Latin American tanker conundrum

Apr 08 2016

Last year saw the continued growth in US product exports.

According to the Energy Information Administration (EIA) exports of the main clean products (gasoline, diesel, jet and naphtha) increased by over 170,000 barrels per day to 2.15 mill barrels per day, UK broker Gibson said in a recent report.

Exports of most clean products increased, however, gasoline and diesel led the way, accounting for 140,000 barrels per day of the total increase. The majority of the exports were absorbed by traditional markets – Latin America and Europe.

Whilst the European market has become increasingly competitive, as Russia, the Middle East, India and even China, all flood Europe with products, the US still dominates in Latin America.

The US has benefited as refining in Latin America has struggled to make progress in recent years. For example, in Venezuela, many refineries have at times, seen utilisation rates of just 50% as PDVSA lacks the cash to carry out maintenance and upgrades.

Investment in new capacity has also been slow, with just 130,000 barrels per day, due between 2018 and 2020, although given the economic situation in the country, delays seem almost inevitable.

Much hope had been placed on Brazil to become the economic powerhouse of the region, yet the downstream sector has been plagued by major delays. Whilst Brazil has now started production at its Abreu e Lima refinery, only one of the 115,000 barrels per day refining units is operational, with the other not scheduled for start-up until at least 2018.

Following this, Brazil’s next major project – Comperj - is unlikely to be on stream until at least 2021, against an original start date of 2016.

Elsewhere in the region, capacity additions are small scale. Mexico, one of the largest importers of US products, has a 40,000 barrels per day project planned for 2019, while Peru has a 33,000 barrels per day project planned for 2019.

Other developments in LatAm focus on small projects delivering post 2020. For example, Colombia has a 50,000 barrels per day project and Costa Rica a 65,000 barrels per day unit planned.

Whilst capacity additions are fairly small, weak economic growth and higher local production of biofuels could see demand growth for refined products in Brazil stall. However, in the short term, Brazil may need to boost its product stocks ahead of this summer’s Olympic games, something that was evident during the 2014 FIFA World Cup.

Elsewhere in the region, whilst capacity additions are limited, the IEA predicts that such additions are likely to keep pace with demand growth, which may limit the potential for US product exports to the region.

However, it is likely that imports will exceed expectations if any existing projects face additional setbacks, outages increase or biofuel production falls below expectations.

Thus, Latin America will remain an important outlet for refined products, particularly from the US, Gibson forecast.

However, the US may have to work harder to defend its presence in the region, as producers in the Middle East and India seek to expand their share of emerging markets.

Nevertheless, despite the lifting of the crude export ban and the narrowing of the Brent/WTI differential, the US is expected to remain a formidable refining centre owing to relatively sophisticated facilities and access to cheap gas, plus its close proximity to Latin America and the newly expanded Panama Canal.

As a result, it will remain a challenge for refiners from further afield to compete in the region, Gibson concluded. 

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