Taiwan, not Texas, may squeeze summer gasoline

By Jonathan Leff - Analysis

SINGAPORE (Reuters) - If U.S. gasoline prices rally further this summer, traders will have as much cause to blame a new petrochemical plant in Taiwan as any refinery in Texas.

Analysts have expected Taiwan conglomerate Formosa Petrochemical Corp.'s (6505.TW) new 1.2 million tonnes per year (tpy) naphtha cracker -- the biggest in Asia -- to push up naphtha values when it starts up later this month, turning up to 90,000 barrels per day (bpd) of the feedstock into ethylene.

But some are drawing a link between the tightening market for Asian naphtha -- which has rebounded to near the unexpected record highs of March -- and U.S. gasoline, stocks of which saw their sharpest spring decline on record mainly on lower imports.

The Formosa cracker is the latest in a string of new and expanded petrochemical plants across Asia. It will launch just days before the peak driving season in the U.S., underscoring the growing global competition for light-end oil products.

The link is not direct: Asia does not export significant volumes of gasoline or blendstock to the United States. But it could be felt through the subtle shift in trading flows and refinery slates in Asia, the Middle East and Europe, some say.

"The West of Suez is becoming net short naphtha, so with that you will need cargoes moving in regularly from Europe," said N. Ravivenkatesh, an analyst at Purvin & Gertz in Singapore.

"Some of that would be pulled out of the gasoline pool and that could be impacting European exports to the U.S."

That could add even more spark to U.S. gasoline crack spreads, which touched post-hurricane peaks of above $30 a barrel late last week, analysts say. It could also keep retail pump prices near $3 a gallon, as the government predicts.

ASIA REFORMERS FAVOUR PETCHEM

Signs of the shift are clearest in Asia, where chemicals demand is growing swiftly thanks to economic growth in China, South Korea and Japan, while naphtha supplies out of India were curbed early this year and refinery runs were maxed out.

Driven by margins, companies that run reformers -- refining units that can transform aromatic naphtha into either gasoline blendstock or a petrochemical feed -- have maximized the latter.

"It looks like more than two-thirds of Asia's reforming capacity is now being pushed into aromatics petrochemicals -- normally it's one-third or less," says Al Troner, who runs Asia Pacific Energy Consulting Inc., a firm that advises oil companies on Asian refinery slate issues and feedstock markets.

With regional reforming capacity estimated at around 2.5 million bpd, that one-third swing may have cut out as much as 800,000 bpd in gasoline blendstock output, Troner estimated.

Refiners in South Korea, where at least three major petrochemical firms are expanding capacity, also responded to the higher margin incentives offered by the petrochemical market.

The country's refiners raised first-quarter naphtha output by over 40,000 bpd compared to the average of 2003-2006 for that quarter, government data show. Production of gasoline -- sometimes exported to the United States -- rose just 3,000 bpd.