Analysis by Poten & Partners
According to an analysis issued by Poten, in recent years, a number of oil companies operating in the Australian market have decided to close their least efficient refineries and import products to satisfy demand. Chevron announced to divest its 50% shareholding in Caltex Australia which owns the 109 thousand barrels per day (Kb/d) Lytton refinery. In 2012, Shell shut down the 85 Kb/d Clyde refinery, the 124 Kb/d Kurnell refinery closed in October 2014, while BPs 102 Kb/d Bulwer refinery in Brisbane is scheduled to close later in 2015. The 120 Kb/d Geelong refinery, formerly owned by Shell, was sold in 2014 to Vitol and remains operational. After these closures, Australia still has four operating refineries with a total capacity of 465 Kb/d.
In 2014, Australia consumed 989 Kb/d of refined products, 10 Kb/d more than in 2013. Gasoline demand declined in recent years while demand for middle distillates has increased. Only about 18% of all vehicles in Australia currently run on diesel and less than 10 % of passenger cars but new car registrations show a growing popularity of diesel vehicles. Diesel demand has increased by almost 5% per annum in the last 4 years.
As refineries closed, Australian product imports increased (see Fig 1). Total product imports amounted to 418 Kb/d in 2014, with an average of 409 Kb/d in the first 9 months and an average of 456 Kb/d since October. More than half of the imports in 2014 were middle distillates, followed by gasoline (17%).
Almost half of the clean product imports during the most recent financial year (July 13 June 14) came from Singapore (46%) followed by South Korea (23%) and Japan (19%). Over the last 3 years, Singapore has lost market share from 60% in 2011/2012 fiscal year. South Korea and Japan have increased their share of imports from 14% and 16%, respectively.
Given that Australia is relatively remote from major refining centres, the import requirements are shipping intensive. The distance from South Korea to Sydney is about 4,350 miles while Singapore is about 4,100 miles. As there are very limited opportunities for backhaul cargoes, ships typically need to ballast back. Imports are currently predominantly on MR tonnage and employ an estimated 38 vessels year round. Once the Bulwer refinery closes later this year and all lost refining capacityis replaced by imports, an additional 9 vessels (MRs) will be needed.
Annual crude imports followed the refinery developments: Imports peaked at about 500 Kb/d in 2012 and decreased to about 390 Kb/d in the last four months. Australia uses almost half of its 402 Kb/d crude oil and NGL production domestically and the remainder is exported, mainly to Singapore and Thailand.
In aggregate, crude and product imports into Australia have been relatively constant in recent years. However, as the product tanker fleet is much smaller than the crude tanker fleet, the positive impact on the product market is more significant than the negative impact on the crude market. A development to watch is whether larger product carriers (LR1s and LR2s) will start to play a bigger role in the Australian product trades. Import volumes will grow further and oil companies and traders are upgrading port and terminal infrastructure.
Source: Poten
