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Indonesia tipped to lead global gasoline market

Indonesia is predicted to lead the global gasoline trade by 2018, opening up new supply opportunities for European and US refiners

A new report from Wood Mackenzie shows that Indonesia will emerge as the world's biggest importer of gasoline as US and Mexican imports - markets with the largest combined deficit over the last decade - shrink.

From 2012 to 2018, Indonesia's gasoline deficit will expand from 340,000 barrels per day (b/d) to around 420,000 b/d, data from the energy research firm shows. At the same time, the US and Mexico's combined deficit will narrow from 560,000 b/d to 60,000 b/d, with a surplus expected in the following years.

By 2018, the Asia Pacific region's surplus will shift from 55,000 b/d in 2012 to a deficit of 118,000 b/d, bolstered by rising consumption in Indonesia. Demand in the Southeast Asian nation is expected to hit 795,000 b/d by 2025, up from 532,000 b/d in 2012.

Most of Indonesia's gasoline deficit is met from volumes within Asia Pacific, primarily from neighbouring Singapore.

But an expanding gasoline surplus west of Suez and a widening gasoline deficit east of it will reverse the net trade flows. Consequently, Indonesia will emerge as the main driver of global gasoline trading and pricing - taking a role the US used to play.

US gasoline demand is stagnating as energy efficiency improves and biofuels production increases. High refining utilisation rates have also helped cut the deficit.

In the long run, Singapore gasoline prices are expected to strengthen relative to US and European prices thereby supporting more arbitrage opportunities, says Sushant Gupta, an Asia Pacific downstream specialist at Wood Mac. 

Gupta told Petroleum Economist that the east to west arbitrage is not open across the year now, but it is usually open during the summer driving seasons when demand peaks in the US. "Going forward when net trade flows from west to east, we could see the arbitrage opening up, say, during Ramadan," he added.

Middle East gasoline exports to the region are also predicted to rise, but will be limited as the Middle East will be short gasoline. But if plans for new refining capacity in Nigeria - a major gasoline importer - come to fruition then Asia's attractiveness for Atlantic basin gasoline would increase further, according to the report.

But there are challenges to overcome. More infrastructure needs to be built, creating opportunities for traders and storage players in the greater Singapore region.

Firms are already starting to invest in Malaysia and Indonesia to support wider growth. Room for expansion in space-constrained Singapore - southeast Asia's main refining hub - is limited.

In June, Swiss trader Gunvor Group and Germany's Oiltanking announced they would build a new storage terminal on Indonesia's Karimun island, 60 km west of Singapore, due to open by 2015.

Dutch group Vopak is busy building a deep-water storage terminal in the south Malaysian state of Johor, due to be finished by 2014, just opposite Singapore.

In Indonesia demand for gasoline is ballooning as incomes levels and car ownership rises. Car ownership is expected to expand at a rate of 7% per year, rising from 45 per 1,000 people (/'000) to 60/'000 people from 2012 to 2018. Government subsidies help artificially inflate demand too.

Wood Mackenzie predicts gasoline demand growth will outpace all the other oil products. Nevertheless, the gasoline supply response has been slow with new refineries unlikely to come on stream in Indonesia by 2018.

Indonesia's refining capacity is about 1.14 million b/d. Domestic gasoline supply stood at 190,000 b/d in 2012 and is expected to hit 246,000 b/d by 2025.

But Gupta warns pricing deregulation poses a risk to the gasoline demand growth forecast. Nevertheless he expects demand to remain robust, leaving the door open for US and European surpluses if the price is right.

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