crude more expensive than cargoes from other regions such as the U.S. and Europe.

Cosmo sees an opportunity there, and is in talks with teapot refineries to share vessels for crude imports, Kobayashi said, without identifying any specific Chinese companies.

The firm currently purchases 70 percent of its feedstock via long-term contracts, mostly from the Middle East. As much as half of the rest of its supply, bought on a spot basis, could be procured from places such as the U.S. and central America or met via oil that’s priced off Brent crude, as the company seeks to diversify its sources, Kobayashi said.

Cosmo is evaluating the option of investing more in its crude-distillation and coker units at the Sakai refinery, he said. This would allow the plant to refine increased quantities of heavier oil, such as barrels from Canada. In early 2018, it’s expected to complete construction of a pipeline linking its Chiba plant with JXTG’s neighboring facility, allowing the companies to integrate and take advantage of capabilities such as desulfurization and residual fuel upgrading at each refinery.

Cosmo currently operates three plants — at Sakai, Chiba and Yokkaichi — with a total combined processing capacity of 363,000 barrels a day, according to the company’s website.

The investment would also help the company meet the Japanese government’s new round of refinery efficiency targets by March 2022, and take advantage of an expected weakening of the price of heavy crude, which is typically more sulfurous, versus light supply when the International Maritime Organization imposes new quality standards on marine fuels, Kobayashi said.

From 2020, the IMO plans to limit the sulfur content in shipping fuel to 0.5 percent from the current level of 3.5 percent. The move will turn that market “on its head” and destroy 1.2 million barrels a day of demand for fuel oil — the product that’s used to power tankers — according to a note last month from ESAI Energy.

As suppliers blend lighter, low-sulfur refined products such as diesel into shipping fuel to meet the IMO’s specifications, the cost of light crude is expected to rise. Meanwhile, prices of heavier crudes that tend to yield a larger amount of dirtier, high-sulfur fuel could fall as traders struggle to find outlets for the residue.

If the company moves ahead with upgrading its coking unit, which helps break down heavier crude components into a mix of lighter oils and petroleum coke, that would enhance the company’s ability to access and process those feedstock varieties, Kobayashi said. Cosmo would find that option more feasible than buying lighter grades, he noted.

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