Study: Chinese, Indian refining to grow; region looks to Mideast for crude

By OGJ editors
HOUSTON, Dec. 16
-- Refineries for national oil companies (NOCs) in China and India continue to expand capacities as 2010 closes. Japanese refiners, on the other hand, are heading into a second round of capacity reductions. These are among the conclusions in a study of Asian refining released today by FGE-FACTS Global Energy, Honolulu.

The study also said up to 5 years will pass before any new major capacity will be commissioned by Asian refiners, securing crude from the Middle East is becoming more important for Asian refiners, and conversion capacity is added far more quickly than primary distillation capacity in the Asia Pacific.

FGE-FACTS said China will add about 6 million b/d of new refining capacity from the start of 2010 to yearend 2020. Chinese NOCs’ investment in refining is not entirely driven by refining economics, and they have the financial resources and strategic intentions to make their planned refineries become reality.

Indian state refiners also have firm plans to expand refining capacities to meet domestic demand growth, said the study, while Essar Oil, a key Indian private company, will carry out its Vadinar Phase II expansion for export.

On the other hand, Japanese refiners JX Group, Idemitsu, and Showa Shell have announced plans to close 600,000 b/d of refining capacity to meet an ordinance from Japan’s Ministry of Economy, Trade, and Industry promulgated under the July 2009 law. The ordnance requires refiners to meet a cracking/crude-distillation-unit capacity ratio of 13% or higher by March 2014.

TonenGeneral Group (ExxonMobil) and Cosmo Oil’s strategies to meet the ordinance are key to the country’s industry reorganization, says the FGE-FACTS study. If all refiners follow the METI ordinance, 1.1-1.3 million b/d of refining closures in Japan are likely by 2014.

The study also says that 4-5 years’ breathing space is in store for Asian refiners, since no new major capacity is scheduled for commissioning before 2015. As a result, the refining surplus in Asia will shrink. Refining margins, however, will drop sharply again as new large complex Middle Eastern export refineries start to come online after 2015.

Supply source
Indeed, says the study, securing crude supplies from the Middle East is becoming increasingly important for Asian refiners’ profitability and survival. A large mismatch between Asian refiners’ designed crude slates and additional availability of Middle Eastern crudes, especially after 2015, is likely, as Middle East export refineries start to come online.

Asian refiners may need to compete with each other for Middle Eastern crudes; some will be forced to use sub-optimum crudes. Also, the light, heavy, and sweet-sour crude differentials will narrow.

At the same time, conversion capacity is being added far more quickly than primary distillation capacity among Asia-Pacific refiners. As a result, light-heavy product and light-heavy crude differentials will be lower.

A larger surplus in transportation fuels and larger deficit in fuel oil will create opportunities for trading companies based in Singapore.

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