Covid-19 continues to wreak havoc, as three Asian refineries are on the brink of shuttering thanks to weakened refined product demand.
In this episode of The Crude Report, our Asia-Pacific and Middle East crude markets editor Azlin Ahmad explains how these closures would reduce Asia-Pacific demand for light sweet crude.
Jessica: Hello and welcome to The Crude Report, a podcast series from Argus on global crude oil markets. This is Jessica Tran for Argus Media.
Several refineries in Asia-Pacific are considering shutting down as the Covid-19 pandemic has led to weakened demand for refined oil products, making it uneconomic for these refineries to continue operation. In this podcast, I’m joined by our Singapore-based crude markets editor for Asia-Pacific and Middle East, Azlin Ahmad, who will shed some light on how these potential refinery closures could result in an increase of sweet Asian crude supplies.
Hi, Azlin, thanks for joining me on this podcast today! Happy holidays.
Azlin: Thank you for having me, Jessica.
Jessica: So which are the refineries in Asia that plan to shut down?
Azlin: Well, BP announced in October that it is closing its 146,000 b/d Kwinana refinery in Australia, which is the country’s largest refinery. New Zealand's only refinery, the 135,000 b/d Marsden Point, is considering a conversion into an oil product import terminal. And Ampol, which operates the 109,000 b/d Lytton refinery in Queensland, in Australia, is still assessing whether to keep operating the plant or convert it into an import terminal.
Jessica: So can you explain a little bit further what kinds of crudes these refineries process?
Azlin: Well, the New Zealand Marsden Point refinery and Australia’s Kwinana plant do run Abu Dhabi crude but they also take a large amount of light sweet crude from Malaysia and some US light sweet WTI crude. Now, Ampol’s refinery runs mainly light sweet crude from Malaysia, from west Africa and also from Brunei and Australia.
Jessica: And are there other potential buyers that can absorb these crude grades?
Azlin: The Abu Dhabi crudes, such as the light sour Murban and medium sour Upper Zakum, are actually favourites among Indian, Japanese, South Korean and Chinese refineries so they could find outlets there, particularly because China is also increasing its refining capacity over the next year. But the customers for the displaced light sweet Asia-Pacific cargoes — these may be a little bit harder to find. And one major reason is because although China is bringing on stream big refining capacity expansions in 2021, many of these units are designed to refine mainly the medium and heavier sour crudes. And these are those grades from the Mideast Gulf, so their demand for the sweet grades will probably be very limited.
Jessica: So what do you think will happen to this displaced light sweet crude?
Azlin: There are some existing refineries, mainly around Asia, that could absorb these light sweet crudes, but only if they are cheap enough, actually. So for example, the state-controlled refineries in India, they already take Malaysian crudes and they also take light sweet Nigerian grades, so they could potentially increase their intake of Malaysian crude instead of west African, but probably only if the Malaysian prices are more attractive. And there are refineries in Thailand and Brunei which could run more Asia-Pacific crudes, but it could all depend on the prices of these Asian light crudes and it’s very probable that these Asian light sweet crudes will have to come down in terms of their prices to attract the alternative buyers.
Jessica: So do you think that we will we see a light-heavy crude spread in Asia narrow because of this situation?
Azlin: Well I think that the spread will remain fairly narrow, at least over the next year, and as we mentioned before, the demand for the medium and heavy crudes remains pretty strong because the new refineries that are coming onstream are more complex and can run this crude. But supplies of the lighter sweet crude could become more available because the refineries that are planning to shut down are simple refineries. So we could have this situation where there’s more supplies of light sweet crude whereas the demand is more for the medium heavy sours. So that could keep that spread between the light and heavy grades fairly narrow in 2021.
Jessica: Ok great, thanks so much for talking this through with us, Azlin. I hope you have a great new year’s.
Azlin: Thank you, Jessica.
Jessica: For more information on Argus’ crude pricing, news and analysis, both global and more specifically in Asia-Pacific and the Middle East, consider subscribing to our Argus Crude service. You can find more information on this service at www.argusmedia.com. Thanks for tuning in, and we look forward to you joining us on the next episode of The Crude Report.