Despite altering demand patterns, Asia remains an integral player in the global oil markets with a growing reliance on petrol imports to satisfy demand, according to Wood Mackenzie’s Benjamin Tang.
Rapidly changing demand patterns and refining dynamics have a profound impact on global oil product trade flows and the need for storage. In this context, Asia is where the action is. Wood Mackenzie forecasts global oil demand to grow by four million barrels per day between 2015 and 2020, with Asia accounting for almost 70% of the increase.
A majority of Asia’s rising oil consumption will be driven by petrol and diesel, as demand for these products is strongly correlated with rising incomes and economic development respectively. Asia’s refining system will not be able to meet the pace of petrol demand growth, resulting in higher petrol imports from outside the region. In contrast, intra-region trade in diesel will gain prominence, with China increasing exports to other countries in Asia.
Asia to look outwards to secure petrol
Asia will shift from being a net exporter of petrol in 2015 to a net importer by 2020. This change is underpinned by strong transport demand growth in China, India and Southeastern Asia. Net imports of petroleum into Asia will reach 500,000 b/d in 2020, mainly long-haul volumes from Northwest Europe, the US and Middle East.
Interestingly, Asia has traditionally exported petroleum to the Middle East and US. However, with those regions becoming surplus in petrol, the relationship will reverse as Asia gets increasingly short of the product.
Intra-region petrol trade flows will also evolve. India largely trades its excess supply to the Middle East and US, with relatively few cargoes moving to Singapore. Looking ahead, strong demand growth in India will reduce the country’s surplus. India will cut exports to the Middle East and US, and target deficit markets within Asia: moving cargoes to the re-export hub of Singapore, or direct to countries like Indonesia and Australia.
North Asia petrol flows to the rest of Asia will reduce in the longer run. Historically, China has exported petrol to Singapore and Southeastern Asia. Due to a rapid growth in car ownership and a slower pace of refinery capacity additions, China will near a balanced position after 2020. This will reduce China’s exports to the rest of Asia. Refinery closures in Japan and Taiwan will also contribute to lower petrol exports from North Asia to Singapore and the rest of Southeastern Asia.
Diesel trade within Asia to increase
Asia will continue to be a net exporter of diesel to other regions. However, net export volumes will fall from around 400,000 b/d in 2015 to under 100,000 b/d in 2020. This is based on a modest demand growth, amid sluggish refinery capacity build over the forecast period.
Due to the start-up of large greenfield refineries, the Middle East will reverse its diesel trade position with Asia, from a large net importer in 2015 to a net exporter by 2020. We believe Northwest Europe, with its widening diesel deficit, is the only region with room to absorb additional volumes from Asia. As there is rising competition from the Middle East, FSU and the US to place diesel cargoes into Europe, Asian exporters will also seek opportunities within the region.
Historically, India has been a major exporter to the Middle East, Africa, Europe and Latin America. Due to strong transport diesel demand growth, India’s surplus will narrow through to 2020, reducing its export volumes to other regions.
China’s diesel surplus will expand to 350,000 b/d by 2020 from 45,000 b/d in 2015. In recent years, diesel demand has slowed significantly as the country shifts from an investment-led to a consumption-led economy. China’s export refineries are modern and complex, and are competitive against many of Asia’s older refineries. So Chinese diesel exports to Singapore will increase, for re-export to regional deficit markets like Australia and Indonesia.
Singapore hangs on to its regional hub position
Singapore is the regional oil trading and storage hub, accounting for around one-third of Asia’s oil products gross trade. Wood Mackenzie expects Singapore to play a prominent role, as growing inter-regional trade for petrol, and intra-regional trade for diesel contribute to 85% of Singapore’s growth in trade over the next five years.
Singapore’s enviable position as the regional hub is not without risk and challenges. Land availability is a major concern for storage capacity growth in Singapore to keep pace with the growth in the future trade flows. If Singapore fails to act, this provides opportunity for new storage facilities in neighbouring Malaysia and Indonesia.
Higher land storage rates in Singapore and improving port infrastructure in the end-user market will encourage direct trade, potentially bypassing Singapore. For petrol, the need for blending and breaking bulk for long-haul cargoes will play to Singapore’s strength as a hub. Conversely, the increasingly intra-regional nature of diesel trade flows will favour direct trade routes.
Storage players, shipping companies and traders will need to understand Asia’s evolving trade flows, and develop winning strategies to stay on top of the competition.
Tang will be speaking more on Asia’s future product trade flows and their implications for storage on the second morning of the Tank Storage Asia conference on September 28 at the Marina Bay Sands, Singapore. For more information visit www.tankstorageasia.com.