Wood Mackenzie Says Indonesia, Not the US, Will Influence Global Gasoline Trade by 2018

(SINGAPORE/EDINBURGH/HOUSTON, 19th September 2013) -- Wood Mackenzie's report titled 'Indonesia Emerges as the World's Biggest Importer of Gasoline' says that Indonesia will increasingly influence global gasoline trade flows and prices by 2018. This is because Indonesia's gasoline deficit and hence imports will exceed US and Mexico combined- 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.

From 2012 to 2018, Indonesia's gasoline deficit grows from 340 thousand barrels per day (kb/d) to around 420kb/d. US and Mexico combined will see deficits fall from 560kb/d to about 60kb/d during the same timeframe, moving to surplus in the following years.

While net gasoline trade flows are currently from East of the Suez Canal to West of the Suez Canal, commonly referred to as East of Suez (EoS) and West of Suez (WoS), growing gasoline surplus in WoS and growing gasoline deficit in EoS will reverse the net gasoline trade flows and Indonesia's influence on the global gasoline market will become more important. Wood Mackenzie's Asia Pacific Head of Downstream Research, Mr Sushant Gupta explains, "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 5 years."

Almost all Indonesia's gasoline deficit is now met from volumes within Asia Pacific, with the majority supplied from Singapore. By 2018, Asia Pacific will have moved from the 2012 surplus of 55kb/d to a deficit of 118kb/d, primarily driven by Indonesia. Middle East gasoline exports to Asia Pacific are expected to rise but will be limited as Middle East will still be short gasoline. The export opportunity from the Atlantic basin to West Africa could potentially reduce if plans for a new refinery in Nigeria, which is a big gasoline importer, come to fruition. This would further increase the attraction of Asia as a destination for gasoline from the Atlantic basin.

Prices will be impacted by the reversal of trade flows between EoS and WoS. Mr Gupta says, "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 NWE gasoline prices in the long term, to support the arbitrage opportunities from US/Europe to Asia Pacific."

"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 a surplus status, it reduces imports from Europe, who must find other markets to place its surplus volumes."

Indonesia's strong gasoline demand from now to 2025 is driven by income growth, increased car ownership and government subsidies. Gasoline is expected to show the highest demand growth amongst all products in Indonesia for the 2012-2018 period due to strong passenger car growth, which is projected to grow at an average of 7% per annum during this period and forecast to rise from 45 per 1000 people to 60 per 1000 people from 2012 to 2018. The gasoline supply response however has been slow with new refineries unlikely to come on-stream before 2018. As such, domestic gasoline supply will remain stagnant.

Mr Gupta concludes, "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- US and Mexico combined- 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." (ends)