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ASIA REFINED PRODUCT MARKET

Grace Lee – Senior Analyst

Matthew Chew – Senior Analyst


2

INTRODUCING PLATTS ANALYTICS

• A new division in Platts which delivers insight on what drives

supply and demand and how that impacts prices

• Builds on 100 years of expertise in price assessments and news

and analysis

• Capabilities developed internally and through the integration of

Bentek Energy, Eclipse Energy and PIRA Energy

• Does not produce benchmarks, is not involved in price

assessments

• Initial Asian offering: China Oil Analytics


3

AGENDA

• Asian Refined Product Overview

• China – Regulatory Risks in the Horizon

• Southeast Asian Buyers – Indonesia, Vietnam

• India as the New Growth Engine

• Key Refining Hotspots

• Gasoline vs. Diesel

• Outlook for Asian Refining Margins


Private & Confidential 4

CONSUMERISM FUELS ASIA OIL DEMAND GROWTH

-400

-200

0

200

400

600

800

1,000

1,200

1,400

2011 2012 2013 2014 2015 2016

b/d

KEY OIL PRODUCTS DEMAND GROWTH

LPG Naphtha Gasoline Diesel Kerosene Fuel Oil

Source: APPEA, NBS, China GAC, PPAC, KNOC, METI, BOE, EPPO, Handbook of Energy and Economic Statistics

Australia

China

India

Indonesia

Japan

South Korea

Singapore

Taiwan

Thailand

Pakistan

Philippines Vietnam

y = 0.9168x + 0.008 R² = 0.3653

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

20

16 K

ey

Oil

Pro

du

cts

De

ma

nd

Gro

wth

(%

)

2016 GDP Growth Rate (%)



RECORD CRUDE RUNS IN 2016

• Crude runs of key Asian refineries grew to a new high despite closures in Taiwan, Japan

• Fewer refinery turnarounds, in part due to better straight-run profits and still robust cracking margins

• Heavier turnarounds in 2017 due to build up of “maintenance”

• Independent refiners in China allowed to process imported crude

• Start up of Paradip refinery in India as other refineries raised runs

• Another 800-900 kbpd of refinery capacity will commence operations



PRODUCT CRACKS & TIME SPREADS

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Naphtha Gasoline Diesel Kerosene Fuel Oil

$/b

SINGAPORE PRODUCT CRACKS

2014 2015 2016 2017 Feb YTD

Source: Platts Analytics

-0.8

-0.4

0.0

0.4

0.8

1.2

Naphtha Gasoline Diesel Kerosene Fuel Oil

$/b

SINGAPORE PRODUCT M1-M2 TIME SPREADS

2014 2015 2016 2017 Feb YTD

Source: Platts Analytics



GASOLINE: CHINA & INDONESIA

30

32

34

36

38

40

42

44

46

48

50

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

barrels

Mil

lio

n

AGGREGATE GASOLINE STOCKS IN KEY ASIA REGIONS

2013 2014 2015 2016

Source: IE Singapore, China OGP, METI, KNOC, APPEA

0%

10%

20%

30%

40%

50%

0

100

200

300

400

500

2012 2013 2014 2015 2016 2017

kbpd SINGAPORE GASOLINE IMPORTS BY COUNTRY

China India Taiwan S KoreaJapan Malaysia Others % China

Source: IE Singapore

200

240

280

320

360

2014 2015 2016

kbpd INDONESIA GASOLINE IMPORTS

Source: BPS



CHINA: POLICIES AND REGULATIONS

• Government reforms for the oil sector post leadership reshuffle

• GDP growth expected to slow to 6.5%, with debt, currency as key macro risks

• Current state means consumer fuels, including gasoline, LPG, naphtha, jet fuel continues to increase although growth rates are forecasted to slow

• Diesel demand expected to fall further but note of pick up in industrial activity at the end of 2016

• Fuel demand plunged last year as independent refiners switch to crude, but replacements have likely peaked

-250

-150

-50

50

150

250

350

Gasoline Gasoil Jet LPG FO Naphtha

kbpd CHINA APPARENT OIL DEMAND GROWTH

2016 2017ESource: NBS, GAC

2014 2015 2016

GDP Growth (%) 7.30 6.90 6.70

CNY / USD Exchange Rate (Avg) 6.14 6.23 6.64

Li Ke Qiang Index (%) 5.76 2.76 7.18

Steel, Coal, Cement Production (Mn Tons) 7,173 6,899 6,575

Automobile Sales (Mn) 23.49 24.56 27.94

Ethylene Production (Mn Tons) 17.04 17.15 17.81

Source: NBS



INDONESIA: PROGRESS ON REFINING

• Largest regional importer of gasoline and third largest buyer of gasoil

• Economic growth, large population and supportive demographics underpin oil demand growth of 2-3%

• Oil demand > supply by 600 kbd

• Refining Development Master reinvigorated as Pertamina makes progress on refinery upgrades

• Expect new refinery additions from 2021 to lower gasoline imports by 12%, with diesel inflows insignificant

