Home › Business › Business News
Monday, 11 November 2013
Night view of the Shell refinery in Port Dickson. Asian refiners are expected to face weak margins for turning crude into fuel over the next five years, as China and India keep capacity well ahead of demand.
SINGAPORE: Asian oil refiners face weak margins for turning crude into fuel over the next five years, and may be forced to run plants at reduced rates as start-ups in China and India keep capacity well ahead of demand.
China and India, already with nearly half of Asia's more than 30 million barrels per day (bpd) of refining capacity, are cranking up another 2.5 million bpd this year and next that was approved a few years back to feed rapidly expanding economies.
Also racing to build plants over the next several years are countries such as Pakistan and Vietnam, driven by a desire to cut fuel imports and limit outflows of foreign currency.
The additional capacity threatens to leave refiners selling fuels into well-supplied markets as regional demand growth slows with the moderation of economic expansion, particularly in China, the world's second largest oil consumer.
Total Asian refining capacity may increase to as much as 36 million by 2018, according to estimates from five consultancies and research houses.
"In both China and India, refinery construction will actually outpace demand growth over the next four years," said Stuart Traver, technical director at Gaffney, Cline and Associates in Singapore. "In the rest of Asia, refinery additions will nearly match demand growth."
The analysts' estimates point to a capacity surplus of up to 3 million bpd by 2018 as fuel use fails to keep up.
Refining margins were at multi-month lows in October and this year have been running at some of the lowest values since late 2010, according to Reuters data.
Diesel margins could be especially poor, with up to half the capacity added in China and India focused on middle distillates. That means refinery projects or upgrades could get delayed or plants could run at low rates as companies try to balance the situation, a North Asian refining source said.
Refiners could also be forced to close older, inefficient facilities as has been done in Australia and Japan.
Vietnam plans to more than double its refining capacity by 2017 to keep up with surging demand and limit fuel imports.
Pakistan, also looking to cut its import bill, added a new plant in December last year, boosting its total capacity by more than a third. It has tentative plans to add two more refineries.
New projects are also being planned or built in Brunei, Cambodia and Malaysia, either to cut back on imports or beef up value-added export capabilities.
The new plants, and upgrades of refineries in places such as the Philippines and Indonesia, will create an oversupply of more expensive fuels since most refiners want to maximise the yield of those products to boost profits.
"If you take the entire product portfolio, (Asia) will still be sizeable in net imports but high-value fuels such as gasoline, jet and diesel will be in surplus," said Richard Gorry, managing director of JBC Asia.
Exacerbating the product overhang, OPEC members are adding about 1.8 million bpd of refining capacity over the next five years, led by Saudi Arabia, Iraq and the United Arab Emirates, according to the International Energy Agency.
The new refineries in India and China are configured to produce about 30%-50% of middle distillates, which consist mainly of diesel. That means profits from processing crude into that fuel may suffer the most, traders said.
While India could send some of its extra diesel to Europe – where weak economics are forcing refineries to close – competition from the US, Russia and Middle East could make that a challenge.
In contrast, regional gasoline demand and supply will be more balanced, primarily driven by rising car sales in Indonesia and China, analysts and traders said.
"In the longer term, we see gasoline (supplies) getting shorter, primarily driven by Indonesia," said Suresh Sivanandam, senior oil analyst at consultancy Wood Mackenzie.
Asian jet fuel production, meanwhile, may be absorbed by robust growth in air travel in countries like China and India, but fuel oil production faces a decline as new refineries add secondary units to process it into higher value fuel.
The narrowing supply deficit in many key importing countries could also hit profits for traders, who often try to capitalise on arbitrage shipments.
As importing countries get closer to self-sufficiency, it raises a "big question mark" over opportunities for traders, Sivanandam said – Reuters.
Tags / Keywords:
TNB asked to pay additional taxes for RM2.07bil
Sime’s plan to reduce RM19.7bil debt; may monetise assets, place out shares
KLCI closes marginally down
Alibaba throws a wrench in web fundraising wars
Affin Hwang eyes 10% growth in assets under management
Eight experiences you can’t miss when in Australia
The once-popular Wisma Central has a new lease on life
JDT get RM2mil bounty for winning AFC Cup
Najib expresses sorrow over SPM taker’s suicide
Copyright © 1995-2015 Star Media Group Berhad (ROC 10894D)(Formerly known as Star Publications (Malaysia) Berhad)