Indonesia not US to influence global gasoline trade by 2018

A new report from Wood Mackenzie called ‘Indonesia Emerges as the World’s Biggest Importer of Gasoline’ says that Indonesia will increasingly influence global gasoline trade flows and prices by 2018. The report states this will happen because of the region’s gasoline deficit, hence increasing imports which will exceed US and Mexico combined, the two markets with the largest deficits over the last decade. Asia Pacific’s growing gasoline deficit, driven by Indonesia, could offer new trading opportunities for European and US export refiners.

Between 2012 – 2018 it is expected that Indonesia’s gasoline deficit will grow from 340 000 bpd to approximately 420 000 bpd. The US and Mexico combined will see deficits fall from 560 000 bpd to approximately 60 000 bpd during the same period, moving to surplus in the years that follow.

Trade flows

Net gasoline trade flows are currently from East of the Suez Canal to West of the Suez Canal and are commonly referred to East of Suez (EoS) and West of Suez (WoS). A growing gasoline surplus in WoS and growing deficit in EoS is expected to reverse the net gasoline trade flow and Indonesia’s influence on the global gasoline market is expected to become more important.

Wood Mackenzie’s Asia Pacific Head of Downstream Research, Mr Sushant Gupta explained, ‘as Asia Pacific moves from a gasoline surplus to a deficit situation, it will require imports from other regions. Indonesia will make up most of Asia Pacific’s deficit and therefore assume the role as the main driver of global gasoline trade and price, a role that the US was playing in the last decade. Indonesia is already the largest deficit market in the world as an individual country but it is not yet influencing inter regional trade flows or prices as it still has a smaller deficit compared to the combined US and Mexico markets. It may come as a surprise to the industry but this will change over the next fiver years.’

Matters of supply

At the moment volumes from within the Asia Pacific region meet Indonesia’s deficit of gasoline, with the majority coming from Singapore. It is expected that by 2018, Asia Pacific will have moved from the 2012 surplus of 55 000 bpd to a deficit of 118 000 bpd, primarily driven by Indonesia. Exports of gasoline from the Middle East to Asia Pacific are expected to rise but they will be limited as the Middle East will still be short on gasoline. The export opportunities from the Atlantic Basin to West Africa have the potential to reduce if a new refinery in Nigeria is built and would further increase the attraction of Asia as a destination for gasoline from the Atlantic Basin.

Prices will of course by impacted by the reversal of trade flows between EoS and WoS. ‘The competition between US and Europe to supply EoS markets will act to influence pricing and we expect Singapore gasoline prices to strengthen relative to both USGC and NEW gasoline prices in the long term, to support the arbitrage opportunities from US/Europe to Asia Pacific,’ said Gupta. ‘There are challenges to overcome in terms of the supply chain, refining and storage facilities which will require further development but this will create new opportunities for traders and storage players in the Greater Singapore region. Indonesia’s deficit will present a real opportunity for US Gulf Coast and Europe export refiners. As US moves to surplus status, it reduces imports from Europe, who must find other markets to place its surplus volumes.’

Gasoline demand

Income growth will drive the increases in Indonesia’s gasoline demand from now until 2025 as well as increased car ownership and government subsidies. Gasoline is expected to be the product showing the highest demand growth in Indonesia from 2012 – 2018 due to strong passenger car growth, which is projected to grow at an average of 7%/y during the forecast period and rise from 45 /1000 people to 60/1000. The gasoline supply response however has been slow with new refineries unlikely to come onstream before 2018. As such, domestic gasoline supply will remain stagnant.

Gupta concluded, ‘There are risks to Indonesia’s gasoline demand growth from price deregulation but we expect it to still remain robust. Therefore, although it may be contrary to industry expectations, Indonesia will likely overtake the current gasoline market influencers in the next few years. As Asia Pacific turns into gasoline deficit, it will provide opportunities for refiners in the US and Europe to find a market for their surplus gasoline, although price will be a factor.’

Adapted from press release by Claira Lloyd

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