opec and asia: factors affecting the emerging product trade

Energy Vol. ii. Noa. 415, pp. 387403, 1986 0360-5442186 53.00 + .M)

Printed In Great Britain. ~CmRasLtd.

OPEC AND ASIA: FACTORS AFFECTING THE EMERGING PRODUCT TRADE

FEREIDUN FESHARAIU and DAVID T. ISAAK Resource Systems fnstitute, East-West Center, Honolulu, HI 96848, U.S.A.

(Received 5 September 1984; Received&r publication August 1985)

Abstract-The structure of petroleum demand in the Asia-Pacific region is un~~oing a ~~rnen~ change, Demand for heavy fuel oil in power generation is declining as the oil substitution policies of the regional government proceed. At the same time, the regional refining industry is unable to crack the unwanted fuel oil into lighter products. As a result, a major imbalance between product supply and demand looms ahead. Adding to the imbalance are the new Middle East export refineries, expected to llow between 1985 and 1987, which will probably send 40% of their products into the Asia-Pacific region. Thus, the region is faced with a great increase in product trade at the expense of crude trade, resulting in lower refinery utilization and perhaps some refinery closures. Since Japan may not be willing to open its market to product imports, the large flow of product will result in depressed product prices and a weak market. Ahhough the imbalances in the system may be troublesome for some governments and the industry, they also present many trading opportunities. This paper discusses the factors that a&t product trade in the region.

INTRODUCTION

Discussions about OPEC and the fitturn of oil demand usually center around the OECD countries, particularly the United States and countries in Western Europe. Analysts often forecast expected growth in energy and oil demand in the United States and Europe as a proxy of world oil demand. Japan is the world’s second largest importer of petroleum, but oil demand growth prospects in Japan are only slightly better than the OECD average. Exciting growth prospects exist, however, in the fast growing economies of the Asia-Pacific region. The region (including Japan) is even expected to become a larger oil consumer than Western Europe before the end of this decade.

For OPEC, the emerging demand in Asia makes the region a critical consumer. Around 80% to 90% of all crudes imported into Asia is from OPEC and between 75% and 80% of that is from the Middle East. Given the expected output and export potential of the region, the dependence on OPEC oil is expected to continue and, in fact, rise in absolute terms.

The new OPEC export refineries will enter the market at a time of excess capacities and poor refining margins. Their performance will have much to do with their success in marketing the products. The best market is likely to be in Asia. Thus, the entry of OPEC’s refined products into the Asian market will have a profound impact on the regional and global refining balances.

This paper briefly examines OPEC’s refinery build-up, the economics of product flow, and their impact on Asia. In such a short space, not every issue can be covered adequately, but we hope to shed light on several major issues that affect the OPEC-Asia product trade.

OPEC EXPORT REFINERIES

As the world refining industry continues to be depressed with ret~nchments and poor refinery margins, many eyes are turning toward the new OPEC export refineries. Almost always the first question asked is “Why are they building these refineries?’ Invariably the next comment is “No! They cannot do it!” or “At best they will run them at the same utilization rates as everyone else.” Those who make these comments perceive OPEC as a consortium of oil companies expected to behave like the private sector. We have elsewhere discussed at length the reasons for such investments in downstream operations.’ Equating sovereign states with private oil companies in investment decision policies has led to false expectations. Whether we like it or not, these refineries are here to stay, and they will be run at high utilization rates, This is not to underestimate the importance of market forces-

387

388 F. FESHARAKI and D. T. ISAAK

OPEC has learned to respect the market forces as much as anyone else-but one should not lose sight of the flexibilities open to OPEC in product pricing.

Table 1 shows that firm additions to OPEC’s refining build-up amount to 2.5 million barrels per calender day (MMb/cd), of which 73% is accounted for by the Gulf States (Un- referenced data have been drawn from our own data bases). Another 1.08 MMb/cd of capacity is under consideration or planned-bringing the total to a minimum of 7.4 MMb/ cd in 1987 and a maximum of 8.5 MMb/cd in 1990.

MAJOR NEW ADDITIONS TO CAPACITY

Although many OPEC countries have added significantly to their refining capacity, the additions that affect the Asia-Pacific region are those of the Gulf and Indonesia.

In the Gulf, the two giant refining construction efforts in Saudi Arabia and Kuwait have been followed with quite different strategies.2

Saudi Arabia The decision was taken early on to enter export refining in joint venture with international

oil companies. This decision was not prompted by the need for capital, nor even the need for technical expertise, which may be purchased readily enough. Instead, the joint-venture approach should be understood as a cautious marketing strategy that attempts to take advantage of existing international marketing networks rather than competing with them from the outset.

The Saudis used several means to entice international oil companies to enter these joint ventures. The first was the offer of “incentive crude”-guarantees of access to certain quantities of crude (at official prices) for a given amount of equity investment. The terms vary slightly from project to project, but an average figure is 500 b/d per million dollars of equity

Table 1. Recent and projected refining capacity in OPEC (in 1,000 barrels per day crude).

Country

Present l4inimum Hax.lmum Capacity Filrm Capacity Under StuqY/ Capacity (1982-83) Additiona (1987) Planmd (1990)

Iran

I-l

Kuwait

Qatar ’

Saudi Arabia

United Arab Emirates

Neutral Zone

Total Gulf’

Eouador

Venezuela

Gabon

Libya

Algeria

Nigeria

Indonesia

Total OPEC

545

170

550

10

700

130

80

2,les

a5

1,360

20

130

435

260

460

24G

205

50

1,295

45

-_

i ,835

-_

-_

220

es

445

545

410

755

60

1,995

175

80

4,020

a5

1,360

20

350

435

260

905

500

__

la5 360

__ 80

G 4,705

a0

we

_-

10

__

__

305

1,045

410

755

60

1,995

165

1,360

20

360

435

260

1,210

4,935 2,500 7,435 1,080 8,515

Factors a&c&g the emerging product trade 389

investment. The second major incentive was the financing terms offered. Although the projects are owned on a 50%/50% partnership basis, the Saudis provide 75% of the capital and the partner is responsible for only 15% of the total equity. The arrangement is as follows: the Saudi Public Investment .Fund provides 60% of the capital as a low-interest loan to Petromin and the foreign partner; Petromin itself provides 15% as an equity stake, the partner provides another 15%, and the final 10% consists of commercial borrowing. The terms of the Public Investment Fund loans are quite attractive; the loan is rolled over until the year in which the project has a positive net cash flow, and then interest on the loan is computed as a function of the project’s return on equity. The nominal interest rates charged range from 3% to 6%, rates likely to be negative in real terms. In entering such a project the partner thus obtains a 50% interest by providing 15% of the equity and assuming a negative inter-ate debt.

