SEOUL/SINGAPORE: Asia’s diesel demand is expected to grow this year at the second lowest rate since the 1998 financial crisis as slowing economies and subsidy cuts squeeze consumption and help build a surplus for which there are few markets.
Demand in top regional consumers China, India and Indonesia is expected to remain stagnant or fall. And as new refining capacity is added in Asia and the Middle East, excess diesel is seen hitting an annual average of more than a million barrels per day (b/d) in 2014, according to one oil and gas consultancy.
That means regional returns or cracks from processing crude into the fuel — already near three-and-a-half year lows — will remain slim, analysts said. Since diesel or gasoil accounts for nearly 40 percent of the typical Asian oil plant’s output, overall processing profits will also be pressured and some regional refiners are already slowing run rates.
Asia’s surplus diesel would normally be shipped west but Europe is facing a glut as well, with diesel margins there holding at multi-year lows. “A partial recovery this year is expected but growth will probably still fall short of the levels seen in 2011 or 2012,” said Alex Yap at energy consultancy FGE.
Asia’s diesel demand will grow slightly faster this year than in 2013, when it rose less than 1 percent — the lowest in 15 years, FGE said. Oil consultancy Wood Mackenzie (Woodmac) has lower numbers, forecasting diesel use in Asia to grow at 0.45 percent compared to average annual growth for the past five years at 3.9 percent.
For the second quarter this year, Woodmac estimated Asian diesel demand 0.7 percent higher than last year, while forecasting growth in 2015 at 1.7 percent.
This slow growth amid increasing capacity will result in a diesel surplus of around 1.2 million bpd this year, said Suresh Sivanandam, an analyst at Woodmac, with China’s diesel exports averaging around 90,000 b/d, nearly double from 2013.
China is bringing on new refineries even as demand growth there drops to its slowest in decades, forcing Asia’s top consumer to turn exporter and flooding the region with supplies far in excess of demand.
New plants in India and the Middle East are also contributing to diesel’s overhang, analysts said.
Diesel is Asia’s most widely consumed fuel, used in everything from power generators and factories to trains and trucks. Given its broad applications, the product is often seen as an indicator of a country’s economic health.
There is some room but not a lot for Asian products to be soaked up elsewhere, said Amrita Sen, chief oil market analyst at Energy Aspects.
“Asian products have to move out of Asia ... but competition from other players such as the Middle East, Russia and the U.S. is rising,” she said.