Middle East grows as oil consumer, product exporter

Jan. 26, 2005
The Middle East is rapidly becoming a major oil-consuming region, point out analysts at Fesharaki Associates Consulting & Technical Services Inc. (FACTS Inc.), Honolulu.

Sam Fletcher
Senior Writer

HOUSTON, Jan. 26 -- The Middle East is rapidly becoming a major oil-consuming region, point out analysts at Fesharaki Associates Consulting & Technical Services Inc. (FACTS Inc.), Honolulu.

Middle Eastern oil demand has grown at an average rate of 4%/year over the last decade. In a January report, FACTS projects growth of slightly more than 5%/year during 2000-05.

The analysts also expect the Middle East to continue to grow in importance as an export refining center.

"Essentially every country in the region plans to expand output of products from oil refining, gas processing, and gas-to-liquids projects," they said. "Multiple GTL projects in Qatar and Iran will play a crucial role in incremental output of high-quality diesel and gasoline."

LPG and naphtha will continue to represent most of the product exports, but middle-distillate exports will also grow. Gasoline exports will begin in a few years.

The rise in revenue from rising crude prices enables Middle Eastern producers to increase investments in upstream and downstream projects.

Resilient demand
Middle Eastern oil demand tends to rise as crude prices increase, when economies in the region are strong and demand elsewhere is declining.

"In general, the high prices of the 1970s and early 1980s corresponded with rapid demand growth [in the Middle East], while the price collapse of 1986 is reflected in a slump in demand," said FACTS. "During the 1986-1990 period, [Middle East] oil demand grew at an average of just 22,000 b/d/year. In contrast, oil demand grew at nearly 150,000b/d each year from 1979 through 1985—the years following the Iranian Revolution and preceding the oil price collapse."

Demand growth since 2000 has been more resilient.

"Although still sensitive to ups and downs in prices, the Middle Eastern markets are expected to continue to grow strongly throughout the coming decade," FACTS says.

FACTS expects the Middle East to add an average of 195,000 b/d of oil demand annually through 2005 from 2000. The growth will fall to 140-150,000 b/d/year from 2005 through 2010.

Regional growth rates for gasoline demand are expected to average 6%/year in 2000-2005, spurred by Iran, the largest gasoline market in the Middle East. Iranian demand is expected to grow at 10%/year through 2005.

Previously under 25,000 b/d, gasoline imports by Iran, which has been unable to increase refinery production of the fuel, topped 30,000 b/d in 2000, rose to 47,000 b/d in 2001, jumped to 79,000 b/d in 2002, and averaged 98,000 b/d in 2003. FACTS estimates Iranian gasoline imports averaged 160,000 b/d last year and predicts the average will reach 179,000 b/d this year.

The analysts expect Iran to be a net importer of diesel until 2008, when refinery additions begin operation and GTL production starts.

Lighter ends
Middle Eastern demand is steadily shifting toward the lighter end of the barrel.

Light products' share of product consumption rose to 37% in 2003 from 18% in 1980, while middle distillates' share dropped to 33% from 41% and heavy products' share fell to 29% from 41%, FACTS said.

"By 2010, we forecast that heavy products' share will continue to slide to 27%, while light products' share will rise to nearly 43% of the barrel, and middle distillates' share will level off at 30%," the analysts said.

FACTS noted that many refinery projects are planned in the Middle East, including Iraq. There, all three major refineries are due upgrades, and several grassroots projects are planned, although most Iraqi projects won't be finished until 2008-10.

"In contrast, projects will be completed in every other Middle Eastern refining country before 2008, with other projects slated for the post-2008 period," the analysts said. They cited Kuwait, where a fourth refinery is to be built to replace the 190,000 b/d Shuaiba facility by 2010. The new refinery will provide fuel oil for the power sector "in the wake of disappointing prospects in gas imports from Qatar via Saudi Arabia," the analysts said.

Iran plans several refinery projects, "including a major effort to transform Bandar Abbas [232,000 b/d] into a condensate splitting center, though the splitters are now delayed to perhaps 2012."

Crude runs and utilization rates are expected to increase in essentially every Middle Eastern country, and larger volumes of condensate will be processed when available, said the FACTS analysts. They see regional condensate runs climbing to 600,000 b/d in 2005 and 850,000 b/d by 2010, with crude runs of 5.9 million b/d in 2005 and 7.5 million b/d in 2010.

Refiners in Iran, Saudi Arabia, Bahrain, Iraq, Oman, and Yemen are planning a number of cracking projects by 2010, analysts said.

"Fuel oil destruction capability, when taken in conjunction with the rise in condensate use and the increase in internal demand, will control the region's fuel oil surplus, and net exports of fuel oil are expected to decline," they said.

Many of the region's refinery expansions and upgrades aim at producing higher-quality fuels, some meeting US and European specifications. The FACTS analysts point out, however, that products from the region remain below rising world standards.

The growth in refining capacity and crude runs will increase Middle Eastern product exports through 2010.

"LPG and naphtha demand will grow very rapidly, as projects continue to move forward in the petrochemical sector," the analysts said. "Still, growth in output will surpass growth in local demand, and exports therefore will grow."

They see LPG exports exceeding 1.1 million b/d in 2010, compared with 850,000 b/d in 2004. Naphtha exports are expected to grow to 950,000 b/d in 2010 from 860,000 b/d in 2004.

"However, gasoline imports will continue until 2010, driven by the strength of Iran's market with imports of about 120-130,000 b/d in 2010," they said.

Contact Sam Fletcher at [email protected]