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ANALYSIS

Saudi refining... on track to step up by 1.2 million bpd

New capacity to change Saudi’s refined product balance

RIYADH, November 18, 2014

A rapidly rising population, economic growth and improving living standards will drive Saudi Arabia’s refining capacity increase by 1.2 million barrels per day (mbpd) by the end of the decade, a report said.

This includes the Satorp refinery, which is already up and running, and the Yasref refinery, which will start up by the end of 2014, added the “Outlook for Crude Oil Refining: Focus on the Saudi Refining Sector in a Global Context” report released by Riyadh-based Jadwa Investment, a Saudi closed joint stock company operating under the supervision of the Saudi Arabian Capital Markets Authority.

Regardless of the current oversupply of global refining capacity, a plethora of refining projects will add around seven mbpd of highly complex capacity between now and 2020. This also includes new refineries from Saudi Arabia, which will make it a net exporter of middle distillates (including diesel) by 2020, joined by Russia, China, US and India.

Key trends in the Saudi Arabian refining sector

Investment in the refining sector in Saudi Arabia has been a long term policy goal for the government as it was, and still is, seen as sure way of achieving diversified economic growth and employment for the Saudi population.

At the end of 2013 Saudi refining capacity totaled 2.5 mbpd, the largest capacity in the GCC region, with Kuwait a distance second at 0.94 mbpd. Since the majority of the Saudi refinery capacity was built before 1990, such assets are older and less advanced and therefore produce a large proportion of lower value heavy distillates (such as fuel oil) comparative to other regions.

Saudi refined product consumption in 2002 averaged 1.2 mbpd, but by 2013 this had almost doubled to an average of 2.2 mbpd.

Saudi Arabia has one of the lowest priced transportation fuels in the world, with diesel at $0.067 per litre and gasoline at $0.16 per litre. Furthermore, refined products are also supplied at similar discounted rates to the Saudi Electric Company (SEC), which uses around 200 thousand barrel per day (tbpd) of diesel and 40 tbpd of fuel oil for electricity generation.

Due to the combination of rapid expansion in demand and Saudi refineries higher proportion of heavy distillate output, a deficit in light and middle distillate products has developed. In particular, the rise in the consumption of diesel and gasoline has translated to a steadily rising level of imports of both these products in the last few years.

Saudi Arabian refining sector outlook

The three new and highly complex refineries totalling 1.2 mbpd will change Saudi Arabia’s refined product balance by 2020, but the degree of this change is dependent on the growth in domestic product demand.

As Saudi Arabia’s economy maintains its expansionary phase between now and 2020, on the path to developing into a more diversified advanced economy, we anticipate that growth in refined product demand is likely to grow at an even faster rate than the previous decade.

As a result, at the end of 2020, Saudi Arabia will remain a net importer of light distillates. The three new refineries will add a total of 260 tbpd of light distillate capacity from 2014-2020, but demand will grow by a total of 330 tbpd during the same period. With no imminent reform in subsides on transport fuel, it is no surprise that gasoline will be the driver of growth in light distillates consumption.

Although some surplus of light distillates will develop during the period in question, demand will end up exceeding supply by 2020, with the effect of additional refinery capacity only reducing the level of imports rather than achieving self-sufficiency.

The slower pace of demand growth in middle distillates, compared to light distillates, and a large proportion of refining capacity being configured towards this segment will result in a surplus of middle distillates equal to 470 tbpd by 2020.

Thus Saudi Arabia will be an exporter of middle distillates by 2020, but the lack of a viable medium term alternative in the generation of electricity ,due to limited natural gas reserves and accompanying infrastructure, will ensure the continued use of diesel in meeting domestic electricity demand, thereby eating into potential exports.

Given the high levels of complexity of all three refineries, the growth in heavy distillates output will be minimal. But, as with diesel, the continued use of fuel oil in the power sector will result in Saudi Arabia importing small amounts of heavy distillates by 2020, reversing its position as an exporter of this segment in 2014. - TradeArabia News Service




Tags: Saudi Arabia | Distillates | oil refining |

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