Prolonged coronavirus impact exposes cracks among Asia, Oceania refiners

Singapore — An extended period of coronavirus-related oil demand destruction has exposed weaknesses in Asia and Oceania refineries, with a slew of fuel producers in the region reviewing 2020 operation plans in the face of falling margins and fast filling onshore storage.

In Oceania, Australian refiners were among the hardest hit by tumbling refining margins, forcing the fuel producers to slash operating rates, though the run cuts have not been enough, industry sources noted.

In order to preserve capital, Caltex Australia's 109,000 b/d Lytton Refinery has preponed a scheduled turnaround to May, while Australia's second-largest refinery -- Viva Energy's 120,000 b/d Geelong refinery -- is also mulling changes to $100 million worth of works at its residual catalytic cracking unit, S&P Global Platts reported earlier.

On an year-on-year basis, refining margins at the respective plants have fallen by almost 50%, with March 2020 margins at Lytton Refinery and Geelong refinery reported at $4.62/b and $2.70/b, respectively, according to statements by the respective companies.

In March 2019, Lytton Refinery had a refining margin of $8.67/b while Geelong refinery had a margin of $4.90/b.

Refining NZ, which owns New Zealand's sole 135,000 b/d Marsden Point refinery, even said in a statement last week that it was conducting a "strategic review to determine the optimal business model and capital structure for its assets"

"The Strategic Review will look at opportunities to improve the competitiveness of refining operations and options to separate the refining and infrastructure assets or convert to a fuel import business model," the statement said.

Oceanic refineries -- as compared to the newer more versatile mega-refineries in China -- often need to go through extensive maintenance works in order to ensure the prolonged life of its refinery units.

CHINESE REFINERS TURN DOMESTIC

Even the more complex refineries in China are not exempt from the demand destruction overseas, and are now turning toward domestic sales.

"It is a lot better to sell domestic than export. The export market is doing very badly now," one source with an Chinese independent refiner said.

The spot domestic gasoline retail price was in a range of Yuan 4,800-4,900/mt (around $79.70-$81.36/b), market and trade sources with direct knowledge of the matter told Platts.

In contrast, the price of FOB Singapore 92 RON gasoline, the most liquid gasoline benchmark in Asia, was assessed at $19.66/b at the 0830 GMT close of Asian trade Thursday, Platts data showed

The hefty increase came as most independent refineries benefited from a strong pickup in retail domestic gasoline and gasoil prices, even though international benchmark crude and fuel prices plunged.

Under China's current oil product pricing mechanism, Beijing sets retail gasoline and gasoil ceiling prices every 10 working days in line with international crude prices when they are in a range of $40-$130/b.

If crude prices fall below $40/b, the government keeps the oil product retail price ceiling at the level corresponding to $40/b without further cuts.

FILLING STORAGE PRESSURES REFINERS

For other refiners, fast filling onshore storage facilities have spurred requests for government intervention.

Vietnam is home to 148,000 b/d refinery at Dung Quat and 200,000 b/d refinery at Nghi Son. "Stockpiles of gasoline have risen to more than 90% of storage capacity," state-owed PetroVietnam said in a proposal last week, seeking Vietnam government's help to curb imports of oil products.

In South Korea, state-run Korea National Oil Corp is expected to lease part of its storage tanks for local refiners to help ease their storage facilities' shortage, Platts reported earlier.

Already, the country's top refiner SK Innovation said it has agreed to rent a total 1.8 million barrels of storage in Seosan from KNOC for three months starting April to store excess oil amid fuel demand destruction caused by the coronavirus pandemic.

Even Indonesia's state-run Pertamina, the largest buyer of gasoline in Southeast Asia, had announced ample stocks.

Pertamina's inventories of gasoline products was last reported in early April to be "at a safe level above 22 days," it said previously in an official statement.

The company has decided to halt some of its refinery operations, as importing oil products is seen more economical than producing fuel domestically amid poor refining margins, while fuel demand is expected to trend lower as economic activities slow down.

Pertamina said it plans to slash run rates at its 260,000 b/d Balikpapan refinery complex in East Kalimantan gradually before shutting it completely to carry out unplanned maintenance in May.

Reflecting the build in supplies, commercial onshore light distillate stocks in Singapore -- Southeast Asia's largest oil trading hub -- has stayed firmly above the 16 million mark for two consecutive weeks. The stocks were at 16.273 million barrels in the week ended April 22, after edging down from a 13-month high of 16.476 million barrels the week before, Enterprise Singapore data showed.