Australia is on track to surpass Indonesia as Asia's biggest diesel importer thanks to a commodity-led economic boom, lending an unexpected lift to fuel prices and refinery profits.
The drive to boost coal and mineral exports, coupled with a shrinking refining sector, has turned the nation from a net fuel exporter four years ago into a leading buyer, with diesel imports doubling last year to over 100,000 barrels per day (bpd).
Analysts say they will surge again this year, as diesel increasingly becomes the motor fuel of choice for a country whose vast distances and heavy loads drive up transport rates at a much faster rate than most industrialised nations.
In most of the of the Western world, oil demand grows at around half the rate of the economy thanks to conservation, innovation and efficiency. Not so Australia.
"The freight task measured by tonne-kilometre is growing by slightly faster than GDP," said John Apelbaum, director of the Apelbaum Consulting Group, which specialises in fuel use. "The mining sector in terms of the freight is quite a player."
Australia's economic growth will accelerate to 4 percent in the fiscal year starting in July, up from 3.2 percent in the year just ending, a new Reuters poll shows. Mining activity is expected to surge by a fifth in two years. The country also boasts some of the lowest fuel prices in the industrialised world, thanks to modest tax rates.
Until recently, that demand had gone largely unnoticed as top suppliers Royal Dutch Shell, Caltex, Exxon Mobil and BP dispatched cargoes from their export-oriented refineries in Singapore rather than expand in Australia, where a new refinery has not been built since 1965.
"As refineries close in Australia, it is the Singapore refiners and traders who benefit," said Tony Regan, an analyst from Nexant. More fuel is shipping from Singapore refineries to Australia than to China, he said.
Increasingly, however, Australia is also taking high-quality, low-sulphur fuel from South Korea and even Japan, a trend that may accelerate from 2009, when Australia moves to 0.001 percent sulphur diesel from the current 0.005 percent, analysts say.
That could open more opportunities for traders to make shipments from within Asia, and put Australia in competition with Europe for the growing surplus of regional ultra-clean diesel. Australia's total oil product imports will hit 365,000 bpd next year, almost doubling from 2005, forecasts from the Australia Bureau for Agriculture and Resource Economics show.
Diesel, which accounted for 40 percent of fuel imports last year, will make up a growing share of that as demand grows at more than twice the rate of gasoline use. If diesel flows top 180,000 bpd, imports would exceed those of No 1 buyer Indonesia.
In 2006, diesel sales rose 4 percent while gasoline consumption was almost flat, government data show. Up to 2030, demand for diesel fuel will grow at an average 2 percent a year, while gasoline rises at only 0.9 percent, forecasts by the Asia Pacific Energy Research Center show.
Demand alone only tells half the story. Domestic supply has fallen sharply, with refinery output having dropped by a fifth in recent years to 625,000 bpd in 2006 after Exxon Mobil closed down its Port Stanvic plant and last year's shift to low-sulphur diesel curbing production.
Despite a growing gap between domestic demand and supply, the oil majors that dominate the downstream sector remain downbeat on global refining profits due to the rapid expansion of refining capacity in the Middle East and India.
Shell said last month that it could not commit to maintaining its Australian refining operations and its 125,000 bpd Geelong and 86,000 bpd Clyde refineries were constantly under review. "Oil majors are notably absent in their enthusiasm towards refinery expansion," said consultant John Vautrain from Purvin & Gertz. "They can supply Australia within their own systems because they have surplus outside Australia."
Refiners' budgets have been taxed recently in Australia by the new lower-sulphur fuel standards that came into effect last year, requiring a total A$2.2 billion in investment. The refinery pullback in the face of growing demand contrasts with much of the Asia-Pacific region, where firms in the Middle East, China and India such as Saudi Aramco, Sinopec and Reliance Industries are expanding refining capacity.
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