The days may be numbered for Asian refiners and oil traders who have long profited from intermittent arbitrage for selling surplus regional motor fuel cargoes into Western markets – Reliance has arrived.
India’s biggest private company formally commissioned its new 580,000 barrels per day (bpd) Jamnagar refinery last week, nearly doubling the company’s capacity and creating the world’s single-largest refining complex at 1.24 million bpd. Once it hits full stride by the second quarter, when it is expected to begin exporting fuel to capitalise on an Indian fiscal-year tax break, it will add an enormous 8 million tonnes of gasoline and 12 million tonnes of diesel to the market every year, upsetting current supply flows, traders say.
Competitive prices
Because of its location on India’s West Coast, it is in prime position to meet any unsatisfied demand that emerges from the mainstay European market or even the Middle East and Africa, where demand could continue to expand even as a global recession restricts demand in the rest of the world. “When both its refineries are running … it looks likely that Reliance will offset or replace North Asian diesel barrels going West,” said a Singapore-based trader.
Already besieged by a demand slump on fears of a deep recession, that lost market has forced refiners such as top exporters Formosa Petrochemical Corp in Taiwan and SK Energy, South Korea’s biggest refiner, to sell at more competitive prices or even to cut runs in future.
And trading firms such as Vitol or Trafigura, which make much of their living on arbitrage, would need to overhaul their trading strategies to fit in Reliance’s additional supplies through term contracts, for example.
The private Indian refiner, which commissioned the $6 billion (Dh22.03 billion) plant last Thursday, may start large-scale exports only from April. Having established a global trading network from Singapore to London to Houston, Reliance will be able to quickly reach the most profitable market for its ultra high-quality fuels, but distance and marketing networks will also be important.
Oil traders expect Reliance to export its gasoline mainly to Africa and the fast-growing Middle East – because of freight rate advantages – as opposed to United States, while low-sulphur diesel will be shipped mainly to Europe and the Mediterranean, where diesel is the preferred motor fuel.
(Reuters & Gulf News)