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Wednesday, September 26, 2018

Long-haul naphtha trades shifting from West/East to East/West despite terminal constraints.

The dirty tanker market has seen plenty of changes in trade patterns over the years … suezmaxes breaking the trend of aframaxes going in to the US Gulf … aframaxes becoming the ‘handies’ of the crude market … West African crude lifting on VLCCs and then selling to the Far East … big fueloil cargoes going longhaul on large tankers (when the market is right) … Russian oil from Black Sea and Baltic … surging Chinese oil imports.

The clean product markets have also been registering changes, including increasing US product imports as demand grows and U.S. product spec requirements tighten up, causing material from up-to-date refineries elsewhere in the world to be shipped in long-haul to the U.S.

Now it’s the turn of the naphtha market to ring the changes. Not content with upping over recent years the regular shipments on the traditional AG/Far East routes from handymax (one standard napththa parcel) to LR1 (panamax) (two parcels) and on to LR2 (aframax) (three parcels), now the geographic parameters are changing, according to the latest report from New York broker Poten & Partners.

Most of the world’s naphtha doesn’t actually trade, says Poten, as much of it is turned into gasoline. Of the 596m tons a year of naphtha produced in 2003 by refiners and gas processors, 57% became gasoline and 43% went into petrochemicals. 50m tons a year is moved around the world by sea. However over the next three years (by 2007), production will be over 640m tons a year with some 58m tons moving by ship.

Three developments will shape the naphtha trade over the intervening 3-4 years suggests Poten: East Asia will require 15+% more long-haul naphtha; the Middle East will be offering new naphtha supplies (avails from the Arabian Peninsula and Iran will increase by nearly one third); Europe will have an ongoing requirement for long-haul supplies.

Europe’s growing appetite in the biggest change. For years North Africa, Russia and the Near East have kept Europe supplied with naphtha. This trading ‘zone’ has been running a naphtha surplus with 10.3m tons going into Europe in 2003 and 2.1m going out to Asia and the U.S. But this is changing already and by 2005 Europe will be increasingly hungry for naphtha with 14.2m tons coming in from North Africa and Russia, 0.6m from the Atlantic Basin and 2.8m from the Middle East. None will be going out.

What has happened is that the main naphtha flows have changed from West/East to East/West. First half 2002 saw 10-12 handy cargoes a month going mostly Med/Asia. These Med exports have now dwindled to 4-6 handies a month Med/US-Brazil. Since May this year, while the huge AG/East trade has held steady, more Middle East naphtha has been heading West, with most cargoes going to the U.S. rather than Europe. Even that will change over the next 12-18 months, forecasts Poten, with Europe becoming the predominant destination for Middle East naphtha.

The beneficiaries are the long-haul clean tankers. But there is one restraint to the unfettered joy of the panamax and aframax (or LR1 and LR2) operators. Europe is used to getting its naphtha in handies, so not many European naphtha receiving facilities have the draft or the berths or the shoretank capacity to receive large naphtha shipments – only Rotterdam has successfully taken the biggest 75-80,000 tonne shipments this year.

Unless there is some prompt capital investment in Europe, the region’s fast-growing long-haul naphtha imports may have to be shipped in small tankers instead of in the more economical panamaxes and aframaxes.

ContactBill Box