The Asian gasoline crack, the spread between 92 RON gasoline and Brent futures, is likely to be stable to slightly higher in 2017 compared with 2016 led by higher demand, an analysis by S&P Global Platts showed.
Though China's demand growth is expected to be moderate in 2017, India, Pakistan and Indonesia are likely to maintain strong upward momentum.
The gasoline bull run of 2015, which saw cracks rise to $12.50/b, was mainly induced by suppliers unable to keep pace with a sudden rise in demand driven by low pump prices.
When producers did catch up later that year, they created so much oversupply that spilled over into early 2016 and sent Asian gasoline cracks to a three-year low in July. Cracks in 2016 are expected to average about $4/b below 2015.
Though demand is expected to grow in 2017, the market is unlikely to see the sudden surge witnessed in 2015 that suppliers were unable to cope with.
WATCH OUT FOR CHINA
A key factor to watch out for in 2017 is whether China is able to sustain its recently acquired status of North Asia's largest gasoline exporter, having supplied 8.74 million mt (221,763 b/d) over January-November 2016, up 74%.
Some uncertainties have emerged after Beijing delayed allocating export quotas to independent refiners for 2017. But even if the independent refiners are unable to directly access the export market, they can do so via state-owned refiners, and if that does not work, they can supply the product locally and leave their state-owned counterparts with more output to export.
New refining capacities are supportive of larger export volumes in 2017, especially since domestic demand growth is expected to be moderate in 2017.
China's demand for gasoline is expected to grow by about 5% year on year in 2017 to 2.9 million b/d, according to Platts China Oil Analytics.
PetroChina's 260,000 b/d Anning Refinery in landlocked southwestern Yunnan province is expected to start up in Q2 2017.
The plant will produce 3.34 million mt/year of gasoline when run at full capacity. Although this refinery is not export-oriented, its start-up will significantly free up gasoline supply from neighboring Guangxi province, enabling the 240,000 b/d Qinzhou refinery in Guangxi to export more gasoline. Guangxi currently exports two to three MR-sized gasoline cargoes each month.
CNOOC's 200,000 b/d expansion at the Huizhou refinery is expected to be completed by mid-2017. This will add at least 2 million mt/year of gasoline output when run at full rates. Huizhou currently exports about 50,000 mt of gasoline each month.
STABLE NORTH ASIA
Other North Asian exporters are not likely to see any big change in gasoline exports in 2017.
Being mature energy markets also means that their gasoline demand is likely to grow at a marginal rate or even contract.
There is no new gasoline capacity to be added in South Korea in 2017.
With marginal growth in domestic consumption -- South Korea's gasoline consumption has grown 2.8% year on year to 72.13 million barrels in the first 11 months of 2016 -- South Korea's export of the fuel is expected to stay around the 2016 level of 210,000 b/d.
Similarly, Taiwan will not see any new gasoline capacity in 2017, though CPC's new condensate-fed aromatics unit, which is expected to start up in Q1, can theoretically swing to boost gasoline production.
In Japan, the smallest net exporter in North Asia, more refining capacity cuts are expected in 2017. Gasoline demand has contracted by around 1% in the first 10 months of 2016 and is expected to contract further in 2017, implying the country's exports will stay stable. Japan exported around 56,000 b/d over January-October 2016.
INDIA LIKELY TO CUT EXPORTS
India is likely to be the only Asian net exporter to see a drop in gasoline exports as growing demand will more than offset capacity additions.
India's gasoline demand rose 12.6% year on year to 21.69 million mt (483,000 b/d) over January-November 2016 and is expected to maintain the same pace in 2017. India exported 15 million mt (334,500 b/d) of gasoline over the same period, up 4.7% year on year.
IOC's Paradip refinery has not produced gasoline at nameplate capacity in 2016 due to technical issues at its 2.9 million mt/year reformer. If IOC is able to stabilize the unit, it should see its production of the fuel rising to the designed 3.4 million mt/year when run at full rate. BPCL is likely to be able to supply more gasoline to the domestic market with the addition of 6 million mt/year of crude distillation capacity and secondary units at the Kochi refinery in Q1 2017.
However, both will be dwarfed by the country's surging gasoline demand, which means state-owned companies will have to buy more gasoline from private refiners Reliance and Essar Oil, which in turn will reduce their exports.
Both private refiners also have ambitious plans for the domestic market, which is likely to eat into their allocations for international markets.
INDONESIAN IMPORTS TO REBOUND
Indonesia, Asia's biggest gasoline importer, will see a rebound in imports in 2017 on growing local demand and absence of new refining capacity.
Total gasoline imports fell by more than 10% to about 1.02 million mt/month in 2016, after the start-up of two new gasoline units in late 2015.
Consumption rose by more than 5% to around 2 million mt/month, according to Platts calculations based on industry data, and the pace is likely to continue into 2017.
None of Pertamina's proposed refinery expansions are expected to be completed in 2017, and the supply shortfall will have to be made up with more imports.
Uncertainty lies in the production mode of TPPI, a 100,000 b/d condensate splitter that was restarted in late 2015 to maximize gasoline production instead of its designed use of aromatics production.
The unit was running at 70%-80% rates in 2016, producing 42,000-48,000 b/d of much needed gasoline.
Pertamina has been quiet on the plans for TPPI in 2017 -- whether it will be operated to produce gasoline or aromatics.
VIETNAM'S NEW REFINERY
Imports will continue to meet most of Vietnam's gasoline demand in H1 2017, but will fall as the country's second refinery starts up in Q3 2016.
Vietnam imported 2.23 million mt of gasoline in the first 11 months of 2016, down 5% year on year.
The 200,000 b/d Nghi Son refinery will be able to cut the country's gasoline imports by three to four MRs (105,000-140,000 mt) each month if it is run at full capacity.
A majority of Vietnam's gasoline demand is met with imports from South Korea due to favorable tax arrangements.
Pakistan will not see any gasoline capacity addition in 2017, so import volumes will likely rise further amid fast-growing demand.
Pakistan's gasoline demand averaged 557,000 mt/month over July-October, according to latest government data. This was up sharply from 365,000 mt/month over the full fiscal year 2015-2016 (July-June).
The country imported 4.2 million mt of gasoline over January-November this year, 18% higher than the same period of 2015.
