(EnergyAsia, December 31 2014, Wednesday) — The Middle East will deal another blow to the world’s crumbling oil markets next year as it starts up giant refineries to boost net exports of products by nearly one million b/d, compared with less than 400,000 b/d last year.
According to the International Energy Agency (IEA), the Middle East will expand its primary refinery capacity from 7.8 million b/d in 2013 to 9.3 million b/d next year. The added capacity of nearly 1.5 million b/d will far exceed the region’s oil products demand growth of 600,000 b/d over the 2013-2015 period, forcing its refiners to sharply raise exports.
“The configuration of the plants, designed to maximise diesel production, seems somewhat at odds with market trends that in recent months have shown stronger demand growth for gasoline and jet fuel than for middle distillates,” said the IEA.
Saudi Arabia’s product exports have surged since the start‐up of the Saudi Aramco-Total 400,000 b/d Jubail refinery in September 2013, with further increases expected next year, said the IEA. According to the multilateral Joint Organisations Data Initiative (JODI), the kingdom’s diesel exports have more than doubled to 195,000 b/d in the first seven months of this year compared with the same period in 2013.
Aramco’s other 400,000 b/d Yanbu plant, co‐owned with China’s Sinopec, is undergoing test runs, with full operation expected in early 2015, while the UAE’s new 420,000 b/d Ruwais refinery is expected to start up shortly.
The arrival of three large refineries could not have been timed worse for the global oil markets which have been reeling from a crude supply glut that has caused prices to crash by nearly 50% since June.
“The current economic and oil‐demand picture is quite different from what was envisaged at the time when they got underway in the mid‐2000s. Not only was oil demand expected to be higher, but the make‐up of the demand barrel has also changed,” said the IEA.
Since the financial crisis of 2008‐09, the economic slowdown has had a more marked impact on the demand for mid-distillates compared with gasoline and other products.
“Diesel demand has also been adversely affected by subsidy reductions in key non‐OECD markets, such as India, and concerns over local pollution levels and a slowdown in diesel sales in key markets such as France, have also been stemming growth.”
The three refineries are heavily focused on diesel production. When fully commissioned, they will produce as much as 800,000 b/d of ultra low sulphur diesel (ULSD) and jet fuel.
Citing the companies and market estimates, the IEA said Jubail has the capacity to produce 235,000 b/d of ULSD diesel while Yanbu will produce 260,000 b/d of ULSD and 90,000 b/d of gasoline and Ruwais will produce an additional 175,000 b/d of diesel and 85,000 b/d of jet fuel. Regional distillate demand growth, meanwhile, is forecast to grow by less than 100,000 b/d per annum in 2014 and 2015.