In addition, the Saudis have undertaken to provide much of the infrastructure necessary to support the projects. Since these expansions are occurring in pioneer industrial zones, it is appropriate that the government heavily subsidize infrastructure; but the resulting port facilities and industrial supports are among the finest in the world.

The Saudis claim that these subsidies are necessary to overcome the capital cost disad- vantages that pioneer industries suffer in developing nations. This is certainly true, especially for the first generation of plants; but the extensive use of modular construction and lump sum contracts has squeezed the differential between Saudi Arabian and U.S. capital costs down into the region of 30% to 40% above US. Gulf Coast costs-a great improvement relative to the 100% digerentials seen in many other developing areas. It is noteworthy that the Saudis are not alone in subsidi~ng their refining industry; almost every OECD nation has done likewise, in one guise or another, at various times since World War II.

The first joint-venture refinery likely to come on stream is the Petromin-Mobil export refinery at Yanbu. The facility will process 250,000 b/d of Saudi Light; and it has 70,000 b/cd of catalytic cracking and 13,000 b/cd of alkylation, making the facility overwhelmingly geared toward gasoline and naphtha production, with substantial output of middle distillates as well. The projected output pattern is about 30% gasoline, 16% jet fuel, 3 1% diesel, and only 22% fuel oil. The primary refinery fuel will be ethane obtained from the Yanbu Natural Gas Liquids Plant located at the terminus of the Ghawar-Yanbu gas liquids pipeline. Final cost estimates are in the range of $2 billion, and the plant is now complete; it should be fully on stream by the second quarter of 1985.

The next joint-venture plant expected on stream is the Pe~omin-Shell refinery in J&ail. The facility, like the Mobil plant, is designed for 250,000 b/d of Saudi Lit, and, also like the Mobil facility, it has a sophisticated configuration. The configuration is different in intent, however, being slanted more toward highquality middle distillates and less toward gasoline. Vacuum gas oil at the Shell refinery will be charged to a 40,000 b/cd hydrocracker instead of to a catalytic cracker. Residual fuel oil will be processed in a 30,000 b/cd visbreaker, yielding small amounts of distillate products and an improved fuel oil, The catalytic reformer will provide stock to an aromatics unit that will produce 5,000 b/d of benzene for use in nearby petrochemical facilities for the manufacture of styrene monomer. The output mix is projected to be 23% gasoline/naphtha, 17% kerosene/jet fuel, 30% diesel, and 25% fuel oil. Since the central technology is hydrocracking, however, there will be considerable flexibility in the output slate. Recently discussions have taken place about running Arab Heavy into the Yanbu and Jubail joint ventures. Although that may improve the product costs owing to the lower cost of Arab Heavy, the technical problems associated with the change are not yet resolved.

The final joint venture is at Rabigh, on the Red Sea coast, as a Petromin-Petrola (Greece) partnership. The Rabigh venture is atypical of the current Saudi joint ventures in chemicals and refining in that it does not use incentive crude and does not involve one of the majors.

The plant at Rabigh is being built in phases. The first phase is essentially a hydroskimming configuration, with 325,000 b/cd of crude capacity. Shortly thereafter, 50,000 b/cd of catalytic reforming will be added, increasing gasoline output. In the planning stages are a catalytic cracker and a visbreaker-although the installation of these units has been deferred, making the ptant a bit of a “white elephant.”

BZY 11:4/5-F

390 F. FFSHAMKI and D. T. ISAAK

Construction at Rabigh has been slower than at other sites, partly because it is in so undeveloped a locale. Assertions that construction has been halted or canceled have been denied by Petrola and Saudi Arabia. Nonetheless, the rate of progress does seem slower than scheduled, and some observers have even speculated that it will not be completed. This conjecture seems unlikely; procurement and even infrastructure work on the project are probably too far along to cancel. The onstream date may slip from 1985 to 1986 or even 1987 and the upgrading units may be canceled, but the probability that the entire project will actually disappear seems rather remote.

Rabigh is not on a pipeline. Thus, the crude processed there can, in theory, be any crude. Plans are to run Saudi Light and perhaps some Saudi Medium. In either case, without the planned catalytic cracking and visbreaking facilities, the output slate will be uninspiring, consisting of 42% to 50% fuel oil, 18% to 23% diesel, 14% to 19% kerosene, and about 15% gasoline/naphtha.

Beyond these projects, Phase II expansions of each of the export refineries have been discussed. Given the present state of the market, there is little enthusiasm for such proposals, at least until the present facilities have proven their worth-if they can. A reflection of current Saudi thought on further downstream expansions at home is the authority given Petromin to make overseas purchases like Saudi Arabia’s neighbor to the north, Kuwait. Unlike the Kuwaitis though, the Saudis are expected to move slowly and conservatively.

Kuwait The Saudi strategy for downstream integration can be described as “stepwise” expansion

consisting of, first, oil production and natural gas processing; second (and presently), oil refining and basic petrochemical production; third, international marketing and transport; and, finally, an overseas presence in sales and final processing. The problem with this sort of gradual expansion is that until it is completed-and, looking at the pace of the takeover of Aramco and the speed of building up refining and chemical capacity, it appears that each stage may take about a decade-the economic success of the ventures is dependent on the market conditions in the sales and final processing stages, a market in which the expanding company has no presence. It is for this reason that all of the Saudis’ expansion moves consist of joint ventures; the involvement of major multinational companies gives some degree of access to a major international marketing network.

Kuwait has rejected the joint-venture approach. The architect of Kuwait’s downstream integration strategy, Oil Minister She&h Ali Khalifah al-Sabah, argues that involvement with the multinationals can only slow the pace of expansion. Why, after all, should these companies aid a major competitor in invading their best markets? It is a valid question, one that ought to give Saudi planners pause. The Saudi contention, of course, is that the companies will assist them because they have been offered generous joint-venture terms and because few of them will risk the displeasure of the world’s largest oil exporter. This argument may be valid, particularly if you happen to be Saudi Arabia.

The Kuwaiti alternative is modeled along Western corporate lines: expand by building new facilities when conditions warrant, but purchase existing companies and facilities when- ever necessary. Initially it appeared to many observers that the Kuwaitis were merely making attractive financial acquisitions when opportunities arose; but after a few years of Kuwaiti takeovers and equity purchases, a pattern has begun to emerge that shows that most of the Kuwaiti moves were tactical as well as profitable.

