Petroleum refining in Asia

The total consumption of petroleum products in the Asian region was 1 370 000 ML in 2006. In comparison, the total Australian demand for petroleum products was 48 800 ML in 2006 (less than 4 per cent of regional demand).

The growth in Asian region liquid fuels demand has been quite volatile compared to demand growth in Europe and North America, with highly variable growth rates in Asia between 0.5 per cent and 6.3 per cent over the last ten years. This has made capacity planning difficult.

Although there are uncertainties about the future economic performance of the various countries in the Asian region and beyond, the International Monetary Fund expects that world economic growth will ease only marginally over the next few years. This points towards continuing demand growth across the Asian region for petroleum products.

Refinery investment in the region over the past 20 years has been large and lumpy, leading to fluctuations between significant under and over capacity. For example, the significant excess capacity of 2 mbpd in 1985 led to a collapse in refiner margins, and a slowing or ceasing of construction of new capacity. Refinery construction only re-commenced when demand caught up with supply, and refiner margins were more attractive.

Asian region refining capacity now exceeds capacity in Europe and North America. Within Asia, China accounts for 28 per cent, Japan 21 per cent, South Korea 11 per cent and India 10 per cent of regional refining capacity. In comparison, Australia is a very small player accounting for a little over 3 per cent of regional refining capacity.

Future refinery configurations in Asia will depend on changes in fuel demand characteristics, in particular the moves towards higher quality and lower sulphur fuels in the region.

However, there is uncertainty regarding the future supply balance of liquid fuels. While significant refinery construction and expansion is currently planned for Asia and the Middle East, these plans are being tempered by rapidly increasing construction costs and program delays.

Asian export production

In general, Asian refineries serve their own domestic demand with only Singapore, South Korea and Taiwan having any significant export capacity. The Singapore refining complex is primarily oriented to exports. This is a key reason why Singapore is the regional hub for the liquid fuels market. The Jamnagar refineries in India have also been expanded to provide significant volumes for export. Other refineries in the region occasionally sell surplus production but do not view the export market as a major source of business; the Japanese refineries have traditionally been in this category.

In the past, the Chinese refining sector was a significant exporter of gasoline providing Australia's independent retail sector with a large proportion of their gasoline supplies. These supplies to Australia, which would no longer comply with Australian fuel quality standards, were generally lower quality, lower octane, high olefinic gasoline which was augmented in Singapore with the octane enhancer MTBE. China is now a net importer of gasoline following rapid growth in domestic demand.

Refinery ownership

The majority of regional refining capacity is controlled by National Oil Companies (NOCs) or by companies with strong links to their host governments. Only 17 per cent of Asian region refining capacity is owned by the overseas affiliates of AIP members.

Shell and ExxonMobil each have around 6 per cent of total refining capacity in the Asian region with Chevron around 4 per cent and BP around 1.5 per cent.

Many of these refineries are operated in joint ventures with NOCs, so the actual level of control by AIP member company associates is significantly lower. These AIP member affiliated refineries are operated independently of Australian companies.

Given the diversity of ownership of refining capacity in the region it is clear that regional prices are set by market forces rather than by any group of companies.

Cleaner fuels in the Asia–Pacific region

Countries in the Asia–Pacific region are mandating cleaner fuels on different timelines. As demand for higher quality fuels increases, refineries in the region will produce these fuels as standard products rather than as boutique fuels for specific markets. This will result in increased supply availability of the cleaner fuels.

Euro standards (E2, E3, E4) relate mainly to the reduction of sulfur in petrol and diesel, although they also set standards for other product parameters such as benzene and other aromatics, olefins, cetane, density, lead and oxygen.