Iran and new mega-refineries set Asia’s oil market on fire


LONDON • When the Navarin, an oil supertanker carrying two million barrels of Middle East crude, docked at the Malaysian port of Pengerang yesterday, the arrival signalled the start of a torrid time for Asia’s oil market.

The ship is delivering the first cargo to a new mega-refinery, one of three scheduled to come on line in the region in the next few months.

They’ll add a total of 1.1 million barrels a day (bpd) of processing capacity, enough to swallow the entire output of OPEC member Libya. The extra demand comes just as physical oil supplies are made scarcer by US sanctions on Iran.

“Refiners will have to buy whatever crude they can get their hands on,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd.

Supplying the new refineries, and their impact on the wider oil market, will be one of the topics of conversation at the annual Asia Pacific Petroleum Conference in Singapore, where hundreds of oil traders from across the region will gather to strike deals this week.

The first plant to start up is the 300,000bpd Refinery and Petrochemicals Integrated Development (Rapid), a venture between the stateowned companies of Saudi Arabia and Malaysia in Pengerang, less than 15 miles (24.1km) from Singapore.

The Navarin’s voyage started nearly a month ago at the Ju’aymah terminal, where it took on a cargo of Saudi crude, before topping up at the Basra terminal with a second load of Iraqi crude. If all goes as planned, the refinery will start slowly turning on units over the next few weeks, and reach full output early next year.

Rapid will be followed by two giant 400,000bpd projects in China: Rongsheng Petro Chemical Co’s plant in Zhejiang, and the Hengli Petrochemical Co’s refinery in Dalian. The two refineries will come online between the first quarter (1Q) and 2Q of next year.

All three refineries have started buying crude, both under long-term contracts and on-the-spot market, traders familiar with the matter said, asking not to be named because the information isn’t public. In the process, they’re helping to send premiums for low-quality, highly sulfurous oil — known as heavy, sour crude — in Asia sharply higher. It’s exactly the type of oil Iran had supplied in abundance.

“Oil markets are facing mounting supply uncertainty as Iran sanctions bite,” said Roger Diwan, oil analyst at consultant IHS Markit Ltd in Washington, forecasting Brent in the US$75 (RM309.75) to US$90 range from now until mid-2019.

On top of the new refiners, the Asian market is already contending with a plant that just came on-stream over the last few weeks after several delays: The 200,000bpd Nghi Son Refinery and Petrochemical facility in Vietnam. The refinery is consuming a diet of mostly Kuwaiti crude.

As oil refiners from India to South Korea scramble to find alternative supplies to Iranian crude, they are pushing up the prices of crudes that can substitute for lost shipments. For many in the physical trade in Asia, the regional market is on fire.

Oman crude has recently traded at more than US$2 a barrel over the Dubai benchmark, the highest in eight years, according to Bloomberg data. ESPO Blend, a Russian crude that arrives into China via pipeline from Siberia, is selling at its highest premium to its benchmark in four years, traders said.

Iranian oil exports into Asia fell to 880,000bpd in the first half of September, down from 1.6 million bpd in April, before US President Donald Trump ripped up the diplomatic deal that curtailed Tehran’s nuclear programme.

The Rapid plant is set to import most of its crude from Saudi Arabia and, to a lesser extent, Iraq. The Rongsheng plant was meant to buy a mix of crude from Brazil, Saudi Arabia and Iran, but with US sanctions on Tehran, it’s so far replacing Iranian with Omani and Iraqi supplies.

The Hengli refinery is designed to process mostly Saudi crude, with a bit of Qatari oil on top.

In total, the three new refineries will probably import at least 600,000bpd of Saudi crude when they reach full capacity by the middle of next year, a significant boost for the kingdom, which usually exports seven million to 7.5 million bpd of crude.