In 1980, Kuwait merged all of the various Kuwaiti hydrocarbon-related companies, . including chemicals and transportation, into a single organization, the Kuwait Petroleum Corporation (KPC). Kuwait already had a melamine plant, an ammonia-urea plant, a substantial refining sector, liquid petroleum gas (LPG) facilities, and a modest tanker fleet. KPC set about expanding and modernizing its existing refineries, ordered oil products tankers to move the refined product output, and began a series of acquisitions.

It established a position in oil exploration by purchasing Santa Fe International and by taking a major position in the International Energy Development Corporation, a new company specializing in hydrocarbon exploration and development particularly in Third World nations. The Santa Fe takeover also gave KPC the Sante Fe subsidiary, C. F. Braun, a leader

Factors affecting the emerging product trade 391

in plant construction, engineering, and oilfield services. C. F. Braun is, coincidentally, the project manager for the Celanese-Texas Eastern methanol plant, meaning that, in a rounda- bout fashion, the Saudis are now buying engineering services from the Kuwaitis. (Kuwait also has a large equity interest in Korf-Stahl, the joint-venture partner in the Jubail steel plant.) An additional engineering presence is provided by Kuwait’s 22% equity position in Metallgesellschaft/Lurgi.

In addition to its existing petrochemical production, Kuwait is investigating a joint Kuwait-Saudi-Bahraini hydrocracking facility in Bahrain; Ali Khalifa’s strictures against joint ventures apparently apply only to ventures with the multinationals. In addition, Kuwait recently acquired a 24.5% stake in Hoescht, probably the world’s largest chemical firm.

The Hoescht equity purchase is intriguing. Some sources within KPC claim that the Hoescht purchase occurred without the knowledge of the general KPC staff, and that it most likely occurred for purely investment purposes. Few industry observers accept this point of view; Hoescht management, for its part, has stated that it welcomes the purchase and considers Kuwait no different from any other stockholder. In any case, the purchase, if undertaken as a tactical move, was wise; Hoescht is the least “backward-integrated” of the great German firms, having few interests in the hydrocarbon industry. Hoescht and KPC are thus complementary in structure, and Hoescht could prove to be an important asset in marketing.

In marketing, KPC’s first major move has been the purchase of Gulf Oil’s refining and marketing network in the Benelux countries. The purchase includes Gulfs 75,000 b/cd Rotterdam refinery, which already operates on the lowerquality Kuwaiti crude and produces high-value lube oils from the heavy oils left after distillation. In addition, Kuwait acquired Gulfs wholesale distributorships and 750 service stations. In a second major agreement, Kuwait purchased Gulf’s 85,000 b/cd Denmark refinery and 825 service stations in Denmark and Sweden. KPC’s last purchase was that of Gulf facilities in Italy.

The Kuwaiti integration strategy appears to be working. KPC has now established firm footholds in every phase of world oil operations. Moreover, it has been rapid; KPC will have been selling gasoline at stations in Europe for two or three years before the Saudi export refineries even start up. Financial acquisitions have put Kuwait in a position where income on overseas assets now equals Kuwait’s annual import bill. Oil is nice, but Kuwait could now sell no oil and still maintain current levels of imports.

Kuwait’s refining industry at home consists of three plants: Shuaiba, Mina Al-Ahmadi, and Mina Abdullah. Shuaiba is a highly sophisticated plant. Like the Saudi refinery at Riyadh, it has facilities for the hydrocracking of both vacuum gas oils (60,000 b/cd) and residua (40,000 b/cd). It also has extensive desulfurization capacity, sufficient to produce a wide range of market-specification products. Shuaiba is a highly flexible refinery in adjusting its output slate. Kuwait’s other two refineries are at the other end of the technological spectrum from Shuaiba. Both are basically topping plants. Mina Abdullah in particular has handled much of Kuwait’s share of heavy, sour crudes from the Neutral Zone. Both plants are primarily “fuel-oil factories,” and their rates of throughput have consequently been low in recent years.

Kuwait has now launched a major modernization program aimed at bringing Mina Abdullah and Mina Al-Ahmadi up to par with Shuaiba. Mina Abdullah will have a net expansion of 190,000 b/cd in its crude distillation capacity, a large increase in vacuum distillation, a 60,000 b/cd hydrocracker to handle the vacuum gas oils, and a 70,000 b/cd coker to process the otherwise nearly worthless Neutral Zone vacuum residua. This will allow all of Mina Abdullah’s output to be cracked to lighter products.

Mina Al-Ahmadi will receive only a small net expansion in crude and vacuum capacity but will be endowed with both a catalytic cracker (30,000 b/cd) and a hydrocracker (35,000 b/cd). Excess vacuum residua may be moved to the Mina Abdullah coker for cracking.

Thus, by 1986-87 Kuwait will have a modem, sophisticated refining sector of about 750,000 b/cd. In fact, Kuwait’s refining sector will probably rate as the most advanced national refining complex in the world. It will have a higher ratio of hydrocracking to distillation capacity than the United States, having 195,000 b/cd, or 25%, hydrocracking; it will have a major coking facility; and it will have far higher capacity utilization in the

392 F. FESHARAKI and D. T. hAK

future. Kuwait may even be importing fuel oil in the second half of this decade. Given the likelihood that Kuwait will be able to crack all of its refinery output of fuel oil, and given the recurrent gas shortages (owing to fluctuations in oil production), Kuwait could indeed become a fuel oil importer in a world of fuel oil excess.

Rejnery capacity prospects in the Gurf Between 1.8 and 2.6 million barrels per calendar day (MMb/cd) of new crude distillation

capacity will be added in the Gulf nations by 1990. If other world distillation capacity holds roughly steady in net terms, this would give the Gulf about 5.5% to 6.5% of world refining capacity. Although the additions may seem large, they are still small in relation to the Gulf’s crude oil production and reserves. The scope for expansion of refining in the Gulf is enormous in resource terms. An important point, however, is that the resources and incentives for expansion are very unevenly distributed; a glance at the reserves, capital, and investment opportunities of the Gulf nations reduces the issue of expansion decisions to a handful of variables.

