Vietnam is withdrawing from the spot product imports scene as its maiden refinery at Dung Quat is nearly done stitching up its oil product sales agreements with all the country's fuel importers. The plant, which started up in February, is now running at 70% of its 6.5 million mt/year capacity and is expected to reach full tilt in September or October.
The Dung Quat project, which must now seem a miracle to its numerous skeptics, is poised to wipe out 542,000 mt or some 30% of Vietnam's monthly import demand, mostly for gasoline and gasoil. Sure, the country will still need to import the remaining 70%, but those volumes are more or less tied up in term contracts. So no more space for minnow spot buyers.
The impact of Vietnam's disappearance from the spot market may be minimal for now, given the deep run cuts at refineries across the region. Also, surplus high sulfur gasoil is being absorbed into east Africa and the Middle East, while shorts into Indonesia are supporting the gasoline trade.
But juxtapose that against the ramp-up of incremental refining capacity coming onstream in Asia, slow demand growth, new gasoline supply from the TPPI condensate splitter in Indonesia, and it looks like Vietnam will be sorely missed, going into the fourth quarter.
Asia-Pacific is adding 2.7 million b/d of refining capacity over 2009-2010, against a projected on-year demand growth of 82,000 b/d in the region, according to industry consultants FACTS Global Energy. That is well below the pre-crisis "norm" of a year-on-year increase of 600-700,000 b/d.
China has now joined India in becoming a major swing exporter of gasoline. Apart from greenfield refineries coming onstream in the country, Beijing's decision to adopt a new products pricing formula for the domestic market and the resulting price revisions in tandem with the global benchmarks has encouraged more speculative buying at the wholesale level, causing wide fluctuations in refiner inventories.
This, in turn, has made Chinese gasoline export volumes unpredictable. The latest customs figures show gasoline exports hit a two-year high of 560,000 mt in June, a 273% surge from the corresponding month of last year. The previous high was in April 2007, at 590,000 mt.
The figures point to Chinese "apparent" gasoline demand in June being just 1.8% higher than the same month a year ago, a contrast with on-year growth rates of 20.2% in May and 13% in April. The anomaly of the June figure, in the backdrop of staggering double-digit growth rates of automobile sales in China and a 7.7% on-year average gasoline demand growth in the first half of the year, can only be explained by wild swings in stock builds and draws.
The uncertainty is exacerbated by the fact that prompt Chinese exports until now used to find a ready home in Vietnam, under framework term agreements between buyers and sellers in the two countries. Now the Chinese barrels will have to be placed into Singapore blending tanks.
Longer term, mopping up the gasoline surplus in Asia may prove daunting, as the concurrent massive build-up in India's refining capacity has shut arbitrage opportunities to the Middle East and Africa.
Indian gasoline exports are now a structural trade flow into the Middle East and East Africa and to a lesser extent, the US Atlantic Coast, and have elbowed out barrels from Asia and the Mediterranean.
The full impact of the start-up of Reliance Industries' new 580,000 b/d refinery in Jamnagar should be apparent as early as August, as the company's older 660,000 b/d refinery is now restarting from a partial shutdown. Monthly gasoline exports from RIL are expected to more than double to well above 600,000 mt.
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