New refinery boosts Qatar oil production

Qatar's new oil refinery is pumping nearly 80,000 barrels per day of middle distillates, piling on yet more pressure on a market suffering serious oversupply.

The 146,000 barrels per day (bpd) Ras Laffan plant produces 24,000 barrels per day of gas oil and 52,000 bpd of kerosene and jet fuel. Global recession has hit these markets hard, leaving millions of barrels on ships waiting for buyers. Refining profits for making middle distillates in Asia have slumped. Profits per barrel stand at around $8 (Dh29.38), a fifth of the $40 seen last year.

Even more bearish for diesel markets is that the new Qatari gas oil is super-clean, meaning it can be diluted with lower quality oil and still produce larger volumes of relatively clean diesel.

"This stuff is wonder-blend," said Al Troner, President of Asia Pacific Energy Consultancy.

"It is coming at the wrong time for the diesel market, you've got to wonder how quickly the market is going to be able to recover to absorb this high-end diesel."

While oil prices have hovered at around $75 a barrel on the view the global economy will pick up, and with it oil demand, there have been few signs of a recovery in demand for diesel, the transport fuel for trucks worldwide.

Most of the new Qatari supply would probably find its way to Europe, said oil traders. Qatar will also soon boost its clean diesel supply even further with its new 140,000bpd plant to produce gas to liquids, due online by the end of 2010. The two plants combined would pump around 60,000 to 65,000 bpd of ultra-clean diesel, said Troner.

Until now, Qatar had been a net importer of gas oil.

New plants like the Ras Laffan facility are also going to have to compete with China, which has been running its refineries at full throttle.

A growing share of Chinese refiners' production has been sold overseas this year as fuel stocks have swelled.

Petrol exports hit the highest in 2.5 years in August, and diesel exports more than doubled from traders' estimates in the same month, showed Chinese customs data.

"This is a concern, even if demand picks up, globally what are you going to do with this monster," said a middle distillates trader based in Asia. "China will eat you alive, and don't forget you also have the giant refining complex of Reliance, this is very apocalyptic type stuff."

Indian refiner Reliance Industries which has doubled the size of its refining complex at Jamnagar to 1.24 million bpd and plans to add yet more capacity, another 140,000bpd in the next six to eight months. Ras Laffan processes oil liquids that form at the surface when gas is produced for Qatar's new liquefied natural gas facilities. The biggest product stream at the plant will be the petrochemical feedstock and petrol component naphtha, with 61,000 bpd.

Most of that will go to new petrochemical plants in Asia. Traders said the supply has mostly been priced in since Qatar concluded long-term supply deals in August. But there would still be some pressure on the market as supply actually comes on line.

"You can never fully price it in until you see it, especially from a new refinery when you're waiting to see if there are any start-up problems," said one trader. "Plus, they will probably pump more than they have sold, as they will have been conservative in case they had any problems."

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