First is the simple issue of crude availability. Bahrain already relies on imported crude. Oman and Qatar could afford to build one major export refinery, but this would virtually eliminate their role as exporters of crude oil, a role that is vitally important to their standing in the international arena. Kuwait as a matter of policy is also constrained by the availability of crude oil. Although Kuwait has enormous flexibility in the volume of crude it elects to produce, policy has limited production to 1 .O- 1.5 MMb/d (with about 1.25 as the preferred level), and in recent years the market has limited production to even less. Even if the market improves dramatically, it is unlikely that Kuwait will change its production policies; at a level of 1 .O- 1.5 MMb/d, Kuwait will remain an important oil exporter well into the twenty- second century. Thus, with presently planned expansions, Kuwait already has the capacity to refine 750,000 b/d of its oil output. If it is to supply its European refineries with Kuwaiti crude (their design feedstock) as well, then almost 1 MMb/d of Kuwaiti production will be committed to KPC refining by about 1986. This leaves only 200-500,000 b/d for export as crude outside KPC, even if production rises to its policy ceiling. Kuwait has little financial incentive to relax this ceiling; its annual import bills are already equaled by income from investments abroad. Thus, Kuwait, despite its reserves, joins Bahrain, Qatar, and Oman as countries unlikely to expand refining capacity because of constraints on crude production.

This leaves Iran, Iraq, Saudi Arabia, and the United Arab Emirates (UAE) as possible sites for a second wave of refinery construction. All four have sufficient oil; all four can obtain the required capital, although the former two do not have the massive capital surpluses common in the latter two.

After the war, Iraq would be in a position to expand refining capacity greatly. For a variety of reasons, this seems unlikely. First, there is history. Iraq has built capacity only to meet domestic demand, and it has not always successfully done even that. The Iraqi Oil Ministry also appears to have a general strategy of decentralization. Iraq has built small, dispersed refineries, and even the capacity of new plants at Basrah and Baiji is only 140,000 b/cd, small by world standards. Most important, however, are the other investment opportunities available in Iraq. Iraq is a populous nation by Arab Gulf standards, and it still has a large agrarian population. Many investments in agriculture, housing, infrastructure, and light industry are yet to be made, and these are liable to take precedence over capital- intensive, low-employment industries such as petroleum refining. A new regime in Iraq might take a different view, of course, but it is more likely that refining expansions in Iraq will be limited to meeting domestic needs.

Iran’s position is very similar to that of Iraq, especially as long as the Khomeini regime is in power. Refining in Iran, at least in the post-Anglo-Iranian period, has been oriented toward domestic needs and has had a hard time keeping up with demands for certain products. Even in a more outward-looking political climate, Iran would be unlikely to emphasize refining as a major export industry. Not only has Iran a wide array of domestic investment opportunities, but also most Iranian planners, past and present, consider the petrochemical industry to be the best of Iran’s investment options in the hydrocarbon sector

Factors a&cting the emerging product trade 393

because of linkages with other domestic industries and also because of Iran’s hugh reserves of gas.

Thus, the only remaining candidates are Saudi Arabia and the UAE. Both have the oil and the capital for expansion; both have small populations and few domestic investment opportunities. Throughout the remainder of this decade, both countries will be busy over- seeing and assessing refining projects already under way. In the 1990s however, both would have considerable room for expansion if desired. Much of the future level of export refining in the Gulf will be determined by policies adopted by these two countries.

Indonesiu Meeting Indonesian product demands has been a difficult task. Consumption is heavily

oriented toward middle distillates: diesel for transport and small-scale power generation, and kerosene for cooking and lighting. Demand for fuel oil and gasolines remains relatively low. The excessive demand for middle distillates was encouraged in part by government subsidies on kerosene consumption, which allowed Indonesians to purchase cooking fuel at a fraction of world prices. (One intent of the subsidies was to slow the rapid and accelerating deforestation of the main populated islands, but whether deforestation was actually slowed by this policy is not known.) Recently, the government has begun to cut the subsidies and raise all petroleum product prices to at least world levels. The price increases, coupled with national austerity owing to financial difficulties, have helped to stem the increases in demand in the short run, for more than 10% to around 3% per annum in 1983-84. Even without growth in per capita incomes, there will be a steady rise in demand as a result of population increases. If some level of increasing economic development accompanies the population growth, demand will burgeon.

If Indonesian demand patterns had to be met from hydroskimming plants alone, In- donesia would need to run massive amounts of oil merely to produce the middle distillates needed; this would leave large quantities of surplus fuel oil and gasoline that would have to be exported. Current expansions have taken the demand slate into consideration, however, and substantial amounts of hydrocracking, visbreaking, and coking are being added along with the new crude distillation units. A total of 110,000 b/cd of hydrocracking, split between two refineries, will put the sophistication of Indonesian refineries on a par with that of the developed world. Western Europe, for example, has only 170,000 b/cd of hydrocracking to service the output of a distillation capacity almost twenty times larger.

Indonesia will have a large and growing refining sector throughout the decade, and possibly through the end of the century. Because of its large population, however, refining will remain oriented toward meeting local needs. Not only would it be difficult for Indonesia to expand capacity at a rate necessary to make the nation a major oil product exporter, but also Indonesia has better investment opportunities for its oil capital in hard minerals, agriculture, and light industry.

OPEC PRODUCT EXPORTS

The total OPEC and Gulf product export picture is presented in Table 2, which combines a detailed analysis of the Gulf export refining with somewhat rougher estimates of refinery output, domestic demand, and product exports of other OPEC countries. We have assumed that these refineries will be run at 83.7% of design capacity. The overall picture shows OPEC refinery capacity of around 7 MMb/cd in 1987-88. New capacity additions in Algeria, Libya, and Indonesia make those countries significant product exporters. Our own estimates indicate a domestic product demand of 3.7 MMb/d in the same year. Including Bahrain and Oman, gross export will rise to 3.4 and 3.7 million b/d. The range in Table 2 indicates the uncertainty of the future Iranian refining capacity in the wake of damages to Abadan and plans for new capacity construction in that country.

Pattern of exports from the Gulf Table 3 shows the pattern of exports from the Gulf through 1987-88. Excluding Iran

and Iraq, we expect there to be nearly 2 MMb/d of product exports, divided into middle

394 F. FESHARAIU andD.T. ISAAK

Table 2. Projected oil product exports: OPEC and the GCC nations, 1987-88 (in 1,000 barrels per day).

Exporter

Bahrain

Kuwait

C&an

Qatar

Saudi Arabia

United Arab Emirates

GCC total

Ref imd Product Domestic cross product Production Demand Exports

255 16 209

690 95 595

45 27 20

55 16 41

1,655 614 1,040

160 160 35

2,830 895 1,940

Iran 9751 740 O-2357

Iraq 387 430 07

Other Gulf 1,360 1,170 O-235

Algeria 390 130 260

Ecuador 75 127 0

Gabon 15 44 0

Indomsia 810 550 260

Libya 315 146 170

Nigeria 230 221 9

Venezuela 1,220 420 800

Non-Gulf OPEC 3,055 1,638 1,490

Total, Gulf end OPEC 7,245 3,703 3,430-3,665

OPEC total 6,975 3,660 3,200-3,435

GCC--Gulf Cooperation Council.

