Australia in sweet spot to meet Asia demand for ultra-light oil
LONDON, June 23, 2016
Australia is in pole position to capture a bigger piece of the growing Asian condensate market, with producers pumping new supplies of the ultra-light oil as natural gas output soars to feed the nation's mega LNG projects.
An Australian wave of liquefied natural gas (LNG) supply has helped pull Asian LNG prices down by 75 percent since 2014 LNG-AS, so selling more lucrative condensate to Asian buyers could give a lifeline to less profitable projects.
Australia's Ichthys LNG export project, for instance, operated by Japan's Inpex Corp, could produce more than 100,000 barrels per day (bpd) of condensate when it starts up next year.
"The fact that the project is liquid-rich is one of the reasons that this project is economically in good standing," an Inpex spokesman said, adding that the company has started marketing its condensate, primarily to customers in Asia.
Condensate is a light oil produced in association with natural gas, and its consumption is rising across Asia as new refineries or splitters come online to meet strong demand for it to be used to make the chemical feedstock naphtha.
Besides Inpex, Chevron Corp plans to produce 38,000 bpd of condensate once it ramps up its Gorgon LNG project on Barrow Island off the northwest coast of Western Australia.
Chevron declined to comment for this article.
The circle of condensate suppliers is small, though, and Australia has the inside track on selling to Asia, especially with some Middle East producers building their own splitters.
"The outlook is quite pessimistic (for buyers) as sweet condensate supplies are very limited," said an Asian oil buyer who declined to be named due to company policy.
Qatar, a traditional exporter to Asia, plans to divert a third of its output to its own splitter by January.
Rival producer Iran could fill some of that shortfall, and it has stepped up exports to South Korea following the lifting of sanctions against Tehran, hitting a record in June.
Quality issues with Iran's condensate, however, limit its attraction to buyers. The outlook on its supplies is also murky on delays in the start-up of its splitter projects and a ramp-up of production from its South Pars field.
Premiums for Qatari condensate loading in February hit a record, but have since fallen back on weak naphtha margins. The rise in condensate use as splitters start up from September could drive premiums higher again, traders said.
CUTTING ASIA NAPHTHA SHORTFALL
Asia's petrochemical makers are net short of naphtha, although that deficit is expected to fall as much as 5.5 percent next year to 5.2 million to 5.3 million tonnes a month, according to Premasish Das, director for Asia and Middle East downstream oil markets at energy consultancy IHS.
The drop will come as condensate splitters that were planned a few years back to capture growth in petrochemical markets come online in Asia to feed adjacent paraxylene units.
Combined condensate supplies from Ichthys and Gorgon of almost 140,000 bpd will initially meet a rise in Asian splitter capacity of 160,000 bpd in Taiwan and South Korea between late 2016 and early 2017.
Two more splitters, one in Singapore and one China, are also set to restart following unplanned outages, and at some point will add back another 190,000 bpd in condensate demand, tightening the market for the light oil.
That means Asian naphtha buyers will take up less of a current global surplus, further undermining profit margins for the light oil product.
Benchmark Singapore naphtha refinery margins NAF-SIN-CRK from refining a barrel of Brent crude, have already tumbled more than 60 percent since the beginning of the year to around $54 per tonne on June 21. --Reuters
