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Australia's 2021 refined product demand to jump amid new refinery landscape

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Australia's 2021 refined product demand to jump amid new refinery landscape

Highlights

Kwinana refinery closure to lead refining output to contract sharply

Gasoil, gasoline consumption to recover; jet fuel demand to stay tepid

Asian refiners step up to fill Australia's growing import appetite

Singapore — Australia's import demand for refined oil products is expected to record a sharp increase in 2021, as the country's domestic refiners reconsider their long term plans, while domestic consumption stays on an expansionary path.

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Over Australia's July 2020 to June 2021 financial year, its refined oil import volume is forecast to jump to 785,000 b/d, a 22.6% year-on-year increase, according to the Australian Department of Industry, Science, Energy and Resources' estimates published in its quarterly report. Over July 2019-June 2020, refined oil import volumes were recorded at 640,000 b/d, a 0.7% on the year retreat.

The sharp jump in refined oil product imports comes mainly on the back of sliding refinery production in first-half 2021 as only three refineries will be left operating in Australia in 2021 following the closure of BP's 146,000 b/d Kwinana refinery.

"The winding down of production at BP's Kwinana refinery is expected to more than offset a recovery in production at the remaining three refineries after being affected by the downturn in demand caused by COVID-19 containment measures," the report said.

The government agency expects the country's refinery production to fall for the next two years -- down 21.4% year on year to 352,000 b/d over FY2020-2021 and down 7.8% year on year over FY 2021-2022.

Due to COVID-19, Australian refinery production fell 10.9% to 447,000 b/d in FY2019-2020, the report showed.

"Over the rest of the outlook period [until June 2022], refinery throughput is forecast to remain around June 2021 levels, fluctuating in line with plant maintenance," according to the report.

CONSUMPTION TO RECOVER

Against the backdrop of sliding refinery production, Australia's refined oil product consumption is expected to stay on an expansionary path, mainly due to easing concerns over COVID-19.

The consumption recovery is to be led by gasoil amid a strong rebound in industrial activity in the country.

"[The] mining [sector] takes in quite a bit of gasoil, and that's been more or less pretty steady all through the pandemic, " an Asian gasoil trader said, adding that while gasoil demand had been impacted during the early stages of the COVID-19 outbreak in 2020, it only lasted for a brief period before recovering back to steady levels.

Gasoline consumption is also set for an uptrend as more movement restrictions are eased across the country.

Viva Energy, the current owner of Australia's largest 120,000 b/d Geelong refinery, posted an increase in gasoline sales in November 2020 at 61.7 million liters/week, up 18% from the July-September quarter and up from the 54.9 million liters per week in October, according to the company's FY2019-20 (July-June) unaudited financial guidance announced in mid-December 2020.

That said, however, the dim outlook for jet fuel is expected to cap Australian consumption moving forward, especially since international air travel stays uncertain.

"In Australia, aviation consumption accounts for a relatively high share of product usage -- about 15%," the quarterly report showed.

Nevertheless, the Australian Department of Industry, Science, Energy and Resources has forecast that in FY2020-2021, Australia's domestic consumption of refined oil products will rise to 1.016 million b/d, a 3.3% year-on-year increase, up from the 5.9% contraction over FY2019-2020.

ASIA TO BENEFIT

With Australia's dependence on imports set to increase in the years ahead, Asian refiners will likely switch their strategies to cater to this new lucrative outlet, industry sources said.

Indian refiners for one, have already stepped up marketing their oil products in Oceania, with Australia absorbing a total 1.43 million barrels of gasoline from India in October 2020, up 93.1% from September 2020, latest import statistics showed.

"We are going to see more and more of such movement in 2021. Especially since South Korean refiners are hesitant to raise run rates," one Singapore-based gasoline trader said.

Increasing exports of Chinese gasoil barrels to Australia have also been observed last year, with China's latest General Administration of Customs data showing that Australia was the top destination for China's diesel exports in November 2020.

Gasoil exports to Australia grew 22% on the month to hit an 11-month high of 509,000 mt in November, the fifth consecutive month of increase, the data showed.