JAPAN OIL INDUSTRY DECONTROL MAY LEAD TO MERGERS Deregulation of Japan's oil industry could mean hardship for smaller firms and lead to their merging into bigger refining and marketing groups, industry sources said. They said the relaxation of controls was now under review by the Petroleum Council, an advisory panel to the Ministry of International Trade and Industry (MITI). A spokesman for a major firm said, "Deregulation would bring about a reorganization. If it's a by-product of freer competition, we have no choice but to accept it." The Council is due to close its discussions on June 12. The sources said the Council was likely to tell MITI it should end its 50 year-old protection of the industry. It should cut capacity to 3.8 mln barrels per day, about 75 pct of current capacity. Quotas should end for crude throughput and gasoline output, and oil tariffs should be abolished. They said deregulation was vital to promote more competition and efficiency, and most saw it as inevitable. "Deregulation is taking place everywhere. Now it's our turn to see if we can survive cut-throat competition," said a source at one major Japanese oil company. A spokesman for a smaller refiner said, "We'll have a hard time surviving, but that's something we must go through." "In addition to our streamlining and efficiency programs for the oil division, we will exert efforts towards branching out further into other lines such as real estate and travel agencies," he said. Larger companies are also streamlining. Nippon Oil Co Ltd which had the largest share of refined products sales in the Japanese market in fiscal 1985, cut nine pct of its refining capacity in fiscal 1986. Cosmo Oil Co Ltd, the third largest seller of oil products in 1985, cut its workforce by some 20 pct last year, a spokesman for the company said. Between 1984 and 1986, on the recommendation of the Council, 13 oil companies were integrated into 11 companies within seven refining and marketing groups to improve the efficiency of the industry. Oil industry sources said this structure was now likely to be streamlined further into five refining groups. "MITI means business. It will urge the major seven groups to merge into five to build up their muscles," a source said. A MITI official told Reuters he did not rule out the possibility of further mergers within the Japanese oil industry in the event of the relaxation of oil controls. He declined to officially confirm or deny that the Petroleum Council had recommended deregulatory measures but said that in principal MITI would encourage a move towards deregulation.