Asia refiners see winter boost for margins before drop in 2014
* Drop-off in refinery earnings leads to run cuts -analysts
* Winter demand expected to lift Q4 margins over Q3
* Capacity additions point to further pressure in 2014
By Seng Li Peng and Florence Tan
SINGAPORE, Sept 16 (Reuters) - Asian refiners are looking to winter demand to counter the high oil prices and slow consumption growth in China that have driven refining margins to some of the lowest values since late 2010, although earnings are expected to weaken again next year.
Supply disruption in the Middle East and Africa and jitters over a possible U.S. strike in Syria pushed global benchmark Brent above $117 a barrel in August to a six-month high, shrinking profits for refiners and forcing some to cut runs.
But winter heating demand should give a brief boost to the earnings from processing crude into oil products, analysts said.
"I'm quite bullish on distillates for the winter ... if you were to look at global diesel inventories, they are not very high," said Amrita Sen of Energy Aspects.
Fourth-quarter margins, or the profit made on processing a barrel of crude into oil products, are still expected to be lower than in the same period last year, while additional capacity coming online dampens the prospect for further improvement in 2014.
Complex refining margins in the last quarter should be about 5 percent higher than in the third quarter, according to Victor Shum of IHS, although he and refining consultants from FGE and JBC Energy said processing profits would drop 10-50 percent in the fourth quarter against the same period a year ago.
"And now you're getting run cuts and a lot of turnarounds. If margins remain weak, refineries are not going to come back strongly," said Energy Aspects' Sen.
Complex refining margins have been running at $5 to $10 a barrel over the past three years, according to Reuters data.
A complex Singapore refinery that includes a fluidized catalytic cracker and a hydrocracker could earn about $3.40 a barrel less in the second half of 2013 compared with the first half, Wood Mackenzie data showed.
Woodmac expects its complex refining margin this year to be about $1.50 a barrel less than the average in 2011 and 2012, and it could fall another 50 cents next year, the consultancy said.
"We are currently clearly a couple of dollars (per barrel) away from a level that could be considered as healthy," said David Wech of energy consultancy JBC Energy.
"Furthermore, the exchange rate of many developing markets is currently moving against refiners," he said.
That has particularly hurt refiners in India and Indonesia, where oil input costs have risen while the rupee and rupiah plunged to multi-year lows. State refiners in both countries sell domestically at controlled prices and are unable to pass on higher crude prices and foreign exchange losses to consumers.
Asia's complex refining margins - the profit or loss of refining a barrel of Dubai crude into fuel at Singapore benchmark prices - dropped to an average $3.43 over the last 15 days, according to Reuters data. The August margins were down nearly 50 percent from the averages in each of the previous two months. DUB-SIN-REF-MA
South Korea's SK Energy and GS Caltex, the country top two refiners, have cut their runs, partly due to maintenance, and industry sources have said the two may maintain the reduced throughput in October if weak margins persist.
At the same time, Singapore's smallest refiner Singapore Refining Co (SRC), wholly owned by PetroChina , is operating at 70-80 percent of its capacity, down from more than 80 percent, a source close to the company said.
And at least one refiner in Thailand is considering run cuts due to the low margins, a source there said.
"There's just too much supply chasing a pretty flat market," said FGE consultant Alex Yap, explaining the refinery run cuts.
Implied oil demand in China, the world's second-largest consumer, slipped to the lowest in a year in August, as refineries underwent another heavy round of maintenance.
China's growth in fuel consumption was 3.4 percent in the first half of this year, below last year's growth rate of about 4.5 percent, the slowest in four years.
China's refinery crude throughput was up in August from a year ago but the rate was still among the lowest over the past 12 months due to increased plant maintenance.
What lies ahead in 2014 could be more unnerving for Asian refiners, with new capacities coming online in the United Emirates Arab (UAE) and China.
SATORP, a joint venture between France Total and Saudi Aramco, has already started operations at its new 400,000-barrels-per-day (bpd) Jubail plant.
China alone, the world's second-largest oil user, will likely add some 3 million bpd or about another quarter to its refining capacity between 2013 and 2015 to fuel its economic growth, according to industry officials and Chinese media.
"2014 will not be better than 2013 in terms of refining margins," said JBC Energy's Wech. (Additional reporting Jane Xie; Editing by Tom Hogue)
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