Growth from the Permian is expected to slow down slightly, averaging around 650,000 b/d over the next two years due to subdued productivity gains and investor pressure to rein in spending. This will bring West Texas Light (WTL) production to about 680,000 b/d or about 14 percent of the total. Tremendous pipeline capacity expansion will likely make quality batching easier, but still result in under-utilization out of both the Permian and the Rockies. Meanwhile, further pipeline expansion delays threaten Canadian Oil Sands production.
ESAI Energy estimates that distillation capacity will rise by nearly 1.4 million b/d per annum in 2019 and 2020. The majority of this new capacity is being added in Asia and the Middle East and it will significantly outpace global demand for crude derived products. As a result, it will begin to put pressure on global utilization rates, despite higher throughput expectations linked to IMO. Most new capacity in Asia and the Middle East, including petchem-integrated units in the former, will process medium/heavy crude from the Middle East. This will make it challenging for U.S. exports to further penetrate the market. Among other things, this means U.S. exports will seek to displace competing suppliers at existing refineries.
In 2020, the IMO sulfur cap on marine fuels will usher in significant changes to global fuels demand, pricing, and trade. This month’s Global Fuels Two-Year Outlook highlights our explicit forecast of changes in bunker demand for marine gasoil, HSFO and LSFO and examines the future of product markets more broadly through 2020.
After rising by 160,000 b/d last year, European demand for transport fuels will rise by 100,000 b/d this year to an average of 9.7 million b/d as gasoline and jet fuel demand growth decelerates and residual bunker consumption falls outright. This slowing trend will continue through 2020, when European transport fuel consumption growth grinds to a halt, buffeted by economic headwinds.
China’s crude imports in March declined to 9.26 million b/d due to refinery maintenance season. With maintenance peaking in mid-May, crude imports could slow to around 9 million b/d in the next two months. Meanwhile, weak domestic diesel demand and an adjustment to the export quota for that product suggest diesel exports could rise to 580,000 b/d.
Russian crude exports will reach a multiyear high of 5.7 million b/d in April, 400,000 b/d higher than average exports in the previous 5 months. The jump in exports will encourage more long-haul shipment of Russian crude from European ports to Asia. Extended maintenance at Tuapse, which will result in the loss of an unusually high 600,000 b/d of distillation capacity in April, has triggered these high exports.
Brazil’s diesel demand is set to rise, though domestic and macroeconomic headwinds make the recovery fragile. Refining output won’t keep up, and the import requirement will expand to 220,000 b/d, a 40,000 b/d increase over a typical month last year.
Beijing’s restructuring of freight transport will prevent the country’s diesel demand from growing much in response to an upturn in manufacturing and construction activity. That positions China’s refining sector to produce and export more diesel in response to IMO changes. As a result, China’s diesel surplus will expand to at least 230,000 b/d in 2019.
Each time Russia raises production ahead of an OPEC+ deal, there is an increase in exports from European ports, much of which is diverted to Asia. Most recently, FSU deliveries shot up by 500,000 b/d to 2.4 million b/d in late 2018. For most of the first half of 2019, FSU deliveries will be sustained at close to that level. From June through the end of the year, however, we expect a 300,000 b/d decrease.
Despite a new high for Russian diesel production and more hydrocracking capacity in the works, Russian diesel production probably will only grow 50,000 b/d this year. Meanwhile, April-May’s peak maintenance season will temporarily eliminate about 150,000 b/d of output.
This year, Europe’s crude import requirement will shrink by roughly 80,000 b/d to 9.9 million b/d as throughput falls and regional production remains steady. However, even as total imports, particularly from Latin America, the FSU and Africa, fall, inflows of U.S. crude will continue to rise significantly.
As Indian refiners prepare to upgrade facilities in 2019 to meet the nationwide Bharat Stage VI (BS-VI) fuel spec change in April 2020, we expect throughout to stay below 5.2 million b/d. Our forecast for the capacity net of outages suggests throughput will decline in the second and third quarter to 5 million b/d.
ESAI Energy expects most of the active waivers on Iranian sanctions will be renewed, but at a reduced level. This means OPEC+ will need to avoid significant increases for the rest of the year in order to lift and sustain crude prices. Seasonal demand will help as will falling Venezuelan exports.
Price changes favoring NGLs and soaring Chinese ethylene production are all unfavorable for marketed naphtha demand.
Venezuela’s fuel consumption has contracted sharply because of hyperinflation, unemployment, emigration, security concerns, electricity outages, and lack of spare parts for automobiles and other machinery. These trends are set to worsen in the months ahead.