?--uncertainty, resulting from the IrawIraq War.

distillates (41%), light distillates (29%), and heavy distillates or LPG (30%). The volume of fuel oil alone is expected to be in the range of 450-500 thousand barrels per day (Mb/d), of which 150 Mb/d or so will go to bunkering. Altogether, exportable fuel oil is expected to be in the range of 300-400 Mb/d, of which approximately three-quarters will be straight- run residua. If we add Iran into the picture, an additional 150 Mb/d of fuel oil may become available.

THE ASIA-PACIFIC MARKET

The Asia-Pacific market is a difficult market to analyze. Despite its importance and growth prospects, there is little information available on the structure of the market. His- torically, things have been so easy in the Asian market (high demand, available supplies, and strong prices) that few people in the oil business were concerned with creating good data bases and analytical tools to understand the factors that are changing the market.3 Now that more problems are on the horizon, many governments and oil companies are going to have to ask themselves the hard questions-Can we compete? Can we survive the changes?-


Table 3. Oil products available for export from the Gulf, 1987-88 (in 1,000 barrels per day, rounded for large amounts and totals).

country Gaaoli~/ Middle Fuel Oil A Total

Naphtha Mstillates Othera Produots

Bahrain 48

Kuwait 220

Qaan __

Qatar 10

Saudi Arabia 260

United Arab Emirates 30 -

GCC total 570

Iranb

Iraqb

307

107

a3

325

3

11

400

(25)

795

151

(4511

78

50

17

20

380

30 - 575

lgo?

(1017

209

595

20

41

1,040

35

1,940

2351

(4517

Gulf totalb 6107 7657 7551 2,130?

GCC-Gulf Cooperation Counoil.

?--unoertalnty, resulting frcao the Irat+Iraq War.

aInoludea asphalt., refi~ry-based ohmical feedetooka and solvents, and

refinery-baaed LFC. Excludes LIG reoovered fra natural gas or condensate

deposi ta.

bAssumlng a nea~term end to the Iran-IrIraq War. If this does not ooour,

the GCC total wU1 be a more aaourate aawssnent of exportable surpluses.

and then proceed to study the options and devise (perhaps) radical strategies to stay in the market.

1.

2.

3.

4.

5.

6.

The Asia-Pacific market can be characterized by the following points: Except in Japan, aggregate demand for oil is likely to grow by around 3% to 3.5% per annum. The product demand pattern is shifting, with a massive slide in fuel oil demand for power generation, a strong growth in middle distillate demand, and a moderate growth in gasoline demand. The Asian refining industry is relatively unsophisticated and unable to convert all its unused fuel oil supplies into lighter products. Asian refineries are generally protected by extensive systems of trade barriers; many could not survive in a free, competitive market. Governmental rules and price controls do not allow measuring the competitiveness of such refineries. The Asian oil industry faces major competition from the Indonesian and Middle East refineries. The competition is particularly strong because the exporters and national oil companies also control crude. The supply/demand imbalances affecting petroleum products will intensify and product trading opportunities will widen, but trading profits will decline. Tables 4 and 5 show the primary distillation capacity in Asia and the configuration of

the refineries. These tables also show the additions to refining capacity under construction or planned. It can be seen that distillation capacity will be in the range of 12.6 MMb/cd in the late 1980s and could rise by an additional 805 Mb/d if every expected plan materializes. The ratio of cracking to distillation capacity is less than 10% in Asia today. Additional construction of downstream units will slightly improve the ratio, but the ratio will still be a far cry from 40% ratio in the U.S., 28% in Europe, and 23% in the Gulf.


Table 4. Recent and future primary distillation capacity in Asia (in 1,000 bar& per calendar day).

country

Kxisting at 1982 Year End Under Pl anmd/ will-

1982 Construotion Proposed Total Total zation (1) (2) (3) 1+2 1+2+3 Rate I

Burma 50

Malqsia 175

Phil ippima 290

Singapore 1,100

Thai1 and 175

Indonesia 460

China [Beijiwlb 1,810

JapanC 5,500

South Korea 750

North Korea 40

Taiwan 515

BangI adeah 30

India 760

Pakistan 130

Sri Lanka 50

Total Aeia 11,835

0

30

0

20

0

445

0

0

0

0

0

0

275

0

0

0

120

0

0

85

305

0

0

150

0

40

0

105

0

0

770 855

50 50 na.

205 325 65

290 290 65

1,120 1,120 63

175 260 91

905 1,210 121a

1,810 1,810 aa.

5,500 5,500 61

750 900 63

40 40 na.

515 555 56

30 30 na.

1,035 1,140 78

130 130 na.

50 50 aa.

12,605 13,410 64

Scwaea: Asian Energy Seourity Rojeot data Piles, trade preaa, and

personal erquiriea.

ha.- not avail abl e.

aInaludea prooeaaing capacity in Sin&$apore used to supply Indonesian

domestic demand.

Baaed on fra&mentary data. Nw capacity to supply

likely to be bull t.

domestic demand is

%oea not include a probable deletion of 1 MMb/d of primary distillation.

Our analysislindicates that because of the substitution of oil with coal, gas, nuclear power, etc., a major surplus of fuel oil will develop in the Asian market.4 Given the present and expected refining configuration in Asia, the refinery capacity will not be flexible enough to crack the extra fuel oil and reduce crude runs. If crude runs are reduced, product imports will rise for light and middle distillates.

A fuel oil glut obviously leads to weaker fuel oil prices in the short term but results in the build-up of cracking capacity-particularly hydrocrackers-later on. In the medium term, say in the next three to four years, most refiners will be reluctant to engage in refinery upgrading until the impact of product 50~s from the Middle East is clearly observed. Many refineries are also concerned about the excessive upgrading build-up in the United States and negative margins resulting from such high cost investments. This time around there will be plenty of watching before any action is taken.

OPEC PRODUCT FLOW TO ASIA

OPEC product exports face three major markets: the United States, Europe, and the Pacific Basin. It is not possible to pinpoint where the products will go, since much will

Tab

le 5

. R

ecen

t an

d fu

ture

ref

iner

y co

nfig

urat

ion

in A

sia.

