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Fri 6 Nov 2009 04:00 AM

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Power play

Qatar has sets its sights on the bulging middle distillates market. But can it match the muscle of export giants China & India?

Power play
The new Qatari gas oil is super-clean, meaning it can be diluted with lower quality oil and still produce large volumes of relatively clean diesel.
Power play
Indian refiner Reliance plans to further boost the refining capacity at its complex at Jamnagar.


With the launch of the Ras Laffan facility, Qatar has sets its sights on the bulging middle distillates market. However, the tiny Gulf state may struggle to rival the muscle of export giants China and India.

The new oil refinery in qatar is pumping nearly 80,000 barrels per day of middle distillates, piling yet more pressure on to a market suffering serious oversupply.

The 146,000 barrels per day (bpd) Ras Laffan plant currently produces 24,000 barrels per day of gas oil and 52,000 bpd of kerosene and jet fuel. Global recession has hit these markets hard, leaving millions of barrels on ships waiting for buyers.

Refining profits for making middle distillates in Asia have slumped. Profits per barrel stand at around $8, a fifth of the $40 seen last year.

Even more bearish for diesel markets is that the new Qatari gas oil is super-clean, meaning it can be diluted with lower quality oil and still produce larger volumes of relatively clean diesel.

“This stuff is wonder-blend,” said Al Troner, president of Asia Pacific Energy Consultancy. “It is coming at the wrong time for the diesel market; you’ve got to wonder how quickly the market is going to be able to recover to absorb this high-end diesel.”

While oil prices have hovered at around $75 a barrel on the view the global economy will pick up, and with it crude demand, there have been few signs of a recovery in demand for diesel, the transport fuel for trucks worldwide. Most of the new Qatari supply would probably find its way to Europe, oil traders said.

Qatar will also soon boost its clean diesel supply even further with its new 140,000 bpd plant to produce gas to liquids, due online by the end of 2010. The two plants combined would pump around 60,000 to 65,000 bpd of ultra-clean diesel, Troner said.

Until now, Qatar had been a net importer of gas oil.

New plants like the Ras Laffan facility are also going to have to compete with China, which has been running its refineries at full throttle in recent years.

A growing share of Chinese refiners’ production has been sold overseas this year as fuel stocks have swelled. Gasoline exports hit the highest in 2.5 years in August, and diesel exports more than doubled from traders’ estimates in the same month, Chinese customs data showed.

“This is a concern even if demand picks up; globally what are you going to do with this monster,” a middle distillates trader based in Asia said. “China will eat you alive, and don’t forget you also have the giant refining complex of Reliance; this is very apocalyptic type stuff.”

Indian refiner Reliance Industries, which has doubled the size of its refining complex at Jamnagar to 1.24 million bpd, plans to add another 140,000 bpd in capacity in the next six to eight months.

Ras Laffan processes oil liquids that form at the surface when gas is produced for Qatar’s new liquefied natural gas facilities.

The biggest product stream at the plant will be the petrochemical feedstock and gasoline component naphtha, with 61,000 barrels per day.

Most of that will go to new petrochemical plants in Asia. Traders said the supply has mostly been priced in since Qatar concluded long-term supply deals for the product in August. But there would still be some pressure on the market as supply actually comes on line.

“You can never fully price it in until you see it, especially from a new refinery when you’re waiting to see if there are any start-up problems,” said one trader.

“Plus, they will probably pump more than they have sold, as they will have been conservative in case they had any problems.”

The naphtha alone is enough to fuel two large petrochemical crackers, each with capacity of one million tonnes per year, Troner said.

“Inevitably, if you run it at full volume, that sort of naphtha supply can’t be absorbed right away,” he said.

Supplies from Qatar have combined with increased exports from India to put pressure on the naphtha markets in Asia. Refining margins for naphtha have fallen sharply, to under $75 a tonne on October 15 from a high of more than $125 in early September.

Still, China is bringing on new crackers that should eventually absorb the supply, and will put pressure on petrochemical plants in Japan, South Korea and Taiwan which are dependent on sales to Chinese markets.

In Europe demand still suffers from the economic downturn, said N. Ravivenkatesh of consultancy Purvin and Gertz.

“Demand for naphtha in the key German market is down by about 7.7 percent over the last three months to August,” he said.

“For 2009, our projection is for demand to fall by about seven percent and to fall further by about 1.3 percent in 2010, as the sector is expected to remain very weak and imports of chemical derivatives from Middle East producers are expected to rise.”

State-funded Qatar Petroleum operates the Ras Laffan and has a 51 percent stake. Other shareholders are Total (10 percent), Exxon Mobil (10 percent), Cosmo (10 percent), Idemitsu (10 percent) Mitsui (4.5 percent) and Marubeni (4.5 percent).

Fuelling the silk road

China may be a rival to Qatar in the middle distillates market, but it’s also one of its largest energy consumers.

Qatar last week announced it is diverting around 10 percent of it liquefied natural gas (LNG) exports to China from the US, on the premise that China pays better.

“We will not go to a low price market. There is a lot of demand for our gas elsewhere,” said Ibrahim Al Ibrahim, adviser to the Emir.

US gas prices have been pressured this year by increased domestic supply, low demand and record-high inventories, deterring shippers from sending bulk LNG to US shores.

“We will go to the US market if prices justify it, but I don’t think we will dump any supplies there,” Al Ibrahim told reporters.

Qatar has sold most of its gas on long-term supply contracts, but Qatari producer Rasgas signed short-term flexible deals earlier this year, giving it the option to supply LNG to two US terminals this year and next. And
Qatargas

, the other LNG exporter, will have the option to send gas to its Golden Pass terminal in Texas when it comes online in 2010.

However, these flexible deals will not result in many Qatari cargoes heading to the US if prices stay low.

China’s energy demand is rising while US demand falls. China imported a record volume of LNG in September, and posted its fastest oil demand growth in over three years.

Qatar sent its first LNG cargo of about 216,000 tonnes to China last month. The cargo was the first in a 25-year supply agreement between two state companies: the China National Offshore Oil Corporation (CNOOC) and
Qatargas

.

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