Shifting Sands: Changing Trends in the Middle East Gulf
A Demanding Situation
Meanwhile, oil demand within the MEG has continued to grow strongly over the last ten years, as shown on the Graph of the Month. Demand has increased by a CAGR of 4% p.a. in this period, and is projected to reach 7.9m bpd in 2014. This demand growth has been driven by increased investment in the petrochemical sector, as well as growth in domestic oil infrastructure projects. Furthermore, per capita demand, in the form of increasing driving and air conditioning use, has also supported oil demand growth.
Refinery capacity in the region has been lagging behind oil demand since 2010. As a result, product imports into the MEG increased from 0.35m bpd in 2010 to 0.54m bpd in 2013. However, with the opening of the Yanbu refinery in Saudi Arabia and the expansion of the Ruwais refinery in the UAE, capacity is set to increase by 0.8m bpd in 2014 to 7.7m bpd, potentially servicing an increasing share of domestic demand. The surge in future domestic capacity indicated on the graph (scheduled to reach 9.4m bpd in 2018) has been driven by the expected growth in demand, coupled with a desire to increase petrochemical exports.
Capacity for the Long-Term
Looking ahead, the surge in refinery capacity may potentially outpace the growth in domestic oil demand, with Saudi Arabia in particular looking to reduce the amount of oil used for power generation. As a result, provisional estimates indicate that seaborne product exports from the regional could rise to 1.7m bpd in 2015, and continue on an upward trend in the coming years, as refiners look to sell surplus refined products to the international market. In particular, the expected growth in demand for oil products in Asia, as well as a recovery in Europe, where refinery capacity has reduced significantly since the recession, could provide fertile markets for product exports from the MEG.
Ultimately, the expected rapid growth in refinery capacity in the MEG is likely to impact the global products trade. Whilst the region’s increasing refinery capacity will primarily service domestic demand, it may also create a surplus of oil products, supporting increased exports over the coming years.