Commodities 2021: Asian gasoline facing fragile new year as COVID-19 impact lingers, supply transitions

The Asian gasoline market is facing a fragile 2021, plagued by issues on the demand side carried over from 2020 while grappling with a wave of fresh supply from new outlets in the region while more refinery closures loom on the horizon.

The pace of recovery from the pandemic will be the primary focus in early 2021 as the strength of regional gasoline demand for transportation hinges on the development, distribution and effectiveness of newly available vaccines.

Malaysia has secured 12.8 million doses of Pfizer's vaccine, while other Southeast Asian net importers of gasoline such as Myanmar, Indonesia and the Philippines have also laid out plans to roll out nationwide vaccination programs in 2021.

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However, while this could put Asian on track to return pre-pandemic demand levels in 2021, attaining the required level of vaccine production, distribution and community immunization will prove the biggest challenge of the year, and the recent emergence of highly infectious variants of the coronavirus have cast a shadow of uncertainty over the roadmap to recovery.

"Some Asian countries are seeing more daily cases of coronavirus and they have to be watched closely as the pace of the outbreak will have a direct bearing on the regional economic outlook and thereby oil demand," said JY Lim, oil markets adviser at S&P Global Platts Analytics.

Platts Analytics expects Asia's gasoline demand to bounce back in 2021 and be 1% higher than in pre-pandemic 2019, driven by economic recoveries in China and India.

NEW OUTLETS FOR NON-OXY SELLERS

Potential refinery closures in Asia will also drive the motor fuel complex in 2020, opening up new outlets for export cargoes, particularly for sellers of non-oxygenated gasoline.

Australia and New Zealand will be in focus, with most, if not all, of their domestic refineries signaling intentions in 2020 to either operate at low rates or shut down and be converted into import terminals.

Australia's BP's 146,000 b/d Kwinana refinery in Western Australia announced plans Oct. 30 for conversion into an import terminal, while the 120,000 b/d Geelong refinery in southeastern Victoria narrowly avoided the same fate after being thrown a seven-month financial lifeline extension by the federal government.

New Zealand's 135,000 b/d Marsden point refinery announced it will run at only two-thirds of its total operating capacity throughout 2021 to maintain a cash-neutral position amid ongoing discussions over its plans to covert to an import terminal.

In Southeast Asia, the importance of the Philippines as a gasoline importer will increase as the country becomes solely dependent on gasoline imports from mid-January due to the indefinite shutdown of Petron's 180,000 b/d Bataan Refinery. The country's second refiner, Pilipinas Shell Petroleum Corp, announced the closure of its 110,000 b/d Tabangao refinery in May and plans to transform it into an import terminal.

MORE SUPPLY FROM ASIA, EUROPE

But even as some regional refineries face an uncertain future, supply-side risks remain in 2021, stemming from both the continued expansion of refinery capacity in Asia and the possible opening of arbitrage opportunities from Europe.

Malaysia's PRefChem is scheduled to start up its new 300,000 b/d refinery in the first quarter of 2021, with successful operations potentially diminishing the country's import appetite for high-octane gasoline products.

China's Zhejiang's Petrochemical or ZPC is also expected to start up its new 400,000 b/d phase 2 units in Q2 2021.

Like other similar mega refining complexes in China such as Hengli Petrochemical Refinery and ZPC's phase 1 units, ZPC's phase 2 units will be expected to operate at rates of over 100% upon commencement of operations, quickly channeling oil products into the domestic market, market sources said.

"If the independents [Hengli and ZPC] get export quota next year, we will see another wave of Chinese gasoline exports that will weaken the [Asian gasoline market]," one Singapore-based trader said, adding that "after receiving [1 million mt] quotas in December, ZPC has been aggressive in its exports."

Overall, Asian CDU capacity additions are expected to total 480,000 b/d over 2021-2022, representing 40% of new global refinery capacity over the period, according to Platts Analytics.

In addition to new Asian capacity capping the upside for Asian gasoline prices, an even weaker European gasoline market will pose a threat to Asia in 2021, with European refiners keeping a keen eye out for arbitrage opportunities.

"The cargoes come when Europe faces new lockdowns; refineries have to find somewhere to send their barrels. They can't send to the US due to the US having even worse demand. Therefore Asia will be the only outlet," a Singapore-based trader said.