Profits From Making Gasoline From Naphtha Rising at the Fastest Pace in a Year in Asia

Jan 20th, 2011

Profits from making gasoline out of naphtha in Asia are rising at the fastest pace in a year as global supplies of naphtha as feedstock for plastics increase, as per Bloomberg. Gasoline’s premium to naphtha jumped as high as US$11.75 a barrel on Jan. 13 from US$$5.50 on Dec. 31. Should the difference end this month at that level, it would be the biggest increase since January 2010. The premium may average as much as $12 in June, said Ravi Narayanaswamy, an analyst at Purvin & Gertz in Singapore.

Rising demand for gasoline in USA and emerging markets is pushing up prices of the motor fuel at the same time that a fuel shortage eases in China, the world’s biggest toymaker, and refineries around the world produce more naphtha as operations resume following outages or maintenance. Gasoline has risen 1.4% this year, while naphtha is up 0.4%.

“Refiners haven’t been able to run a lot of naphtha, but that should sort itself out once the refineries are back online,” said Amrita Sen, a London-based oil analyst at Barclays Capital. “Demand will remain strong but there are quite a few refinery projects, gas-to-liquids projects, and you should see more naphtha” coming on to the market.

China’s demand for naphtha is poised to slow this year as the pace of the nation’s economic growth eases. Usage will grow 6% in 2011, compared with 30% in 2010, as per the International Energy Agency. Gains for gasoline relative to naphtha this year would reverse the trend of 2010. Naphtha prices increased 34% in the final six months of last year in Singapore, compared with a 26% advance in gasoline. China’s economy may expand 9.1% this year, according to the median estimate of 18 economists surveyed by Bloomberg, down from about 10% in 2010. China’s need to buy the petrochemical feedstock overseas may also be diminishing as a national fuel shortage eases. Net imports of naphtha jumped 44% in November, according to customs data. Refiners maximized diesel production to meet a surge in electricity demand from factories and farms as the government rationed power consumption under a five-year plan. The fuel crisis “is not as acute as it used to be a couple of months ago,” said Sen, who forecasts the shortage may be over in February or March.

Outages at refineries around the world cut supplies at the end of last year, exacerbating a shortage of naphtha. Rising production of alternative petrochemical feedstock such as liquefied petroleum gas and natural-gas liquids will also boost world naphtha supplies this year.

LPG “has been priced well above naphtha for much of the winter, but it has recently fallen off sharply and is positioning to compete with naphtha as a petrochemical feedstock in Europe,” analysts led by Lawrence Eagles, global head of commodities research in New York, wrote on Jan. 13. “This is likely to increase arbitrage flows of naphtha to Asia.” Royal Dutch Shell Plc’s Pearl gas-to-liquids plant in Qatar is scheduled to start production this year. Pearl, the world’s biggest GTL project, will begin making condensate and LPG during the first three months of 2011 and start producing naphtha in the second quarter, Shell said in September.

While rising supplies suppress naphtha prices, a recovery in global demand may bolster gasoline. Motor fuel consumption is likely to strengthen as incomes rise in emerging Asian economies such as India and Vietnam, according to the IEA.

Source: Plastemart

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