New Mideast refineries to squeeze global profits
As more fuel is exported, with Europe not growing, it’s logical that producers will start looking to new markets in East africa or asia Gati Al Jebouri, head of Lukoil’s Middle East business
— Expanding fuel shipments from the Arabian Gulf will intensify competition from Europe to Asia, squeezing profits across the global refining industry and contributing to a looming glut of oil products.
As Saudi Arabia, Iran and other crude suppliers build new oil processing plants and upgrade old ones, the Gulf region is poised to become a net exporter of refined products as soon as this year. This heralds a tougher contest for sales between state companies in the Gulf, the trading houses that currently supply them and Asian refiners that are also boosting exports.
European refiners are set to lose out as newer rivals from the Middle East, India and China vie with them for sales, according to consultants Wood Mackenzie and FGE. Saudi Arabia and Abu Dhabi have built export-oriented refineries with a combined capacity of almost 1.4 million barrels a day over the last four years, and the Gulf region is already selling diesel in Europe.
“The region is getting near to balanced and is bringing on more capacity,” Gati Al Jebouri, the head of Lukoil’s Middle East business, said in Dubai. “As more fuel is exported, with Europe not growing, it’s logical that producers will start looking to new markets in East Africa or Asia.”
While the Middle East’s ability to pump oil has historically run far ahead of its ability to refine it, the region has expanded processing capacity by about 20 per cent since 2013 and state oil companies are enlarging or upgrading plants to produce cleaner burning fuels to help diversify local economies. This expansion, funded by windfall profits when crude averaged close to $100 a barrel, may exacerbate an oversupply of refined products.
Saudi Arabia plans to double refining capacity to as much as 10 million barrels a day within 10 years, Saudi Energy Minister Khalid Al Falih has said. Saudi Arabian Oil Company, the state producer known as Saudi Aramco, expects to start operating a 400,000 barrel-a-day refinery next year at Jazan on the Red Sea, adding to two other plants of the same size that have come online since 2013.
Shifting trade
Abu Dhabi more than doubled capacity at its Ruwais refinery to 817,000 barrels a day in 2015. Iran expects to start producing gasoline this year at the Arabian Gulf Star refinery and to export the fuel as early as 2018. Kuwait plans a 615,000 barrel-a-day refinery by 2020, and Oman is expanding its largest facility this year.
The region’s production of refined fuels is catching up with local demand, said Richard Mallinson, an analyst with consultant Energy Aspects in London. “Patterns are definitely shifting, as traditional import markets are seeing their volumes changing or are disappearing entirely,” he said. — Bloomberg