* About 550,000 bpd splitter capacity to start up in next 4 yrs
* Qatar exports to fall on local demand
* More supply could come from Russia, North America
By Florence Tan and Seng Li Peng
SINGAPORE, Aug 24 Asia's condensate demand is expected to double by 2016 as refiners and petrochemical makers build splitters to process an abundent supply of the super light crude into raw materials for making plastics and for producing better quality gasoline to feed demand.
South Korea, China and Singapore are building distillation units that cost less than one seventh of a typical refinery to process large volumes of condensate produced along with liquefied natural gas (LNG).
Yet, by the time these facilities come online, condensate sales from top suppliers such as Qatar, also the world's biggest LNG exporter, are slated to fall as the nation feeds local demand that is expected to rise with more splitters coming up there. That will open the Asian market to condensate supplies from Russia and North America, traders and analysts said.
"Within the East of Suez region, we've kind of hit a hiatus" in new supply, said Al Troner, president of Houston-based Asia Pacific Energy Consulting. "But I think that's going to give the window of opportunity for extra-regional sellers to start coming in."
Condensate splitters of close to 550,000 barrels per day (bpd) in capacity would start operating between 2012 and 2016, industry data showed.
Condensate splitters mainly produce naphtha. Asia is short of the product, especially the heavy grade needed for making aromatics, which is used for making plastics, synthetic rubber and polyester. It is also used as an octane booster in gasoline.
"Asia needs a lot of naphtha because of the petrochemical production, especially in China where it produces end products for many countries," said Victor Shum, managing director for downstream energy consulting at IHS Purvin & Gertz.
China's consumption of plastic may grow by up to 7 percent this year after stalling in 2011, analysts said. While a slowdown in Europe is weighing on the country's industrial output, there is little doubt of a revival in demand in coming years.
Large petrochemical makers such as Dragon Aromatics in China typically have a condensate splitter at their plants to offer some control over costs by reducing reliance on naphtha, said a Singapore-based trader.
"They can at least have the option of buying condensates or naphtha, depending on the prices," he said.
Splitters also make a smaller volume of middle distillates -- the most profitable part of the barrel -- ensuring a fatter return for these companies.
Yet, condensate exports from Qatar will slip below the current 500,000 bpd once a 146,000-bpd splitter at Ras Laffan starts operating in 2016, offsetting about 110,000 bpd of new condensate output from the Barzan gas project, according to Tasweeq and Poten & Partners.
In Asia, condensate output will increase slightly in Australia and in Southeast Asia, but most of it will be consumed domestically, analysts said.
Asian supply is expected stay flat at about 740,000-750,000 bpd, said Victor Shum, managing director for downstream energy consulting at IHS Purvin & Gertz.
North America is expected to step up condensate exports following a shale gas boom, while Russia is looking at sending more condensate east as oil demand in Europe stagnates amid the euro zone crisis.
A revamp at the Panama Canal will allow bigger tankers of 160,000 deadweight tonne to pass through, facilitating condensate exports from the U.S. Gulf Coast, Troner said. "The U.S. is going to start exports before 2015 and the Russians are already mobilising additional volumes to go east by next year," he said. "The distance is slightly greater, they are both long-haul cargoes, but this is formidable competition."
Towards the second half of the decade, Brazil and East Africa could also be potential suppliers as they step up natural gas production, he said.
Russian producer Novatek was already selling Porvosky condensate to North Asian users, traders said.
Still, the Middle East will play a dominant role in Asia's condensate market. Qatari exports will continue and Iran may be become a regular supplier as condensate production is expected to offset declining crude output in the country.
Iran's condensate output is expected to rise by 280,000 barrels per day (bpd) by 2020 as it will start up several phases of gas production at its vast South Pars field despite project delays, according to FACTS Global Energy.
But a series of tight Western sanctions aimed at forcing Iran to abandon a disputed nuclear programme may mean further delays for those projects as financing, securing technology and equipment becomes difficult. (Additional reporting by Elizabeth Law; Editing by Manash Goswami and Chris Lewis)