Fac

ilit

ies

Exi

stin

g (1

)

crud

e V

acuw

n Fu

el

Oil

D

isti

l-

Dis

til-

C

atal

ytic

H

ydro

- T

her

mal

D

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l fu

r-

lati

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latl

on

Cra

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g cr

ack

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cok

ing

Cra

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g iz

atlo

n

Asp

hal

t

11,8

35

2,53

4 60

0 55

60

40

0 1,

332

225

Un

der

con

stru

ctio

n

(2)

770

300

95

245

45

147

130

6

Pla

nn

ed/p

ropo

sed

(3)a

80

5 17

4 10

0 55

10

60

80

3

- -

Tot

al

(1

+ 2

) 12

,605

2,

834

695

$Z

105

ii?

1,46

2 23

1

Tot

al

(1

+ 2

+

3)

13

,410

3,

008

795

355

115

607

1,54

2 23

4

scur

oes:

A

sian

E

ner

gy

Sec

uri

ty

Pro

ject

da

ta

file

s,

trad

e pr

ess,

an

d pe

rsom

l en

quir

ies.

Not

e :

Fig

ure

s ar

e as

of

19

82

and

are

rou

nde

d to

n

eare

st

5,00

0 b/

cd

exce

pt

In

the

case

of

ve

ry

smal

l re

fin

erie

s.

‘Ref

lect

s an

nou

nce

men

ts,

engi

nee

rin

g de

sign

s,

and

proj

ects

u

nde

r st

udy

. D

oes

not

re

flec

t pr

obab

le

dele

tion

s.

In

sane

ca

ses

refl

ects

on

ly

addi

tion

s to

cr

ude

capa

city

an

d th

eref

ore

may

no

t re

flec

t li

kel

y

futu

re

conf

igur

atio

n.

Mos

t pl

ans

are

high

ly

tent

ativ

e;

for

man

y th

e pr

ojec

ted

onst

ream

da

te

has

alre

ady

pass

ed.

398 F. FESHARAKJ and D. T. ISAAK

depend on the refining/trading economics at the time. However, some broad assumptions may be made. Almost all of Indonesia’s products will go the Pacific basin. Likewise, nearly all Libyan and Algerian product exports will go to Europe. The key product-flow question concerns the destination of the Gulf product exports. In the United States, the East Coast and the Gulf Coast will see some product exports from the Arabian Gulf, but entry of such products on the U.S. West Coast is highly unlikely. This does not mean that the U.S. West Coast will be unaffected. The displacement of West Coast exports to the Pacific will certainly have a negative impact on West Coast prices also, but a large-scale flow into the area is not likely to occur.

We believe that eventually-if not immediately-about one-half of the Gulf product exports will go to the Pacific Basin. This will increase the current product exports of around 400 Mb/d to 850-950 Mb/d by the late 1980s. We expect about two-thirds of the fuel oil exports to be destined for Europe and the United States in large crude carriers, taking advantage of the economies of scale in shipping. However, most of the middle distillates are likely to end up in Asia.

Aside from the Gulf exporters, Indonesia will exert major pressure on the Asian oil market. Until 1983, Indonesia imported around 230,000 b/d of products for domestic consumption. By 1985, Indonesia will be fully self-sufficient in refined product output and will be exporting at least 150- 160 Mb/d of products into the market. As Indonesia was previously exporting around 70-80 Mb/d, the net change to the region amounts to around 300 Mb/d (230 Mb/d not imported plus 70 Mb/d more exported). Indonesia may still process 15 Mb/d or so of crude in Singapore. About 50 Mb/d of the anticipated Indonesian exports is expected to be Low Sulphur Waxy Residua. The major slowdown of Indonesia’s domestic demand from 12% to around 3% per annum may signal more available products for exports.

Figures 1 and 2 indicate our expectation of the pressure that will be placed on the Pacific oil product market. Overall, we expect around 450 Mb/d of new Middle East exports to enter the Pacific and a net effect of 300 Mb/d from Indonesia’s new domestic refineries. Overall, a minimum input of 750 Mb/d is expected between 1985 and 1987.

Japan is the single most important country affecting OPEC product flow. If Japan opens its gate to product imports, much of the new products could go through Japan in large product carriers at the expense of Japanese refiners but not affect the Pacific market as such. If Japan continues to keep its doors closed, the products will have to find a home elsewhere in the Pacific. Even the flow of products to Europe is affected by Japan’s import policy.

It is not yet clear which way Japanese policy will go. Some in Japan have argued that products should be liberalized and advantage should be taken of lower product prices. But Japan historically has been very slow to move in this area. The timing and the implementation

$ *

TOTAL VOLUME OF NEW PRODUCTS ENTERING PACIFIC _J

Fig. 1. Additions to the Pacific product market, 1985-87.


SINGAPORE L0rt

bW”RJ indonesian

- PfQCWiflg d-+

2w t I

Fig. 2. New pressure on Singapore refineries, 1985-87,

pace of Japan’s liberalization policy will be just as important to the Pacific oiI market as the liberalization policy itself.

ECONOMICS OF PRODUCT FLOWS

The flow of products from the new OPEC refineries is likely to be governed by economic factors. The definition of “economic,” however, may vary de~ndi~g on the ci~ums~n~es. Gas sold as refinery fuel at 5OrC per miIlion British thermal units (BTU) may seem uneconomic or subsidized to an observer in the United States, whereas it seems perfectly economic to the Saudis, who will have to flare it otherwise. Our studies indicate that product output from the new Middle Eastern refineries has a definite economic advantage over the Far Eastern refineries (e.g., in Japan), has a marginal advantage over the European refineries (e.g., Ro~erdam~, and faces a disadvantage compared with U.S. refineries. On an aver-age basis, product exports from the MiddIe East cannot compete with U.S. refineries without a crude price subsidy. This is not to say that MiddIe Eastern products will not come to the United States. Products will occasionahy enter the United States and compete with do- mestically produced products, but we are not expecting a major penetration into the U.S. market.5

Much will depend on the pricing policy of OPEC product exporters. There is little doubt that over the short term aI.I product exporters will base their sales on spot-related prices. Indeed, a number of OPEC members have used lower product prices as a way of di~oun~ng their crude prices without officially violating OPEC rules, which do not apply to product prices. Several OPEC countries, notably Kuwait, sell a large portion of their products on a cost, insurance, and freight (CIF) basis. Thus, pr~uc~ enter the market at market prices without f%-on-board (FOB) complications.

