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.