An employee pumps gasoline into a car in Hanoi, Vietnam, on Dec. 20, 2016. (Reuters Photo)

Asia's Gasoline Market Headed for Glut as Refineries to Unleash Wave of Fuel


JANUARY 17, 2019

Singapore. New gasoline supply is expected to exceed the growth in demand this year in Asia as new refineries starting up in Malaysia, China and Brunei will unleash a flood of the motor fuel and naphtha.

The three new processing plants in Malaysia and China alone will likely add about 235,000 barrels per day (bpd) of gasoline to the market when fully operational, based on company estimates and two industry sources.

These facilities are designed to produce the highest amount possible of the oil product naphtha for use in making petrochemicals.

By focusing on naphtha, the refineries will concurrently produce a wave of gasoline at a time of bulging stockpiles, slumping demand and negative profit margins for the fuel.

"We have large volumes of refining capacity geared towards gasoline or naphtha production coming online in the East of Suez this year," said Michael Dei-Michei, head of research at consultancy JBC Energy.

"For that reason we expect gasoline supply growth to outpace demand growth to the tune of about 200,000 bpd on average in 2019," said Dei-Michei, adding that the Asian gasoline market is moving from an essentially balanced one to that of being oversupplied for at least the next year.

Malaysia's Petroliam Nasional Berhad and Saudi Aramco have started test runs this month at their 300,000-bpd  RAPID refinery, which will produce 98,000 bpd of gasoline, according to its website.

Additionally in China, Hengli Petrochemical and Zhejiang Petrochemical will start up new refineries, each capable of processing 400,000 bpd of crude.

Gasoline production at each refinery is estimated to be over 3 million tons a year at full capacity, according to estimates from two industry sources. That is about 68,500 bpd of motor fuel output.

Those three plants will be joined by a 175,000-bpd refinery in Brunei owned by China's Hengyi Industries International.

While some of the Chinese refinery production could be absorbed there, the country's exports are still expected to rise.

"We expect Chinese gasoline exports to increase 14 percent year on year in 2019, slower than previous year," said Rui Hou, a refining consultant at Wood Mackenzie.

Between January and November last year, China exported 11.6 million tonnes of gasoline, according to government customs data, 24 percent more than the same period in 2017.

But regional gasoline demand growth in 2019 is also likely to be slower than 2018, said Hou, due to an expectation for an economic slowdown among the Asian countries in the Organization for Economic Co-operation and Development and a higher penetration of hybrid vehicles.

The bearish fundamentals have dragged the average gasoline profit margin for the first-half of January to about 45 cents a barrel, the lowest for the period since 2009.

"Margins are not that good. It's possible that 2019 will be worse off than 2018. We need to cut runs," said a trader who tracks and trades light distillates.