>>heavy sour variety... a glut due to refining limitations<<
As I just mentioned to you on another thread, there is 580K bpd of heavy sour refining capacity coming online this summer in India. Could that be the trigger to reverse this amazing oil price run?
Reliance mega-refinery to redraw fuel trade routes
in.news.yahoo.com
Thu, May 15 03:36 PM
By Luke Pachymuthu and Felicia Loo
SINGAPORE (Reuters) - When Reliance Industries opens a second huge refinery in India this summer, world oil consumers may heave a sigh of relief at the injection of extra fuel into a market that has been short of capacity for years.
But the issue for physical oil traders is less about global fundamentals than regional arbitrage, as the surge in gasoline, diesel and jet fuel exports -- the biggest one-off rise in world supply since Reliance launched its first plant in 1999 -- will open up new trading opportunities while closing some old ones.
The 580,000 barrels per day (bpd) export-oriented refinery, now 90 percent complete and expected to be inaugurated in July, nine years after the first plant was finished, will have the edge over its peers as it can process cheap, low-grade crude into gasoline and diesel that meets strict Western standards.
A low cost base and high complexity will offer unrivalled global reach for its fuel, allowing it to shift exports to the highest-priced market when full production starts in January.
It will play a swing supply role that will redraw traditional trade flows, and has already embarked on a robust marketing campaign in Europe, Mexico and East Africa, capitalising on delays and cost overruns faced by other big refinery projects.
"Reliance is being extremely aggressive in its marketing strategy... They are all over Europe marketing what will come up this year," says Fereidun Fesharaki, head of FACTS Global Energy, which advises companies on refining and marketing strategies.
The plant, in Gujarat's Jamnagar district, will take Reliance's total capacity to 1.24 million bpd, making it the largest facility in the world and going some way to alleviate a global shortage of capacity that has aided four years of above-average profit margins for refiners worldwide.
Even if global margins deteriorate, as many analysts expect, Reliance is likely to prosper as it has invested in a plant that can use the world's cheapest crudes -- those with high sulphur, acid and metal content -- to make the best products.
"The refinery was designed to produce optimum quality products that can be exported anywhere in the world, using the worst possible crudes out there," says Al Troner, head of Asia Pacific Energy Consulting (APEC).
GASOLINE TO U.S., AFRICA
For physical traders for whom arbitrage is a cash cow, supplies coming from Jamnagar could be a threat.
With India's retail fuel prices fixed at below market rates and state refiners expanding quickly to meet domestic demand, almost all of the plant's production is expected to be exported.
Fesharaki expects Reliance to ship at least 100,000 bpd of gasoline to the United States via Chevron, which owns 5 percent of the $6 billion plant, equivalent to about a tenth of U.S. imports, most of which comes from European plants.
It will also likely look to sell more product there directly, on top of the 4-5 million tonnes of petrol and jet fuel it already exports to U.S. shores annually, a trade source said.
Reliance's gasoline supply of up to 230,000 bpd -- if all its output goes West -- could replace almost a third of Europe's exports to the United States, which uses 43 percent of the world's petrol, and where refining shortages have been partly blamed for oil's four-year rally to records near $120 a barrel.
"It makes sense for them to open up more trading offices around the world and try to market their products on their own," the India-based trader said.
That's a strategy already in play in Africa, where Reliance bought half of Tanzania-based retailer and storage firm Gulf Africa Petroleum Corp, which has 300 pump stations. East African fuel demand is surging, led by Kenya and Tanzania.
South Africa, which has seen a rise in diesel demand due to power outages that may last years, has turned frequently to Asia for diesel, as regular Middle East suppliers have cut exports due to firm domestic demand amid booming economies.
"Geographically speaking, it makes sense to send products to East Africa," said PFC Energy analyst Stan Drochon. "(But) there could be a spec issue as Indian refineries will produce high quality spec and East Africa is looking for cheap product."
Mexico, which may be supplying Reliance with some of its 3.1 million bpd of heavy sour crude production, is also studying a proposal to import gasoline from Reliance. It imports about 300,000 bpd of gasoline, 40 percent from the United States.
And Reliance is already exporting to Brazil $1.5 billion worth of diesel a year, a Brazilian official had said.
DIESEL FOR EUROPE, LATAM
Meanwhile hefty exports of diesel, especially the ultra-low-sulphur variety that Reliance offered this week under its first one-year term deal, may stymie Asian flows to Europe.
Reliance could easily ship 170,000 bpd, or 67 percent of its diesel output from the refinery, displacing as much as 40,000 bpd of arbitrage trade from North Asia and Singapore to the West.
Unlike gasoline, European demand for high-grade diesel is set to rise to 5.2 million bpd by the end of the decade, up 20 percent from 2006, data from APEC show, and it is turning to the Middle East, the United States and increasingly to Asia.
"Europe will be structurally short of high-quality automotive diesel, refinery investment is limited and the Middle East will not make a difference until around 2011," said Troner.
While many trade flows may change almost overnight, there are spoils to be had for those who can anticipate the shifts.
In a tender last week, Reliance sold over a dozen cargoes of medium-sulphur diesel fuel to trader Trafigura, Kuwait-based IPG and East Africa-focused Galana, sources said.
"The export volumes will be huge, so traders will still be involved to trade on more of their products," a Singapore-based trader said. |
