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Saudi Diesel is a threat to Asia

Saudi output threatens Asia glut

Nevertheless, refiners in Asia will have to find alternative buyers for fuel they have been selling to Saudi Arabia in increasing quantities over the last five years, traders say.

December 19, 2012 10:18 by

A huge increase in Saudi Arabia’s capacity to produce cleaner diesel will reduce its reliance on fuel imports from next year, forcing current suppliers of the fuel to find new buyers in an over-supplied Asian market.

The majority of new refineries and upgrade projects in the Middle East are designed to produce ultra-low sulphur diesel that meets European environmental standards, so they can export some of it to Europe or Asia.

The multi-billion dollar investments are also likely to transform fuel trade flows in the Gulf as the extra capacity will allow OPEC heavyweight Saudi Arabia to reduce its diesel imports and even become a net exporter in winter when its own fuel needs are lower.

State-run Saudi Aramco’s Jubail joint venture with France’s Total, the first of a trio of 400,000 barrels per day (bpd) refineries due to open over the next five years, will refine Saudi heavy crude into fuels ranging from gasoil, including diesel, to gasoline and petroleum coke for domestic consumption and export.

Jubail alone is expected to increase Saudi cleaner diesel production capacity by around 176,000 bpd once it is fully operational, while two more projects are expected to boost Saudi diesel capacity by a total of 461,000 bpd by 2017.

“Saudi Arabia has been a substantial net importer of gasoil for several years, but as Jubail is commissioned in 2013, this trend should reverse itself by the end of the year if not earlier,” Robert Smith, consultant at FGE Energy said.

Saudi Arabia has historically been short of gasoline and gasoil. Its petro-dollar fueled economy and growing population has rapidly driven up internal demand, especially when power generation surges in the hot summer months from May to August.

The world’s biggest crude oil exporter imported an average of 243,000 bpd of gasoil/diesel in the peak demand month of July this year, compared with a record high of 290,000 bpd in July 2011, according to official Saudi data.

The majority of its fuel imports are met by other Gulf producers, or by suppliers from India and Singapore.

The startup of the three refineries will nearly double Saudi diesel output, helping it become a net exporter in the cooler months. Its diesel imports will not stop completely, analysts say, due to rising demand and because the high-quality diesel the refineries will produce will not be used in power plants.

Nevertheless, refiners in Asia will have to find alternative buyers for fuel they have been selling to Saudi Arabia in increasing quantities over the last five years, traders say.

“The whole trading pattern is going to change dramatically in a few years, once all the new refining capacity comes online,” a Singapore-based trader said.

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