Australia to keep seeking alternate sources of gasoline as S Korean exports slow

Singapore — Australian buyers of gasoline are increasingly looking for cargoes from alternate sources as the availability of barrels from traditional sources, such as South Korea, dry up, while domestic demand begins to recover amid easing restrictions.

The move comes as Australia -- who imports more than 60% of its gasoline and gasoil requirements -- is starting to see a gradual recovery in domestic motor fuel demand, with easing of the second round of lockdown restrictions helping to raise both driving and industrial activity throughout the country, industry sources said.

The pick-up on the former evidenced with mobility data from Apple showing driving activity resurfacing to almost 10% above baseline levels in late-October, up from the range of 10%-20% below baseline levels seen in August and September.

"Australian gasoline demand is getting better. The [COVID-19] virus look more under control. Restrictions have eased," one Singapore-based source said.

Against this backdrop of recovering demand, South Korean refiners have lowered the availability of cargoes due to poor refining margins.

Motor fuels exports from South Korea in the fourth quarter are expected to total around 60 million barrels, down 14% from a year earlier and 9% lower than Q3, fuel marketing sources at SK Innovation, S-Oil Corp., GS Caltex and Hyundai Oilbank surveyed earlier by S&P Global Platts said.

"Refining margins and domestic demand is not that great to justify raising run rates back to 100%," one source with a South Korean company said.

"The South Koreans had lesser barrels to show in October. So the Australians have been forced to look elsewhere for cargoes," a second gasoline trader said.

Agreeing, another industry source said that "the low-freight environment has been helpful. The Australians can grab cargoes all the way from India without much worry."

With limited South Korean cargoes being limited, Australian buyers have started to raise import volumes from other sources.

Australia was even recorded to have taken in 318,347 mt, 285,977 mt and 245,928 mt of gasoline from India, China and Indonesia, respectively, in August, in contrast to none the year before, latest data from the department of the Environment and Energy showed.

Even smaller suppliers have seen increases, with gasoline imports from Malaysia and Japan jumping 51.8% and 175.2% month on month, respectively, as well.

DOMESTIC REFINERS KEEP OUTPUT LOW

At the same time, Australian refiners are hesitant to raise domestic run rates in light of increased demand, as poor refining margins are still pressuring refiners.

Refining margins for Australia's second-largest refiner, Viva Energy for example, averaged $2.30/b in the third quarter of 2020, down from the $2.90/b average in H1 2020 and sharply lower than the $6.60/b average in 2019, according to data from the company.

The persistently poor refining margins, a result of prolonged bearish regional supply-demand fundamentals across the barrel, had even spurred the refiner to "evaluate the future viability" of operations at its 120,000 b/d Geelong plant, according to a mid-October statement from the company

In addition to Viva, Ampol in early October announced the start of a "comprehensive review" of its 109,000 b/d Lytton refinery, with the possibility of turning the facility into an import terminal.

"Australia's imports of key products are set to rise with the closure of BP's Kwinana refinery, particularly for gasoil due to demand from the mining sector in the west coast," JY Lim, Oil markets adviser at S&P Global Platts Analytics said.

"As we have seen in the other countries across the world. [Recovery of motor fuel] demand post-restrictions comes back a lot faster than output increases. Imports are one way to pick up the slack," another trader added.

Demonstrating the divergence between output and demand in the long term, production of petroleum products in Australia has been forecast to fall by 1.2% in the fiscal year 2020-21 (July-June), while consumption recovers to grow by 3.3% over the same period, data from the Australian Department of Industry, Science, Energy and Resources showed.

Over the same period, imports of petroleum products is set to jump by 8.7%, in fiscal 2020-21, up sharply from the 0.3% contraction a year earlier, the data also showed.