Asia gasoline supply to be squeezed on limited production growth, strong demand

By Seng Li Peng

SINGAPORE (Reuters) - Asia's gasoline supplies will be squeezed in 2016 as cheap oil prices drive exceptionally strong demand, eating into regional fuel inventories at a time when refiners in Australia and Japan have shut down production capacity.

Demand for gasoline in Asia is forecast to grow 4 to 5 percent next year to 6.5 million barrels per day (bpd) or slightly more, said energy consultancies FGE and JBC Energy.

Gasoline supply, however, is expected to grow at about 3 percent to 6.5 million to 6.6 million bpd, barely enough to cover the expected consumption, JBC Energy and FGE said.

The projections point to supply tightness during high-demand periods such as summer holidays and the Muslim fasting month of Ramadan in June-July.

"Asia's current demand growth is led by light distillates, particularly gasoline," said Sri Paravaikkarasu, a senior consultant and downstream specialist for Asia with FGE.

Most recently commissioned refineries, however, have been geared for middle distillates such as diesel and jet fuel, she said, while "refining capacities shuttered in recent times are all gasoline-driven units."

This is expected to support Asia's gasoline crack, the profit earned on the fuel from refining a barrel of Brent crude.

Still, the crack is not likely to hit levels seen this year, when annual demand growth for gasoline is estimated at close to 7 percent in Asia, with supply shortages exacerbated by plant outages in the United States and Singapore.

The gasoline crack has averaged more than $12 a barrel so far this year, the highest in more than six years.

SHUTTING DOWN REFINERIES

China, Japan, Indonesia and India are Asia's top four consumers of gasoline, with Indonesia and India providing most of the growth.

And while demand is falling in Japan and steady in Australia, companies in the two countries have been shutting refineries to curtail overcapacity or in favour of cheaper imports.

Japan permanently shut some 1 million bpd of its refining capacity between 2009 and 2014. Another 400,000 bpd will be closed from 2014 to 2017.

In Australia, fuel imports are expected to grow by as much as 40 percent this year due to the shutdown of more than 300,000 bpd of refining capacity between 2012 and mid-2015.

Although China will allow some independent refineries or "teapots" to export fuel next year for the first time, this will have little impact on easing tight gasoline supplies, said sources with refineries in North Asia.

"Gasoline production from teapots won't be huge like diesel. Due to these small volumes, it would make little economic sense for them to export gasoline," said one of the sources.

Also, any marginal rise in gasoline supply would be swiftly offset by demand for the fuel as long as prices remain in current ranges.

"Low oil prices are one of the major drivers behind gasoline demand," said another refinery source, adding that he did not expect to see any significant crimp in demand at prices below $60 a barrel.

(Editing by Tom Hogue)