//Global refined product markets may grow less certain, speaker warns

Global refined product markets may grow less certain, speaker warns

Global oil product markets could become as unstable as their crude oil counterparts because changing product specifications could reduce output from overseas refineries that have not been updated, a leading observer said. US refiners, which already export significant refined product volumes, potentially could send more overseas, suggested Sara Vakhshouri, a non-resident senior fellow in the Atlantic Council’s Global Energy Center.

“When it comes to refined products, India, Korea, and the US are the major players because their refineries are more sophisticated,” she said during a Sept. 20 presentation at the Institute of World Politics. “It’s important to emphasize US refined products, which have had more of a market impact than US crude. In the near future, more of them could be sold in China.”

Vakhshouri said that changes in the International Maritime Organization’s forthcoming new bunker fuel requirement will have a major impact in countries like Iran, which have basic refineries that have not changed over several decades. US refiners are much better positioned with their capacity to make light products from heavy crudes, she indicated.

She said that while depressed crude prices created strong gasoline demand, the Organization of Petroleum Exporting Countries reduced production by 1.2 million b/d in the face of a 1.4-1.5 million b/d increase in crude demand in 2017. To keep inventories below a 5-year average and prices above $40/bbl, another 400,000-700,000-b/d cut will be necessary to keep prices above $50/bbl, Vakhshouri said.

“Saudi Arabia still has a huge production range that’s larger than other OPEC members and could be reduced,” she said. “We think the Saudis will want to maintain their swing producer role and their 2 million b/d of spare capacity.”

Liquefied natural gas markets are less flexible because long-term commitments are required, and production capacity is higher than trading volumes, Vakhshouri said.

“Most LNG that is produced in the US is sold to middle-men instead of end users,” she noted. “LNG in Asia and the Middle East is price lower than in the US because it’s based on crude oil’s price. US LNG may start with a lower gas price, but transportation costs are so high it’s not competitive in many markets.”

Trends through 2022

Vakhshouri said that by 2022, global LNG export capacity will grow to 650 bcm/year from 452 bcm/year in 2016, and the US will account for 40% of the increase with a 90 bcm/year increase to 106.7 bcm/year. Australia’s production could grow 30 bcm/year to 117.8 bcm/year, while Qatar’s could climb 30 bcm/year to 104.9 bcm/year during that period.

She said she expects annual demand to grow 1.6%/year to almost 4,000 bcm from 3,630 bcm in 2016, with China representing 40% of the increase. Primary demand will move from power generation to industries, she predicted. Japan’s expected to push for more flexible contracts might have a major impact on global LNG markets, Vakhshouri said. “From 2025 to 2030, US LNG could be a major source for bunkering,” she said.

Asked if US gas pipelines could support more LNG exports, Vakhshouri said she thought they could, although regional prices may pose a problem. “European countries are keen on expanding their LNG supplies and diversifying their sources, but at the end of the day, their tendency is to buy gas from the least expensive supplier,” she said.

“Major international companies in Europe are looking into investing in Iran, but it doesn’t involve gas because Russia still influences prices so heavily,” Vakhshouri said. “The Qatari government has not used its gas as a political weapon, proving instead that it’s a reliable supplier.”

Contact Nick Snow at nicks@pennwell.com.

Source link