Far East refinery demand to boost long haul trades

Nov 18 2016


Global refinery capacity is projected to reach 96.6 mill barrels per day by the end of 2016.

Some 64% of capacity additions stem from the East of the Suez markets. 

The Far East, Indian Sub-Continent and Southeast Asia regions lack the amount of crude oil production needed to meet refinery demand, leading them to source marine transported barrels from foreign countries. 

The rearrangement of this sourcing dictates tanker trade routes and impacts tonne/mile demand in the East of the Suez markets. McQuiiling Services has analysed bilateral country trade flow data through July in order to more accurately understand the development of DPP tanker demand from 2014.  

The Far East region accounts for 46% of DPP tanker demand, as only 36% of the 18.4 mill barrels per day of refinery demand expected this year will be met through regional crude production. 

With China’s crude production already averaging 248,000 barrels per day lower than last year and the expectation of further declines, the Far East region has relied heavily on increased imports to feed growing demand. 

According to demand data through July, flows into the region have averaged 2.4 mill barrels per day higher than last year’s average, contributing to increased demand for tankers.  

The Middle East, which represents 64% of Far East imports, is on track to increase flows by 26.6 mill tonnes, while West Africa flows are showing a 14.7% rise year-on-year.  

While higher volumes on these routes benefit tankers, increased long haul trading from the Western Hemisphere, specifically East Coast South America and the Caribbean, has been a major support for tanker demand. 

Although Venezuelan crude production has deteriorated this year, exports remain relatively stable, as the country opts to lower refinery runs and reduce oil swap programmes with neighbouring countries. McQuilling’s data showed that China will import 23 mill tonnes of Venezuelan crude oil this year, up from 20 mill tonnes in 2015.

The high frequency of these longer haul global trades has contributed to the 5.6% increase in average tonne/mile demand into the Far East through July of this year when compared to last year’s average.    

This year, the Indian Sub-Continent experienced higher crude demand with import volumes on track for a 4% year-on-year increase; however, displacement of traditional crude sources has led to negative tonne/mile demand growth, which is projected to decline 4.8% year-on-year. 

West African exports to the Indian Sub-Continent are expected to decline 18.3% year-on-year, as Nigeria has struggled to maintain volumes, due to continued militant attacks on oil infrastructure. 

Meanwhile, Caribbean volumes are forecast to decline 2% relative to last year amid lower flows from Colombia and Mexico. Colombian exports have declined this year, due to a 170,000 barrels per day decrease in production, increased domestic demand from the restart of the 150,000 barrels per day Cartagena refinery and an increase in flows to the US.

These long haul routes have grown tonne/mile demand in recent years; however, competition from increased Middle Eastern (Iran and Iraq) production has displaced some of these more traditional flows. 

With the lifting of nuclear sanctions, Iran has ramped up production by 250,000 barrels per day since the beginning of this year and is on track to export 14.6 mill tonnes to the Indian Sub-Continent. 

Similarly, Iraq has averaged 4.5 mill barrels per day of output through July, which is over 1 mill barrels per day higher than the 2015 average. This has resulted in a 5% increase in market share for Middle East suppliers, who now claim 62% of the Indian Sub-Continent’s market.         

For Southeast Asia, crude and dirty product imports into the region are expected to increase just marginally before the end of the year with tonne/mile demand already averaging over 7.7 bill tonne/miles lower than last year. The decline in tanker demand stems from both decreased crude imports and sourcing of more proximate supply.  

Through July, imports into the region have averaged 647,000 tonnes lower than the same period in 2015 with a majority of fall off stemming from more distant origins, such as Northern Europe, West Africa and the Caribbean. Last year, Southeast Asia imported 12.2 mill tonnes of dirty product oil from the Caribbean; however, flows are on track to decline to 9.5 mill tons for 2016, due to reasons mentioned above, McQuilling said

Dirty product imports from Northern Europe are expected to decline by 9.8 mill tonnes, as fuel oil exports from the Netherlands into the region are on track to decline by 34% year-on-year. These lower flows are projected to be offset by shorter haul trading from the Middle East, as well within the Southeast Asia region.

Dirty product flows from regional producers are expected to rise by 6 mill tonnes, while imports from the Middle East are on track to jump by over 7.5 mill tonnes.        

Looking forward, East of the Suez markets will, in general continue to be supported by increasing Middle Eastern crude supply. However, regarding Far East demand, McQuilling noted refineries sourcing barrels from the Caribbean, East Coast South America and West Africa markets, effectively increasing tonne/miles into the region. 

Indian Sub-Continent demand will probably be fuelled by significant flows from the Middle East, as well as Southeast Asia, specifically Indonesia and Malaysia. The Southeast Asia market is projected to be mostly supported by intra-regional trades, as well as Middle Eastern barrels, while lower volumes are expected from Europe and the Caribbean. 

Due to the higher frequency of shorter haul trading in both the Indian Sub-Continent and Southeast Asia markets, tanker demand into these regions will remain below 2015 levels.

As tonne/mile tanker demand is not only a function of tonnage transported but also distance travelled, demand declines from more proximate sourcing of feedstock in the Indian Sub-Continent and Southeast Asia will be offset by overwhelming gains witnessed through increased longer haul volumes into the Far East, McQuilling concluded.

 



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