Viewpoint: New refineries add to Asian gasoline supply

Asia-Pacific gasoline supplies are likely to increase in 2018 as new refining capacity comes on line in China, Vietnam and the Middle East.

China, a net exporter of gasoline, is on course to boost its shipments even further following the addition of 460,000 b/d of new refining capacity in recent months, while supply tightness in Vietnam will ease as the country's new 200,000 b/d Nghi Son refinery starts up in 2018.

State-controlled PetroChina began commercial operations at its 260,000 b/d Anning refinery in southwest China's Yunnan province at the end of August. The full impact will only felt at the end of 2017 or in 2018, when the refinery ramps up completely. Anning will be able to produce up to 77,000 b/d of gasoline at peak operations.

Fellow state-controlled Chinese energy firm CNOOC brought on line a 200,000 b/d expansion at its flagship 240,000 b/d Huizhou refinery in September and has been ramping up its gasoline exports since then. CNOOC offered five medium-range size cargoes for December — three from Dongguan and two from Dagang. It offered six cargoes for November loading after offering only up to three cargoes for October. The expansion will enable Huizhou to produce up to 100,000 b/d of gasoline.

The start-up of the new capacity will increase China's total gasoline output. Production has already been growing steadily in recent years as new refineries come on line, and hit around 3mn b/d in January-October, up from 2.9mn b/d in the same period in 2016.

But the impact on gasoline prices still depends largely on the government's export quotas and the country's gasoline demand, which determine how much of the additional production is pushed into exports markets. The country's gasoline demand was around 2.8mn b/d in the first 10 months of 2017, compared to about 2.7mn b/d in the same period a year earlier. Net exports were 230,000 b/d in the period, up by 8.8pc from a year earlier.

Vietnam adds capacity

Further south, the new 200,000 b/d Nghi Son refinery in Vietnam's Thanh Hoa province is scheduled to start up in 2018. The refinery was completed in April 2017, but a delay to the plant's utility work has pushes back its commissioning.

Vietnam is currently a net importer of gasoline. Its sole refinery, the 145,000 b/d Dung Quat plant in Quang Ngai province, produces enough of the fuel to meet only about 30pc of domestic requirements. Dung Quat supplies about 23,000-46,000 b/d of gasoline, against domestic demand of around 115,750-140,000 b/d, according to operator state-owned PetroVietnam.

The Nghi Son refinery will help Vietnam reduce its dependence on oil product imports. It will produce about 26,000 b/d of gasoline, 74,000 b/d of gasoil and other oil products. The start-up means Vietnam's domestic gasoline production will be able to meet about 40-50pc of requirements, cutting the country's import requirements. Nghi Son is owned by PetroVietnam, Kuwait's state-owned KPC and Japan's Idemitsu and Mitsui Chemicals.

The fall in Vietnamese import demand is likely to have the biggest impact on South Korea, which has emerged as a major gasoline supplier to Vietnam after a free-trade agreement between the countries cut tariffs. South Korea's gasoline exports to Vietnam increased by about 85pc from a year earlier to around 72,000 b/d in January-October, according to Korean customs data.

Mideast Gulf supply surge

Other regional refineries are scheduled to come on line in late 2018 and 2019, adding to the new projects in China and Vietnam. Kuwait's clean fuel project, which will integrate the country's two refineries — the 440,000 b/d Mina al-Ahmadi and the 265,000 b/d Mina al-Ahmadi plants — and raise their combined capacity to 800,000 b/d, is scheduled to start up in late 2018. The 300,000 b/d Refinery and Petrochemical Integrated Development (Rapid) complex in Malaysia, operated by state-owned Petronas, is on course to start up in 2019. Brunei's China-backed 175,000 b/d Hengyi refinery is targeted for early 2019. And the delayed second and third phases of Iran's 360,000 b/d Persian Gulf Star condensate splitter project, which will turn the country into a net exporter of gasoline, are scheduled for early 2019.

The start-up of the new capacity will shift the regional gasoline supply and demand balance. But consumption is also likely to increase as Asian economies continue to expand, so gasoline demand growth is still poised to outstrip the increase in supply.