<article><p class="lead">The Asia-Pacific transport fuels market was hit by an unprecedented collapse in demand in 2020, leading to record-low margins amid widespread disruptions to transportation as a result of Covid-19 lockdowns. </p><p>But even as many regional refineries struggled with crippling refinery margins, Chinese run rates surged past 14mn b/d to hit a record high in June and held at around 13.95mn-14.2mn b/d until November. Crude throughputs hit a fresh record of 14.2mn b/d in November, driven by an increase at state-owned firms' plants and the start-up of the third of four crude units at private-sector Rongsheng's 800,000 b/d ZPC refinery in Zhejiang province.</p><p>The increase in Chinese crude runs and oil product output led to higher exports. China's exports of transport fuels such as gasoline and diesel hit 1.1mn b/d in October, the highest since April. These exports are likely to stay around 1mn b/d in November, data from oil analytics firm Vortexa indicate. </p><h2>More refineries bite the dust</h2><p class="lead">Regional overcapacity, low refining margins and an inability to compete were the key reasons behind refinery closures or conversions to import terminals this year. The onslaught of Chinese exports during a time of severe demand weakness depressed margins in the region, with simple refineries hit the hardest. </p><p>New Zealand's <a href="https://direct.argusmedia.com/newsandanalysis/article/2171221">135,000 b/d Marsden Point refinery</a>, BP's <a href="https://direct.argusmedia.com/newsandanalysis/article/2155162">146,000 b/d Kwinana refinery</a> in Australia and Shell's <a href="https://direct.argusmedia.com/newsandanalysis/article/2131972">110,000 b/d Tabangao refinery</a> in the Philippines have all announced plans to cease production and convert to fuel import terminals. Philippine private-sector refiner Petron will temporarily shut its <a href="https://direct.argusmedia.com/newsandanalysis/article/2169037">180,000 b/d Bataan refinery</a> in January, citing weak refinery margins and "an uneven playing field between oil importers and refiners". </p><p>Australia's 128,000 b/d Geelong refinery has decided to <a href="https://direct.argusmedia.com/newsandanalysis/article/2170279">keep operating beyond mid-2021</a>, after operator Viva Energy said in September it was considering <a href="https://direct.argusmedia.com/newsandanalysis/article/2138992">shutting it down</a>. Ampol, the operator of the 109,000 b/d Lytton refinery in Queensland, Australia, is still <a href="https://direct.argusmedia.com/newsandanalysis/article/2170582">deciding whether to keep it running</a> even for the next six months. </p><p>The Covid-19 outbreak affected all countries, but its impact on refinery economics varied significantly across different configurations and markets. Some refineries chose to maximise run rates to capture petrochemical margins while others cut run rates to reduce losses on fuel oil production. </p><p>Large Chinese refineries mainly fall into the former group. Private-sector companies like Rongsheng and Hengli Petrochemical are unfazed by the state of margins and continue to run their 800,000 b/d ZPC plant and 400,000 b/d refinery in Changxing, respectively. Oil products like gasoline and jet fuel are byproducts of their chemical production, exacerbating oversupply. </p><h2>More isn't always better</h2><p class="lead">The closure of the three regional refineries will do little to support the balance in the oil product market. </p><p>Rongsheng's <a href="https://direct.argusmedia.com/newsandanalysis/article/2155784">400,000 b/d expansion</a> of its ZPC refinery to 800,000 b/d, coupled with the planned restart of Malaysian state-owned Petronas' <a href="https://direct.argusmedia.com/newsandanalysis/article/2164253">300,000 b/d Pengerang refinery</a>, Hengyi's <a href="https://direct.argusmedia.com/newsandanalysis/article/2141708">280,000 b/d Brunei refinery expansion</a>, the start-up of state-controlled Saudi Aramco's <a href="https://direct.argusmedia.com/newsandanalysis/article/2131072">400,000 b/d Jizan refinery</a>, the planned commissioning of Kuwaiti state-owned KPC subsidiary Kipic's <a href="https://direct.argusmedia.com/newsandanalysis/article/2163578">615,000 b/d al-Zour refinery in 2021</a> and completion of KPC's <a href="https://direct.argusmedia.com/newsandanalysis/article/2163207">$16bn Clean Fuels Project</a>, will give the Asia-Pacific region more refined products than it can possibly stomach. </p><h2>Where next?</h2><p class="lead">New trade flows started to form at the end of 2020 to move excess supplies out of Asia-Pacific, something that is expected to continue into 2021. Indian jet fuel cargoes destined for northwest Europe were redirected to Australia in November, while South America is proving to be a viable alternative destination for excess gasoline and gasoil supplies. </p><p>China's gasoline exports have been making their way to Mexico, while Chile has become a regular destination for Chinese gasoil. China exported a total of 13,700 b/d of diesel fuels to Chile during January-October, according to customs data. By comparison, only 2,400 b/d of diesel was shipped along this route in 2019 and 4,000 b/d in 2018. </p><p>Countries with lower refining capacity following recent plant closures, such as Australia and the Philippines, are also expected to become more reliant on imports, which will help to absorb the additional capacity from new refineries. </p><p class="bylines">By Aldric Chew, Jaslyn Ying, Lu Yawen, Sarah Giam</p></article>
