Fuel juggernaut coming as Saudi backed Petronas refinery starts


Opec

SEOUL: As China sends a flood of fuel abroad, a giant project in Southeast Asia that’s backed by Saudi Arabia is set to add to the regional deluge.

State-run Saudi Arabian Oil Co. is helping finance a $27 billion refinery and a petrochemical complex in Malaysia’s southern state of Johor. 

The project, known as Refinery and Petrochemicals Integrated Development, or RAPID, will add a new stream of fuels near Asia’s main oil trading hub of Singapore at a time when China continues to unleash record amounts of diesel and gasoline onto the global market.

“The immediate impact from RAPID will lead to more Malaysian exports of diesel and jet fuel, while also reducing the need to import as much gasoline,” said Joe Willis, a senior research analyst for refining and oil products at Wood Mackenzie Ltd. in Singapore. “For middle distillates, Johor is conveniently located next to the Singapore storage hub.”

A renaissance in diesel, also known as gasoil, had underpinned oil’s rally into a bull market last year, and profits from making the fuel have rebounded to near their highest level since November 2014 on the back of healthy global economic growth. 

Still, concern is growing that China’s unprecedented levels of exports as well as the additional shipments from Malaysia may weigh on Asian refiners’ margins.

The profit from turning crude into diesel, or the so-called gasoil crack, was at $16.27 a barrel at 3:28 p.m. in Singapore on Thursday, up from an average $12.24 last year, according to data from PVM Oil Associates.

The RAPID project, operated by Malaysia’s state-owned Petroliam Nasional Bhd, known as Petronas, is due to start operations in 2019 with 300,000 barrels a day of crude-processing capacity. That’s a massive increase for the Southeast Asian country, which has a total 660,000 barrels of daily capacity now, according to Willis.

Saudi Strategy

For Saudi Arabian Oil Co., known as Aramco, the project is part of its long-term strategy of investing in Asian refineries to lock in demand for its crude in the world’s biggest oil-consuming region amid a fight for global market share. 

The Malaysian complex is estimated to export as much as 50,000 barrels a day of diesel, according to WengInn Chin, a senior oil market analyst at industry consultant FGE.

Still, Chin is hopeful the overall impact will be limited in the long-run. When RAPID reaches full utilization in early 2020, Asian refiners will be scrambling to meet a bump in appetite for the fuel as maritime rules that start in 2020 push shippers to replace dirtier fuels with cleaner ones like diesel, Chin said.

“We expect to see a surge in diesel demand, which will more than offset the production of RAPID,” Wood Mackenzie’s Willis said.

Nevyn Nah, an analyst at industry consultant Energy Aspects Ltd., is concerned about how diesel profits will be affected in the near-term. Net exports of gasoil from Malaysia are likely to exceed 80,000 barrels a day next year as RAPID starts operations, he said.

“With new mega refineries starting up in China and Saudi Arabia by the first quarter next year, there could be a brief window of weakness in diesel cracks before IMO effects kick in,” he said, referring to the upcoming maritime regulations to be implemented by the International Maritime Organization. - Bloomberg

 
Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
   

Next In Business News

CPO futures to see volatile trading next week, eyes on MPOB data
Pfizer, BioNTech seek US emergency nod for COVID-19 vaccine in adolescents
Eyes on next generation as Singapore succession is thrown into question
Oil price falls, ends week about 2% lower on supply increase, new lockdowns
BlackRock, Mustier's blank-check firm eye Credit Suisse fund management arm
GLOBAL MARKETS-S&P 500, Dow scale new heights, Treasury yields rise on strong inflation data
Mah Sing: Extend HOC until year-end
Kerjaya Prospek wins RM154mil construction job
MCMC expects DNB to open 5G tender soon
Ramsay Sime Darby Health Care acquires Manipal Hospitals

Stories You'll Enjoy


Vouchers