0

300

600

900

2013 2014 2015 2016

000 b/d

INDONESIA OIL PRODUCT IMPORTS

Gasoline Diesel LPG Kerosene Fuel OilSource: BPS

2014 2015 2016 2017

Population 252 255 259 262

GDP Growth (%) 5.0 4.9 5.0 5.3

Inflation (%) 6.40 6.36 3.66 4.15

Current Account (% GDP) -3.09 -2.06 -2.26 -2.33

Source: IMF, Statistics Indonesia


Indonesia 2014 2015 2016 2017

Population 91 92 93 94

GDP Growth (%) 6.0 6.7 6.2 6.2

Inflation (%) 4.09 0.63 2.05 3.65

Current Account (% GDP) 5.12 0.47 0.38 0.11

Source: IMF


VIETNAM: RISING CAPACITY

• Second largest importer of gasoil, overtaking Indonesia; also a major gasoline buyer

• Economic growth of 6-7%, supported by manufacturing growth

• Nghi Son refinery to commence operations in 4Q may see country becoming self sufficient in gasoline

• Jet fuel and diesel imports could reduce by 70% and 40%

• Bound by ASEAN Free-Trade Agreements, which should support imports from member countries and states with ASEAN trade pacts

0

70

140

210

280

350

2014 2015 2016

000 b/d VIETNAM OIL PRODUCT IMPORTS

Gasoline Diesel LPG Kerosene Fuel Oil

Source: Vietnam Customs


11

INDIA: ASIA’S NEW GROWTH ENGINE

• Oil product demand up by 10.2% in 2016 led by LPG (11%), gasoline (12%) and gasoil (5.4%)

• Gradual deregulation of oil products with targeted subsidies (kerosene, LPG)

• Government-led infrastructure projects and initiative to raise manufacturing’s share in GDP

• Demonetization policy not expected to impact oil demand long term

• Improved income heralds higher demand for air travel

2014 2015 2016 2017F

Population (million) 1,276 1,293 1,310 1,327

GDP Growth (%) 7.2 7.6 7.6 7.6

GDP Per Capita (US$) 1,601 1,604 1,719 1,852

Oil Demand Growth (%) 3.4 8.4 10.2 6.8

Source: IMF, PPAC, Platts


12

INDIA: KEY DEVELOPMENTS IN REFINING AND PETROCHEMICALS

Paradip: 300 kb/d refinery commissioned in early 2016 with 700 kTa polypropylene plant to be completed by end 2017

Haldia: 35 kb/d delayed coker unit in existing 150kbd refinery to be commissioned by end 2017

Kochi: Expansion of 200 kb/d refinery to 300 kb/d to be completed in early 2018

Bathinda: Expansion of 180 kb/d refinery to 225 kb/d to be completed in mid-2017

Jamnagar: Expansion of 1.24 million b/d refining and petrochemical complex to be completed by end 2017

Chennai: Residue upgrading project at existing 200 kb/d refinery to be completed by end 2017


13

KEY ASIAN REFINING HOTSPOTS

(+) India: Paradip

ramps up, Kochi will

be expanded and

upgraded in 2017; will

domestic demand

keep up or are exports

set to rise?

(+) Indonesia:

Progress on new

expansions, but

hurdles remain for

new greenfield

capacity

(-) Australia:

Closures halted due

to rebound in

refining margins

and mining activity

(-) Japan: Closures and

consolidation amidst

ongoing structural decline in

demand

(+) Vietnam: Nghi

Son to start in

3Q17, reducing

import

requirements

(+) China: Continues

to build capacity in

2017; independents

denied product export

quotas. Will excess

capacity be unleased

on the export market

as demand slows?

(+) Malaysia:

RAPID scheduled for

2019, potentially shifting

net balances significantly


14

GROWTH IN GASOLINE DEFICIT SLOWS; GASOIL SURPLUS SHRINKS

• Surplus expected to fall in 2017 on reduction in gasoil yield and heavier maintenance season

• Continued recovery in China’s manufacturing sector could provide potential upside to regional balance

• Gasoline demand growth expected to slow down from 5.5% in 2016 to 3.8% in 2017

• New refineries and capacity expansions continue to focus on light distillates production


15

GASOIL CRACKS RECOVER


16

GASOIL HOTSPOTS IN 2017

Thailand And Vietnam

China

India

Japan

Australia

Korea

Malaysia and Singapore

Indonesia

Taiwan

Indonesia and Australia: Robust mining activity on stable coal prices

Japan: Structural decline to continue despite slight pick up in industrial activities

South Korea: Fuel diversification – LPG fueled taxis and increasing popularity of diesel cars

Thailand and Vietnam: Severity of monsoon season on irrigation demand

India: Impact of demonetization policy on industrial activity and infrastructure development

China: Economic restructuring and consolidation in mining and steel sectors


17

SUMMARY

• Demand: As China slows, India has taken up the baton as the key engine of demand growth, but what would be the dampening effect of demonetization?

• Supply: Increase in refining run rates to slow in 2017 after record runs in 2016 on heavier maintenance season and Japan consolidation

• Refining margins expected to remain supported in 2017, but can they withstand the arrival of new capacities further out?

• South East Asia has been the key import market in Asia, but will this remain the case post 2020?

-200

-100

0

100

200

300

400

500

LPG Naphtha Gasoline Jet-Kero Gasoil Fuel Oil

ASIA PACIFIC OIL PRODUCT Y-O-Y DEMAND GROWTH

2014 2015 2016 2017 E

Source: Various Country Statistics, Platts

000 b/d


18

THE END

Thank You [email protected]

[email protected]

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