Singapore — The Asian gasoline market is quickly approaching a new stage in its supply-demand landscape, with the growing possibility of more refinery closures in Southeast Asia and Oceania set to open new outlets for motor fuel exporters.
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The concerns of closures comes amid a difficult year for regional refiners, who against a backdrop of a massive coronavirus led-demand destruction for most of 2020, face the challenge of a slow and uneven recovery across Asia for the motor fuel.
Demand for gasoline in Asia is set to contract by 525,000 b/d in 2020, only recovering fully in 2021, according to S&P Global Platts Analytics. Most of the recovery would stem from a bounce in demand from China and India, rather than major gasoline importing countries across Southeast Asia such as Indonesia.
Asian gasoline demand is expected to increase from 7.6 million b/d in the third quarter to 7.8 million b/d in Q4 as driving activity could pick up during the festive season, especially in India. However, Asia's Q4 demand will still be down year on year by 45,000 b/d, JY Lim, oil markets adviser at S&P Global Platts Analytics, said.
Reflecting the difficult refining landscape, Petron's 180,000 b/d Bataan Refinery is mulling a permanent shut, should an agreement regarding crude oil import taxes between the Philippines government and the country's sole refinery fall through, Petron's president and CEO Ramon Ang said in early October.
The closure of the Bataan Refinery followed an announcement by Pilipinas Shell Petroleum Corp earlier this year, that the 110,000 b/d Tabangao refinery will transform into an oil import terminal.
Like the refineries in the Philippines, the fate of plants in Oceania are also uncertain, with Australia and New Zealand rapidly losing the ability to produce their own fuel.
New Zealand's 135,000 b/d Marsden point refinery will run at two-thirds of its total operating capacity throughout 2021, so as to maintain a cash neutral position amid ongoing discussions on plans to shift to an oil import terminal.
Meanwhile, BP Australia said on Oct. 30 that it plans to shut its 146,000 b/d Kwinana refinery in Western Australia and convert it to a fuel import terminal. Australia's 120,000 b/d Geelong refinery is also mulling closure, following a $49.4 million loss in H1, Platts reported previously.
CHINA TO BE KEY BENEFICIARY
As more outlets begin to open for motor fuel producers, Chinese refiners are aiming to lift gasoline exports to at least around 4 million mt in Q4, up 14% from 3.51 million mt exported in Q3, according to light and middle distillate traders and fuel distributors based in Singapore, China and Hong Kong surveyed by Platts.
However, not all refiners are set to benefit equally with Chinese refiners being the most well placed to accommodate the additional outlets.
For one, Chinese state-owned refiners have proven their ability to weather periods of prolonged weak regional margins, with a strong post-lockdown domestic demand helping to sustain refinery economics.
"[Domestic consumption] has more than made up for the loss earlier in the year. Although it was not as strong as previously expected due to floods, and second wave issues, the [domestic] market was still far stronger than majority of Asia," one China-based source said.
Second, Chinese refiners are flexible enough to produce gasoline that meet a myriad of specifications across Asia, enabling ease of entry into new outlets.
This competitiveness was demonstrated in mid-September when PetroChina International, the trading arm of state-owned PetroChina, announced the delivery of more than 50,000 mt of gasoline meeting Euro 5 standards to Pakistan, filling the supply gap for low sulfur gasoline brought about by the country's abrupt change to Euro 5 motor fuel.
SOUTH KOREAN SUPPLY
On the contrary, South Korea -- one of Asia's major fuel exporters -- may not be able to take full advantage of new emerging sales outlets as its major refiners continue to slash crude runs and refined product output due to tepid refining margins.
"South Korean refiners would do their best to supply oil products to the Philippines, Australia and New Zealand as they are rapidly losing self-sufficiency, but fuel exports to those countries would be limited because of lack of production volume," according to a market research manager at Korea Petroleum Association based in Seoul.
SK Energy's average refinery run rate dropped to 76% in Q3, which marked the lowest-ever level, compared with 94% in the same period last year, a company official said.