Asia-Pacific oil refiners squeezed: Expert

Asia-Pacific oil refiners squeezed: Expert

SINGAPORE (AFP): Asia-Pacific oil refiners are facing a squeeze on margins for the next two years amid expanding regional capacity, competition from imports and a glut of oil products, an expert forecast yesterday.

"While oil product demand remains strong, there is substantial refining capacity under construction," Fereidun Fesharaki, head of the Hawaii-based think-tank East-West Center, told an annual industry conference here.

"Some two million barrels per day of capacity will come on stream during the 1996-98 period in Korea, Malaysia, Thailand, Philippines, Taiwan, China, Japan and India," he said. "This will inevitably put downward pressure on prices."

The region would account for the bulk of new refining capacity to come on stream over the next two years, taking Asia-Pacific total capacity to about 19.25 million barrels per day by 1998.

At present, the region is short of about 1.8 million barrels per day of petroleum products such as liquefied petroleum gas, naphtha, gasoil, fuel oil and jet fuel, experts say.

Fesharaki said 1995 was the "worst year" in a decade for Asian refining business, with margins dropping to around two dollars a barrel.

"This year has been a good year all around, but margins cannot be expected to be sustained for long," he said, adding that margins have been dropping in the second half of the year.

"Fundamentally, the world is awash in products ... that is the reason why we are suffering poor margins and we will continue to suffer poor margins for a couple of years to come," he said.

He warned that planned regional refinery projects risked being uneconomical given the market conditions, but they are not alone in feeling the pinch.

Environmental costs have reduced if not eliminated the chances of refiners' profitability in the United States despite growing demand while in Europe, slow demand is coupled with intense competition and excess capacity.

He forecast that Europe would be forced to shut down several hundreds of thousands of barrels of refining capacity.

Fesharaki said Middle Eastern export capability of oil products would rise by about 600,000 barrels per day to three million barrels per day by 1998 on the back of expansions and the rehabilitation of Kuwaiti refineries.

Product exports from the Middle East to Asia are likely to rise substantially as a result of lower demand growth in Saudi Arabia and Iran and a major new push into export refining from Abu Dhabi.

Invest

Middle East oil exporters are eager to invest in Asian refineries, with expected Saudi refinery ventures of one million barrels per day by 2000 and increasing Kuwaiti focus on India, Pakistan and Thailand.

Fesharaki said a growing trend towards globalization and deregulation in Asian oil markets, encouraging imports and reducing the size of the regional refining pie, were also contributing to an "indigestion problem for the (regional refining) market."

"In a globalized market, deregulation has pretty much disastrous consequences for the people who are in it," he said.

He said the key issue for Asia was no longer the difference between regional demand and refining capacity.

"What matters is the difference between Asian demand and the rest of the world. And the rest of the world has plenty of capacity," he said.

In 1998, Asia-Pacific net import requirements for petroleum products are expected to rise to around two million barrels a day as demand growth remains robust.