Putin's war makes the West more dependent than ever on Asian fuel

Putin’s war makes the West more dependent than ever on Asian fuel

(Bloomberg) — The war in Ukraine reinforces the role of Asia and the Middle East as the world’s main suppliers of fuels like diesel and gasoline that are crucial to the global economy.

Bloomberg’s Most Read

As Europe and the United States seek to reduce their dependence on Russian petroleum products, they face a supply shortage at home. This opens up opportunities for mega-refineries in places like China and Kuwait to flood the market with fuel.

“By turning their backs on Russian petroleum products, Europe and the United States are increasing their dependence on long-haul barrels from the Middle East and Asia,” said Eugene Lindell, head of refined products. at the industrial consultant FGE, based in London.

Russia’s invasion is creating greater disparity between the two regions after Western nations have drastically reduced their refining capacity in recent years, while the other side of the world expands.

Western markets, including the Americas and Europe, closed net refining capacity of 2.4 million barrels per day over the past three years, while the Middle East and Asia added 2. 5 million barrels, according to FGE.

This gap is expected to widen. About 8 million barrels a day of new refining capacity is expected to come online over the next three years, with Asia adding the most and Europe the least, according to Rystad Energy estimates.

“We will see Asia and the Middle East increasingly becoming the fuel suppliers of the world,” said Mukesh Sahdev, head of downstream practice for Rystad. East-West flows of refined products “will become more structural”, he added.

READ: The big bottleneck of oil market refining in five charts

The seismic shift in the global refining industry was accelerated during the pandemic, when older plants were shuttered as global shutdowns decimated demand for oil. China has since built larger and more sophisticated refineries to meet the country’s growing oil needs, while the United States and Europe have focused on transitioning from fossil fuels.

Consumption of fuels such as gasoline and diesel in the United States and Europe will mature before Asia, said Victor Shum, vice president of energy consulting for Singapore-based S&P Global Commodity Insights. Many new refinery projects in Asia have also been built given the region’s growing petrochemical demand, he said.

Russia’s invasion of Ukraine and subsequent Western sanctions on its fuel supplies have taken global energy markets by surprise, with fuel security concerns now taking center stage for countries without sufficient refining capacity. In this climate, any refinery outages resulting from strikes or unscheduled shutdowns will be felt even harder in all markets.

“European governments and their citizens struggling with massive utility bills and runaway inflation are now prioritizing the next few years rather than 2040-2050,” said FGE’s Lindell.

The West is feeling the pressure to have fewer refineries. Northwestern Europe’s diesel stocks are falling and will bottom out in early spring, according to a forecast from Wood Mackenzie Ltd., as the European Union plans to cut off Russian fuel maritime imports in February.

Meanwhile, growing diesel and gasoline shortages on the US East Coast are prompting President Joe Biden to consider a mandate forcing oil companies to store more fuel in the country. The gasoline crisis is likely to worsen further towards the peak summer driving season, Rystad’s Sahdev said.

According to John Auers, managing director of RBN Energy, Latin America has become more dependent on imports as several refineries in the Caribbean have closed and facilities in Venezuela and Mexico continue to experience major outages and low operating rates. .

Mexico is grabbing gasoline from China, where refiners are taking advantage of higher export quotas by operating harder and shipping more.

Moving petroleum products westward over longer distances drives up shipping costs sharply and leads to higher tanker revenues. According to data from Vortexa Ltd., the volume of fuel transported by sea is 3% higher than the averages observed over the past five years. That’s being led by diesel from Asia and the Middle East to Europe, and volumes could increase as the latter bans Russian supplies, said Serena Huang, chief Asia analyst for Vortexa.

READ: Europe’s diesel crisis is a lesson in energy security, says veteran

Granted, the United States is still a major exporter of diesel, and efforts to bolster energy security can help ease shortages, but analysts don’t see the capacity gap closing any time soon.

“We should see more realistic energy policy in the future, but the fossil fuel exit plans are still there,” FGE’s Lindell said. “It’s just that the focus is on the short to medium term now, rather than the very long term.”

–With the assistance of Jack Wittels.

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP

#Putins #war #West #dependent #Asian #fuel

Leave a Comment

Your email address will not be published. Required fields are marked *