The Philippines and other oil importing countries will have a more diversified source of fuel as supply of refined petroleum products from Asia come onstream in the near term while a new wave of refineries in the Middle East starts producing by 2020, S&P Global Platts said.
“The impact [of the new refineries] will be two-pronged,” said Calvin Lee, editorial director for Asia and the Middle East oil markets at S&P Global Platts, the independent provider of information and benchmark prices for the commodities and energy markets.
“On the one hand, these domestic refineries will use a lot of the local crudes that they produce so that means part of the crude oil that they are currently supplying to the international market may be reduced,” he said in an interview on the sidelines of a forum S&P Global Platts hosted on Wednesday.
“The other part is … the products that they produce [are] going to add to the current supply,” he said.
China has turned into refining and is becoming an “export-oriented kind of country rather than just being a pure oil consumer,” he said.
Mr. Lee said the refineries coming up in the next few years would be adding greater supply of refined products in the marketplace, which could mean prices of these commodities, particular gasoline or gas oil, would be “challenged.”
For Philippine companies, the new supply means more diversified sources, he added.
“These new refineries probably would have to look for markets like the Philippines, Australia, Europe, east Africa as their source of demand for the supply that they are currently producing,” he said. “For importers like Philippines, it means that there would be more varied sources in terms of supply of refined products.”
Song Yen Ling, S&P Global Platts senior analyst for the Asia-Pacific oil markets, said ahead of the completion of the Middle Eastern facilities, Asia will have its own share of new refineries.
“In Asia, we have a lot of refineries coming up … even earlier than what we see in the Middle East refineries,” she said.
“The next wave of Middle East expansion is 2020 and beyond. For Asian refining we have quite a few that are already constructed and just ready to be commissioned in the next couple of years,” she added.
She said the strategy for Asian governments would tend to be supply security despite the oversupply of refined petroleum products in the market. She added that although Indian, South Korean and Chinese refiners were exporting products, they still felt the need to secure their own energy supply.
“Vietnam is building a new refinery. It’s meant to be coming up online end of this year. Indonesia has pledged to do a lot of expansion in its own refining sector as well. In Malaysia we have one new 300,000-barrels-a-day refinery coming up in 2019,” she said.
“On the face of it, it doesn’t seem as if it makes sense to have these new projects coming because we’ve got supplies everywhere flooding the market,” she said. “From the government perspective, from the investment perspective it makes sense because you don’t have to rely on import so much.”
She said the upcoming refined petroleum supply would favor end consumers, although she said the “other dimension” would be refinery closures in other parts of the globe.
“We’ve seen how Australia and Japan had gone through a consolidation in terms of their refining capacity,” Mr. Lee said. “Whether there will be some refinery consolidation down the road that’s also gonna have some impact on the overall demand and supply for products.”
On oil prices, Mr. Lee said what he had seen was that the agreement in November of the Organization of the Petroleum Exporting Countries (OPEC) to slash production had supported global pricing the past few months.
“We’ve seen prices recovering to above $50. It was trading consistently around $53 to $55 for a period of time, but now they are slightly retreating again because there is a lot of skepticism whether OPEC’s action to reduce supply has actually been helping to support price,” he said.
He said suppliers such as the US, which are not bound by the agreement, were increasing supply, thus resulting in a “detrimental impact” on prices, referring to the point of view of oil producers.
Philippine refineries should watch what is happening in broader global markets while understanding the changing market dynamics, he added.
“The dynamics for crude oil … the oversupply doesn’t seem to be reducing in the pace that a lot of the market or the industry is hoping,” he said.
“But on the other hand there are other factors as well … what’s happening to big oil consumers like China. How much are they importing in terms of crude oil? How much products are they producing? How about its consumption domestically? How much products are they going to export because if we have an oversupply market in terms of products that’s going to impact on market price and it’s going to be beneficial for importers like some of the companies in the Philippines,” he said.