(EnergyAsia, August 23 2012, Thursday) — As a result of a growing gasoline glut through 2015, Asian refineries will favour producing diesel and gasoil, said energy consulting group Wood Mackenzie.
A global surplus of gasoline reduces the export opportunity for Asian refiners but the rising diesel shortage in the region’s emerging economies provides an opportunity for refiners to switch from producing gasoline to diesel and gasoil.
Sushant Gupta, Wood Mackenzie’s senior downstream analyst, said:
“Due to a gasoline surplus, gasoline crack spreads versus Dubai crude are expected to reduce from 2010 to 2015 while diesel crack spreads are expected to strengthen from US$15.8 per barrel in 2010 to US$20.3 in 2015.
“To balance out the market for gasoline and diesel, as well as to secure profit margins, Asian refiners need to strategically shift on an average one-percent of production from gasoline to diesel.”
With Indian state refiners continuing to report the region’s largest diesel deficits, China’s strong demand growth will become the main driver of diesel trade flows in the region by 2015.
Wood Mackenzie believes that China’s import (including Hong Kong) will rise from 50,000 b/d in 2010 to about 300,000 b/d by 2015. Chinese demand growth will largely be driven by commercial freight.
Total Asian demand for diesel/gasoil is expected to grow from 8.65 million b/d to 9.78 million b/d from 2012 to 2015.
Mr Gupta said: “Growing deficits in China, India, Southeast Asia and Australia will provide more opportunities for refineries in Singapore, South Korea, Taiwan and India to increase exports to these closer-to-home markets. We forecast a reduction of approximately 250,000 b/d in exports from Asia to the rest of the world.
“However, growing deficits for gasoil, mainly in Europe and Africa, will continue to provide arbitrage opportunities for Asian exporters, thereby creating a need for greater diesel production.”
In contrast, the gasoline market will experience a growing surplus, with Asia’s gasoline surplus rising by 70,000 b/d from 2010 to 2015 mainly due to upgrading investments in Taiwan and South Korea, which will boost exports out of Asia.
However by 2015, Indian private refiners led by Reliance, and Singapore refiners will see a combined 140,000 b/d reduction in demand for their gasoline as their key markets in US, Iran and UAE become more self-sufficient.
As a result, Wood Mackenzie expects increased competition for market share among India, Singapore, South Korea and Taiwan refiners.
Mr Gupta said: “Refiners may face some challenges around the flexibility to switch yields with limitations around refinery configuration; crude slate for the refinery; overall economics of making this shift; and investment justifications needed to increase the flexibility. However in a situation where a refiner is unable to find markets for surplus gasoline and is unable to switch yields, its utilisation rates could come under pressure and affect profit margins.”