The Saudis have a more complicated formula. By mid-1985, 425-450 Mb/d of new products are going to be in the market. This alone represents an 8% increase in the world product trade. Components of the Saudi price policy for refined products, which evolved in 1. 2. 3. 4.

1984, are: Product prices will be the same for joint venture partners and third parties. Third-party sales are available only on a term basis, preferably for three years and more. Product prices could either be dete~in~ by Petromin postings or be market-flatly Market-related prices will be determined by taking the average product prices for, say, 14 to 28 days as reported in Piatt’s Price Service in Rotterdam and Singapore and netted back to dete~ine FOB prices for products from Jubail and Yanbu. Essentially,. the Saudi price formula opens the possibility of selling at spot prices with

term contracts. This possibility in itself has concerned some buyers, who fear that spot- price ~u~uations may have adverse effects on the market with such a large volume of new products. The concern, in fact, is not so much on the up side of prices but on the down side. Many feel Petromin is becoming too market-oriented and that low spot prices at a


particular time (say, when seasonal oil demand is low) could lead to lower price products, which will undermine both crude and product markets.

The unknown element in the Saudi price formula is the shipping-cost calculation that will be used to determine FOB product prices. Will short-term charter or spot rates be used, or long-term shipping costs? Will the calculation be based on small product carriers or large carriers? Will Average Freight Rate Assessment (AFRA) rates be used? This element of the price may have been left deliberately vague to give Petromin flexibility in adjusting prices. But will product buyers sign long-term agreements without clear knowledge of shipping costs?

We have attempted to calculate FOB prices for Yanbu and Jubail with a set of spot prices prevailing on 2 July 1984 in Singapore and Rotterdam as reported by Platt’s. Our figures can be used with any product price to estimate FOB prices of Saudi products. Since short-term shipping costs represent the poor health of the tanker industry today, we have employed both short-term and long-term shipping costs to estimate FOB product prices for Yanbu and Jubail. To translate the role of shipping costs we have put together Tables 6, 7, and 8, which compare spot and actual shipping costs and derive a Saudi FOB price for Jubail. It can be seen that the choice of appropriate shipping rates or the ship size can provide some price flexibility to the Saudis-i.e., some price discounts may be given without violating OPEC prices.6

Table 6. Derived prices for selected Saudi products witb freight cost discount (in U.S. dollars per barrel): voyage from Jubail to Singapore.

Ship and Singapore Spot Prioeea Freight-Discounted Produot (aargoea) Freight. costs Saudi Prices (FOB)

30,000 DWT Naphtha Keroeeneb QaaOil HSFO (180 CM.1 HSFO (380 Cat.)

55,000 DWT Naphtha Kerosene GaSOil Iwo (180 Cst.) Iwo (380 Cat.)

77,840 DWT Naphtha Kerosene Gaaoil HSPO (180 Cat.1 HSFO (380 Cat.)

120,000 DWT HSFO (180 Cat. ) HSFO (380 Cat.)

250,000 DUT HSPO (180 Get. ) HSPO (380 Cst.)

27.10 - 27.60 33.40 - 33.70 32.65 - 32.80 27.69 - 27.85 27.08 - 27.23

27.10 - 27.60 33.40 - 33.70 32.65 - 32.80 27.69 - 27.85 27.08 - 27.23

27.10 - 27.60 33.40 - 33.70 32.65 - 32.80 27.69 - 27.85 27.08 - 27.23

27.69 - 27.85 27.08 - 27.23

27.64 - 27.85 27.08 - 27.23

1.44 1.60 1.65 1.41 1.52

1.20 25.90 - 26.40 1.37 32.03 - 32.33 1.46 31.19 - 31.34 1.14 26.55 - 26.71 1.23 25.85 - 26.00

1.04 26.06 - 26.56 1.19 32.21 - 32.51 1.27 31.38 - 31.53 0.94 26.75 - 26.91 1.01 26.07 - 26.22

0.68 27.01 - 27.17 0.74 26.34 - 26.49

0.56 27.13 - 27.29 0.60 26.40 - 26.63

25.66 - 26.16 31.80 - 32.10 31.00 - 31.15 26.28 - 26.44 25.56 - 25.71

Cat.--0emtistokes.

DWT--deabeight ton.

FOB--Tree on hoard.

HSPG-high-sulfur fuel oil.

82 July 1984 prices. -tea OilnFu (3 July 1984).

hKeroeeae freight oosts are aesllmed to fall midway between gasolilu, and diesel

frei&t oosts bcauae keromne specific gravity (0.78-0.84) ia intermediate

hetueen that of gasoline (0.71-0.79) and diesel (0.82-0.92).

Factors alExZing the emerging product trade 401

Table 7. Comparison of actual Saudi spot prices with freight-discounted prices (in U.S. dollars per barrel): voyage from JubaiI to Singapore on 77,840 DWT product carrier.

spot Prices, Freight-Disaounted Product Arabian/Persian Gulf (PGBja Saudi Prioes (FCB)b Differenae

Naphtha 25.78 - 25.89 26.06 - 26.56 -0.17 - -0.78 Kerosene 33.00 - 33.40 32.21 - 32.51 0.49 - 1.19 Gas011 32.10 - 32.30 31.38 - 31.53 0.57 - 0.92 HSFO (1,500 25.14 - 25.71 26.75 - 26.91 -1.04 - -1.77

Cat.)

Cat.--centistokes.

FOB--free on board

HSF&- high-sul fur fuel oil.

82 July 19g4 prices. utt’a Oilnren (3 July 1984).

bF. Fesharaki and N. Yamaguchi. “Neu Saudi Export Refineries: The Role of

Shipping Coats in Determination of Produot Prices and Their Cawetitlvenese.*

East-West Center, Honolulu, HI 96848 (1984).

The impact of shipping rates and ship size may prompt the Saudis to sell their product at prices that could be one dollar or so lower than the market. The Saudis may well choose not to do so, but their approach will give them the flexibility to be very competitive in the product market. The history of Saudi export policy points to the Saudis as being among the most firm and reliable suppliers. The image of a price discounter does not quite fit with the Saudi’s record in the oil market. Still, the Saudis will be in a position to put pressure on the market without violating any OPEC rules.

The Saudi price and sales policy for refined products may still be evolving. Again, given their historical record, the Saudis are likely to come up with a workable plan. The current plan is not quite satisfactory yet. It is, however, the feeling of these authors that the shipping component and cost advantage may matter less than the timing of the introduction of the products into the market. If Saudi products actually do enter the market on a large scale in the second quarter of 1985-where demand for OPEC oil is again supposed to be at its weakest annual point-then product prices under the currently envisaged price system may significantly undermine crude and product prices worldwide.

