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Analysis: India’s move to 10 ppm sulfur limit in April could boost Asia’s gasoline market – briefly
India’s adoption of low-sulfur motor fuel standards from April 1 could provide a welcome upside for the Asian gasoline market as buyers increasingly eye cheap and ample import cargoes to build inventories, but the opportunity will not last forever as the country increasingly moves toward self-sufficiency.
India is set to mandate Euro 6 equivalent Bharat Stage VI fuel grades in its domestic market from April 1. The transition will see the sulfur level in domestically consumed motor fuels fall to a maximum of 10 ppm from the current 50 ppm.
While Indian refiners have been preparing for the transition for some time, recent price movements in Asia have made import barrels increasingly attractive, industry sources said.
“Buying gasoline is very cheap now. Costs have been pummeled by what has happened over the last two months,” one source with an Indian company said.The outright price of benchmark FOB Singapore 92 RON gasoline has fallen almost 40% to date in 2020, S&P Global Platts data showed — the direct result of the spread of the coronavirus in the region and the weekend plunge in crude oil markets as the fight for market share ramps up between Saudi Arabia and Russia.
Against this backdrop, gasoline supply in India is set to tighten due to a heavy turnaround schedule stretching into the middle of the second quarter. The average refinery outage in India is estimated at 205,000 b/d in March and 169,000 b/d in April — four to five times higher than in the same period last year, according to S&P Global Platts Analytics data.
However, India’s gasoline demand remains robust, rising 3.5% year on year to 2.456 million mt in January, latest data from India’s Petroleum Planning and Analysis Cell showed. The PPAC forecasts India’s gasoline demand rising 8.43% on year to 33.43 million mt in the fiscal year ending March 31, 2021.
HOME FOR CHINESE BARRELS
As a result, opportunities abound for Chinese barrels to find homes in India, particularly as Chinese gasoline exports are typically low sulfur grade, market sources said. “It is not hard to obtain low-sulfur gasoline from the Chinese [refiners]; most of them can do it,” one trader said.
China’s domestic sulfur content rules have tightened steadily since the adoption of China V standards in 2017 and China VI standards in 2019, which both set the maximum sulfur level at 10 ppm. The viability of Chinese exports to India was demonstrated in 2019, when state-owned PetroChina supplied HPCL with its first MR-sized cargo following the conclusion of a term deal between the parties.
The deal could be repeated, as HPCL is seeking 2.736 million mt of gasoline for delivery over April 2020-March 2021 on a term basis in open tenders seen by Platts. “The base gasoline for blending could most likely also come from China,” another trader said, adding that “the fact that HPCL sought so much term [cargo] could signal that their systems are some time away from being fully ready to independently produce low-sulfur mogas.”
Chinese export cargoes are expected to remain abundant through the year. “We expect [Chinese] national oil companies will accelerate gasoline exports, starting from April, after heavily run cuts and turnaround season in Q1 2020. We hold our opinion that NOCs will continue export volume to handle China’s domestic gasoline oversupplied market and total year-end exports will leap by 24.6% year on year to 476 MB/D for 2020,” Platts Analytics said in a recent report.
INDIA’S INCREASING SELF-SUFFICIENCY
Nevertheless, India as an outlet for Asian gasoline is not expected to be a mainstay in the long term, industry sources said. Indian refiners are expected to gradually move towards self-sufficiency, with the country seen “balanced and net long” in the longer term, one market source said. “The market cannot rely on India to be a demand center for gasoline — once the refineries come back from upgrading works, the situation will change,” a Singapore-based market observer said.
State-owned Indian Oil Corporation, the country’s largest refiner, says it is ready to supply Bharat Stage VI motor fuels following the completion of a revamp program at its Mathura refinery in February, while HPCL and Bharat Petroleum Corporation Ltd have also geared up to supply domestic pump stations with the new grade. India’s electric vehicle policy might also hamper gasoline demand growth in the long term.
The country’s capital New Delhi in late 2019 approved a policy that provided higher subsidies for vehicles and charging stations, lower interest rates for EV purchases, deadlines for the compulsory shift to EVs for government departments and the waiving of road taxes for EVs, Platts reported earlier. Should it meet its objectives, 25% of all new vehicle registrations by 2024 will be battery electric vehicles, according to a summary document from Delhi’s Transport Ministry.
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