By ERIC YEP
SINGAPORE -- Asia's oil refining sector is getting too
crowded for comfort.
Persian Gulf oil producers are building strings of big
refineries both at home and across Asia challenging
long-established Asian refiners in local and global fuel
markets thanks to their guaranteed and relatively cheap
crude-oil supplies and to geographical advantage.
Among the first of these new refining behemoths to start
pumping out gasoline, diesel and other products will be a
400,000 barrel-a-day joint venture project at Jubail in Saudi Arabia
owned by Saudi Arabian Oil Co., or Saudi Aramco, and Total.
Output will start within three months.
Companies in the firing
line include India's Reliance Industries,
Taiwan's Formosa Petrochemical, South Korea's SK
Innovation Co. and S-Oil Corp. and those in Singapore's oil refining and trading hub where
ExxonMobil, Shell and Chevron have major investments.
"Intense competition is expected between India, Singapore,
South Korea and Taiwan refiners to retain their existing
markets and capture new ones," Sushant Gupta, Wood Mackenzie's
senior downstream analyst, says.
Australia, Latin America and East Africa may absorb some of
the surplus, and so can India, China and Southeast Asia if
economic growth there accelerates further, but even so the risk
of oversupply, and eroding margins, is very real for Asian
Three more supersized 400,000 bpd refineries are being
readied in the Gulf region alone -- one at Ruwais in the United
Arab Emirates by 2015, a Saudi Aramco-Sinopec Group joint
venture one at Yanbu on the Red Sea by 2017, and another Aramco
one at Jazan, also on the Red Sea.
"Countries in the Middle East now have a strategy to
diversify from exporting only crude oil to exporting
value-added oil products," said London-based Salar Moradi, oil
market analyst at FGE. Saudi Arabia's imports of gasoline,
diesel and fuel oil averaged around 315,000 bpd in 2012, worth
$35 million-$40 million a day at current prices.
This key market will slip away from refiners like Reliance
Industries, which operates the world's largest refining complex, at Jamnagar in
Saudi Aramco, Kuwait Petroleum Corp., Qatar Petroleum
International and Russia's Rosneft and Venezuela's PdVSA are
all building new joint-venture refineries in China which will
displace imports and allow greater volumes of exports. Kuwait
Petroleum International, PetroVietnam and Idemitsu Kosan Co.
have agreed to build a relatively modest 200,000-bpd unit in
Vietnam, which will trim that country's needs for imports.
Further capacity will come from other refineries planned by
Indonesia, India and China, among others, with
many of these due to be producing only a few years out. China
alone is expected to add around 750,000 bpd of refinery capacity both this year and
next, JP Morgan said.
Asia's diesel exports to Africa, the Middle East and Latin
America in 2011 totaled 308,000 bpd, while gasoline exports to
Middle East alone amounted to 90,000 bpd, Wood Mackenzie's Mr.
Gupta said, in a reference to possible lost sales and market
share due to new Gulf and Asian refiners.
Reliance Industries, SK Energy, Formosa and other Asian
companies have enjoyed strong refining margins -- the price
difference between crude-oil and refined products -- as demand
has exceeded supply for three consecutive years, but the
outlook isn't rosy.
"Asian Singapore complex FCC margins are likely to drop from
around $10/bbl currently to $8-$8.5/bbl by 2015," Mr. Gupta
A spokesman for SK Energy, South Korea's largest refiner by
volume, agreed that margins will be pressured lower by new
Middle East units, but he declined to elaborate.
Chevron's investments to improve reliability, efficiency and
flexibility at its joint venture refineries in Korea, Thailand
and Singapore will ensure that they "continue to remain
competitive in the longer term," spokesman for the company
It is not alone in spending to head off competitors.
Reliance Industries plans to trim operating costs to levels
that can compete with the Middle East, and it is building to
convert a refining byproduct to gas, which
will boost margins by $2-$3/bbl, Macquarie Bank said in a
Reliance, Formosa, and Shell and ExxonMobil didn't respond
to questions about the implications of the refinery construction boom.
"Nervousness about Saudi Arabia's increased self-sufficiency
has driven traditional supplying refineries in Asia to seek
sanctuary in longer-term contracts," said Priya Narain
Balchandani, an analyst at Standard Chartered. Asian refinery margins will hold up in the
near- to medium-term but downside risks loom if refineries
don't adjust their volumes, she said.
Dow Jones Newswires