October 7, 2013 / 5:11 AM / 4 years ago

Indonesian demand to draw in surplus European gasoline flow

* Asian supply glut could vanish by 2017/18 -analysts

* Indonesia set to be bigger gasoline importer than U.S., Mexico combined -Woodmac

* European surplus seen at about 400,000-500,000 barrels in next 5 years -ESAI

By Seng Li Peng

SINGAPORE, Oct 7 (Reuters) - Indonesia's growing gasoline demand could help pry open a new trade route for the motor fuel in the next five years, as cargoes start heading to Asia on a regular basis from a European market awash with supplies.

Asia has plenty of gasoline supplies now. Taiwan, China, South Korea, Singapore and India provide more than the region can absorb, from key exporters such as Reliance Industries , SK Energy and Formosa Petrochemical Corp.

But Indonesia is set to become the world's biggest importer of the motor fuel by 2018, outstripping the United States and Mexico combined, offering refiners a market as Europe remains well supplied and as the United States cuts imports due to a shale oil boom.

The surge in Indonesia's demand could also flip Asia into a having a deficit of gasoline, helping drive a recovery in the profitability of processing a barrel of crude into the product.

"Even after factoring in refinery closures, Europe will still need to manage their surplus," Sushant Gupta of Woodmac said.

Refinery closures in Japan and Australia, because of poor local margins, will draw down Asian supply.

Gasoline demand in Asia is expected to grow in the 3-4 percent range annually between 2012 and 2015, said Victor Shum of energy information group IHS.

Rare gasoline cargoes from Europe are already arriving in Asia, with the latest reaching Indonesia in November from Norway.

But the Europe-to-Asia gasoline flow could become a regular feature of the market in years ahead, especially during the Muslim fasting month, Gupta said, when fuel use rises as people return home to rural areas to be with their families.

Indonesia's gasoline deficit is likely to grow to 420,000 barrels per day (bpd) in 2018, compared with an estimated 360,000 bpd this year, even if state-owned oil company Pertamina adds a new 60,000 bpd residue fluid catalytic cracker (RFCC) in 2015 to its Cilacap refinery, Woodmac said in a report.

GASOLINE POOL DRYING UP

The Asian gasoline margin - the profit or loss from refining Brent crude into the motor fuel - fell to almost $2.10 a barrel on Oct. 4, versus this year's average so far at nearly $8.60 a barrel GL92-SIN-CRK, as the gasoline surplus has increased.

But the surplus, forecast at 55,000 bpd in 2012, will flip into a deficit of 118,000 bpd in 2018, said Woodmac, a view shared by JBC Energy.

"Overall, we forecast the Asian gasoline surplus to vanish by around 2017, 2018, after which the region is expected to turn into a net importer," said David Wech of JBC.

That will keep Reliance and South Korean refiners running their units at high rates, he said.

China, the world's second-largest gasoline consumer after the United States, may also have to scale back on its exports even after adding 3 million bpd of new capacity between 2013 and 2015 to meet rising demand.

This year, between January and August, China shipped nearly 53 percent of its gasoline exports of 3.3 million tonnes (approximately 28 million barrels) to Indonesia, Chinese official data showed.

That's about 17 percent of Indonesia's average monthly imports of around 11 million barrels.

"Our general assumption is that China is primarily interested in balancing its huge domestic market and is thus unlikely to become either a strong export or import oriented refined product hub," said Wech.

EUROPE TO THE RESCUE

Europe seems like the most logical supplier for Asia as it flips to a gasoline importer.

Europe is estimated to have between 400,000 and 500,00 bpd of excess gasoline for the next five years, while U.S. gasoline imports will continue to fall, said John Galante of ESAI Energy.

U.S. gasoline import demand fell to 650,000 bpd of gasoline in 2012, about half 2008 levels, he said, although the descent is now likely to slow.

European refiners will need to find alternative markets, Galante said.

"Indonesian demand is an essential part of this issue because it is, and will remain, the largest gasoline import market in Asia, and compete with the U.S. and Mexico as the world's largest importer of gasoline," Galante said. (Editing by Tom Hogue and Ed Davies)

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