Analysis by Drewry
Reported Clean Spot Fixtures from the Middle East
According to Poten & Partners, Middle Eastern oil powerhouse Saudi Arabia has been eyeing the product export markets for several years now. Exporting refined petroleum products in addition to crude oil is advantageous to OPEC members as refined products have a higher value and are not subject to the OPEC quota regime. However, while refining capacity in the Middle East, and Saudi Arabia in particular, has expanded significantly, domestic demand in these countries has also shown rapid growth. For some time this has limited the availability of product for export, but that could be changing as new capacity continues to come on stream. Additionally, increasing exports have boosted employment opportunities for product tankers in recent years.
Saudi Arabia has a total refining capacity of 2.9 million b/d. About 1.2 million b/d of this capacity (40%) has been added since 2009 via three refineries of 400,000 b/d each, all built in joint venture (JV) with foreign partners. The Petro Rabigh refinery (JV with Sumitomo) was completed in 2009, the Satorp refinery (in partnership with Total) started up in 2013 and the most recent project was the Yasref refinery in Yanbu. This facility, which is still ramping up throughput, has Sinopec as partner. The Yasref refinery started processing crude in September 2014 and shipped its first cargoes in January of this year.
One Saudi mega-project is still on the drawing boards: the 400,000 b/d Jazan refinery is slated for 2018 start-up. It is the first greenfield refinery to be undertaken by Saudi Aramco without foreign investment since the mid-1980s. After this refinery is operational, Saudi Arabia will most likely be the worlds second largest exporter of refined products, after the United States.
Refined product movements from the Middle East are already one of the most significant and fastest growing trades. Statistics from the Joint Oil Data Initiative (JODI) show that refined product exports from Saudi Arabia averaged 674,000 b/d in 2014, a 50% increase over the 447,000 b/d in 2013. The product that has seen the most significant growth in recent years has been gasoil/diesel. Further increases in exports are expected this year, as the Yasref refinery ramps up and will reaches full capacity.
The impact of these developments on the product tanker market is significant. An analysis of reported spot fixtures shows a sizeable increase in the number of product carriers loading in Saudi Arabia in recent years.
Looking at the Middle East as a whole, the same trend is evident: refined product exports are growing rapidly. While there appears to be a fair amount of short-haul, intra-regional trade, long-haul exports are clearly increasing as well. While the MR tanker is still the workhorse of the product trade, the larger LR1 and LR2 product tankers are leading the way for the long-haul destinations in the Far East and Europe.
The advance of the mega refineries in the Middle East has prompted another development as well: the advance of Suezmax-sized product tankers or LR3s. Due to their size and relative scarcity, LR3 tankers tend to be employed in certain dedicated trades and we have not seen many fixtures for these vessels reported, but this could change in the future as charterers will want to maximize efficiency and take advantage of their economies of scale.
Product exports from the Middle East are still at an early stage and will provide employment opportunities for allproduct tanker segments.
Source and Image Credit: Poten
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