Singapore, 18 March (Argus) — Asia-Pacific diesel and jet fuel balances are likely to tighten temporarily as earthquake-hit Japan will probably have to divert its middle distillates exports to the domestic market.
As much as 1.7mn b/d of Japanese refinery capacity, or more than a third of the country's total capacity, could have been shut in the immediate wake of the earthquake. Concerns about a supply shortfall overwhelm the lack of arbitrage opportunities to the US west coast, driving Asian middle distillate crack spreads to their highest levels since 2008, with the premium of jet-kerosine rising above $24/bl this week.
Japanese exports of diesel and jet fuel were around 313,000 b/d last year, or the equivalent to 1pc of Asian demand, Japanese securities firm Nomura International said in a report this week. Refining margins for jet fuel and gasoil are likely to rise as Japan cuts back on exports. Assuming 15pc of Japan's refining capacity will be shut for the next three months, Nomura expects the average jet fuel refining margin in Asia this year to reach $14.60/bl, compared with its pre-earthquake forecast of $13.50/bl. A six-month and nine-month disruption to refineries raises its forecast to $15.80/bl and $16.90/bl respectively.
But the impact of the earthquake on long-term supply and demand balance in the region's middle distillates market will probably be much less severe since only JX Nippon Oil and Energy's 145,000 b/d Sendai and Cosmo Oil's 220,000 b/d Chiba refineries are likely to have sustained permanent damage, Nomura noted. These plants account for about 12pc of Japan's refining capacity.
The Sendai and Chiba refinery were believed to each export only one jet fuel cargo a month, a volume the Asia market should be able to make up for once most of Japan's refineries resume operations.
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