We feel strongly that Saudi Arabia and other OPEC product exporters should ensure that the entry of their products into the market does not coincide with weak global demand and that their pricing and delivery policy should be flexible enough so that volume could be withheld from the market or product prices raised to avoid a major drop in crude prices.

CONCLUSIONS

There is much common ground between OPEC and Asia. OPEC nations should pay more attention to this dynamic part of the world. Unlike the situation in the United States and Europe, where foreign policy considerations can make oil such a political issue, for the nations of Asia, oil is much more of an economic issue. OPEC nations, particularly those of the Middle East, need to study the Asian oil market with a view not only to its market size but also to the complications of product entry and rapidly shifting demand patterns.

For Asia, the dependence on imported oil may be inevitable. This may not be so bad as some thought a few years ago. It is highly unlikely that any major real pressure to raise oil prices will develop well before the end of the century. Being dependent on reasonably priced oil imports (as compared with imported liquefied natural gas and coal) is not necessarily a bad thing. Much has been done to diversify energy sources. We believe that some Asian nations have gone too far in diversification and have incurred too high an economic cost for energy security. It is erroneous to apply the crisis mentality of the 1970s to the 1980s and 1990s.

402 F. FESHARAK~ and D. T. ISAAK

Table 8. Derived prices for seketed Saudi products with actual shipping cost discount (in U.S. dollars per barrel): voyage from Jubail to Singapore.

singepore Actual spot Prices* Shipping coats Shipping Cost-Disoounted

Ship and Product (aargoes ) per Barrel3 Saudi Prices WE)

30,000 DWT Naphtha 27.10-27.60 2.08 25.02-25.52 Keroaenec 33.40-33.70 2.15 31.25-31.55 Gasoil 32.65-32.80 2.21 30.44-30.59 HSFO (160 Cat. ) 27.69-27.85 2.34 25.35-25.51 HSFO (380 Cat.) 27.08-27.23 2.55 24.53-24.68

55,000 DWT Naphtha 27.10-27.60 1.22 25.88-26.38 Kerosene 33.40-33.70 1.20 32.12-32.42 Gasoil 32.65-32.80 1.33 31.32-31.47 HSFO (180 cat.1 27.69-27.85 1.40 26.29-26.45 ASFO (380 Cat.) 27.08-27.23 1.51 25.57-25.72

77,840 DWT Naphtha 27.10-27.60 1.05 26.05-26.55 Kerosene 33.40-33.70 1.05 32.35-32.65 Gasoil 32.65-32.80 1.05 31.60-31.75 HSFO (180 Cat.1 27.69-27.85 1.10 26.59-26.75 HSFO (380 Cat.1 27.08-27.23 1.17 25.91-26.06

120,000 DWT Naphtha 27.10-27.60 0.08 26.22-26.72 Kerosene 33.40-33.70 0.90 32.50-32.80 Gasoil 32.65-32.80 0.90 31.75-31.90 HSFO (180 Cat. 1 27.69-27.85 0.91 26.78-26.94 HSFO (380 Cat.) 27.08-27.23 0.94 26.14-26.29

250,000 DUT HSPO (180 Cst. 1 27.69-27.85 0.50 27.19-27.35 HSFO (380 Cat.) 27.08-27.23 0.53 26.55-26.70

Cat.--centistokes.

DWT--dead weight ton.

F&-free on board.

HSFD-- high- sul fur fuel oil.

82 July 1984 prices. _Platt’s Oilnram (3 July 1984).

bF. Fesharaki and N. Yamaguohi. “New Saudi Export Refineries: The Role of

Shipping Costs in Determination of Product Prices and Their Competitiveness. ”

East-West Center, Honolulu, HI 96848 (1984).

‘Kerosene freight costs are assumed to fall midwsy between gasoline and diesel

freight costs because kerosene specific gravity (0.78-0.84) is intermediate

between that of gasoline (0.71-0.79) and diesel (0.82-0.92).

The Asian oil industry is changing rapidly. The demand slate is out of tune with supply, and current refinery configuration will not be able to make the match. Product imports are needed and most will have to come from the Middle East. It is unreasonable for Asian countries to expect to have access to Mideast crudes but to shut out products. Indeed, if the importing country plans ahead, it may be able to save a great deal of money by forfeiting some refinery upgrading expenses and importing certain needed products.

Refinery upgrading will necessarily expand in Asia but not immediately. Upgrading is not for everyone and should not be rushed into. Careful planning and financial analysis is required before the decision is taken. More importantly, upgrading decisions should not be based on controlled domestic prices; this will only perpetuate the distortion.

Mideast OPEC nations should consider the possibility of refinery acquisition, joint ven-


tures, or upgrading investments in Asia. Potential long-term benefits will be substantially greater in the growing Asian market than in the mature European or U.S. oil markets. At the same time, Asian nations should consider opening up their doors to product imports and OPEC investments in refining. There is so much common ground and so great a potential for mutual benefit that we believe closer relations between OPEC and Asia will inevitably emerge. What is needed is a little analysis and a lot of change in perspectives. We hope both sides can learn to take advantage of the product market imbalance by complementing each other.

REFERENCES 1. F. Fesharaki and D. Isaak, OPEC, The Gul/; and the World Petroleum Market: A Study in Government Policy

and Downstream Operations. Westview Press, Boulder, CO 80301 (1983). 2. F. Fesharaki and D. Isaak, OPEC and the World Refining Crisis. The Economist Intelligence Unit, Ltd., Spencer

House, 27 St. James’s Place, London SWIA INT, England (1984). 3. F. Feshamki, “The Singapore Story: A Refining Center in a Transitory Oil Market.” Fast-West Center, Honolulu,

HI 96848 ( 1984). 4. F. Fesharaki, S. Hoffman, and W. Schultz, “Oil and Gas in Asia: Trade Potentials and The Refining Outlook.”

Paper presented to the Conference on Asian Energy Supplies and Requirements, Boulder, CO (1983). 5. F. Fesharaki and D. Issak, OPEC and the World Refining Crisis. The Economist Intelligence Unit, Ltd., Spencer

House, 27 St. Jame’s Place, London SW 1A 1 NT, England ( 1984). 6. F. Feshamki and N. Yamaguchi, “The New Saudi Export Refineries: The Role of Shipping Costs in Determination

of Product Prices and Their Competitiveness,” Fast-West Center, Honolulu, HI 96848 (1984).

opec and asia: factors affecting the emerging product trade

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