September 13, 2017

Latin America: Petroleum Product Demand Forecast

Stratas Advisors

This is an example of a full report that is available to subscribers of Stratas Advisors’ Global Refining and Products and Latin America services.

Total Product Demand

In 2016, Latin America represented nearly 9.2% of global petroleum product demand. Light products (gasoline, naphtha, jet fuel, diesel and other middle distillate) make up 68.8% of refined product demand, as indicated in chart [Latin America Product Mix (2014-2035)]. Gasoline and middle distillate make up 61.4% of refined product demand. Total demand in 2016 was 9.22 million b/d, up 0.12 million b/d, or 1.3%, from the 9.10 million b/d achieved in 2015 [see the table- Latin America Refined Product Demand (2010-2025)].

Much of the region is oriented toward gasoline in the transportation sector. In the two largest consuming countries (Brazil, and Mexico), gasoline makes up 30% of the aggregate total refined product demand. The gasoline demand in Brazil, which amounted to 1.01 million b/d in 2016, includes neat ethanol and ethanol blended with gasoline. Mexico gasoline demand of 0.81 million b/d in 2016 was 38.5% of total petroleum product demand.

In other Latin American countries, including Argentina and Colombia, alternative fuels such as liquefied petroleum gas (LPG) and compressed natural gas (CNG) supply a significant portion of transportation requirements. Gasoline accounts for an average of about 20% in Argentina and 32% in Colombia of total product demand, and middle distillate for 35% in Argentina and 42% in Colombia.

Residual fuel represents 11% of refined product demand in Latin America and has been declining recently because of increasing use of natural gas instead of fuel oil for power generation.

Latin American Refined Product Demand (2010-2025)

(million b/d)

Product 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Gasoline 1.97 2.04 2.20 2.15 2.22 2.72 2.78 2.83 2.89 2.94 3.00 3.04 3.08 3.12 3.15 3.19
Regular  0.33 0.31 0.35 0.31 0.33 0.35 0.36 0.36 0.37 0.38 0.39 0.39 0.40 0.41 0.42 0.43
Premium  1.63 1.73 1.85 1.84 1.89 2.37 2.43 2.47 2.52 2.57 2.62 2.65 2.68 2.71 2.74 2.76
Naphtha 0.31 0.29 0.26 0.27 0.27 0.25 0.26 0.27 0.27 0.28 0.29 0.29 0.30 0.30 0.31 0.31
Jet Fuel 0.31 0.32 0.34 0.35 0.37 0.40 0.40 0.41 0.41 0.42 0.43 0.43 0.44 0.45 0.46 0.47
Kerosene 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01
Middle Distillate 2.49 2.58 2.69 2.74 2.81 2.83 2.88 2.93 3.00 3.06 3.13 3.20 3.27 3.35 3.42 3.49
  Road Diesel 1.49 1.59 1.65 1.67 1.71 1.73 1.76 1.79 1.83 1.87 1.91 1.95 1.99 2.03 2.07 2.12
  Off-Road Diesel(1) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
  Distillate Bunker 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.08 0.08 0.08 0.08
  Other Gas Oil 0.93 0.91 0.97 0.99 1.03 1.04 1.05 1.07 1.10 1.13 1.15 1.18 1.21 1.24 1.26 1.29
Residual Fuel 1.01 1.05 1.06 1.02 0.97 0.96 0.95 0.99 1.04 1.08 1.12 1.14 1.17 1.19 1.22 1.24
  Residual Bunker 0.24 0.26 0.26 0.23 0.23 0.23 0.23 0.24 0.25 0.26 0.28 0.28 0.29 0.30 0.30 0.31
LPG 1.05 1.06 1.08 1.11 1.14 0.88 0.90 0.91 0.92 0.93 0.95 0.96 0.97 0.98 0.99 1.00
Others(2)
0.92 0.93 0.97 0.94 0.96 1.04 1.03 1.01 1.01 1.00 1.00 0.99 1.00 1.00 1.01 1.01
Unfinished Oils 0.25 0.25 0.27 0.24 0.25 0.26 0.26 0.25 0.25 0.24 0.24 0.23 0.24 0.24 0.24 0.24
Base Lube Oils 0.04 0.04 0.03 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.03
White Spirit 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01
Waxes 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asphalt 0.11 0.11 0.10 0.10 0.11 0.12 0.12 0.12 0.11 0.11 0.11 0.11 0.11 0.11 0.11 0.11
Petroleum Coke 0.22 0.24 0.24 0.25 0.26 0.29 0.28 0.27 0.27 0.27 0.26 0.26 0.26 0.26 0.26 0.26
Refinery Gas 0.29 0.29 0.31 0.31 0.29 0.32 0.33 0.33 0.33 0.34 0.34 0.35 0.35 0.36 0.36 0.37
Total 8.08 8.29 8.62 8.62 8.76 9.10 9.22 9.36 9.56 9.74 9.94 10.07 10.23 10.40 10.56 10.72

Notes:

(1) Contains diesel used in agriculture and on rail.
(2) Lubricants, asphalt, refinery fuel gas, coke and miscellaneous products.

Source: Stratas Advisors

The region as a whole has refining capacity and utilization rates that dictate sizable product imports, primarily motor gasoline and middle distillate fuel. In 2016, Latin America imported 0.73 million b/d of middle distillate and 0.83 million b/d of motor gasoline; Mexico, Colombia and Brazil accounted for half of the volume. 

Latin American petroleum product consumption is projected to grow at an annual average rate of 1.7% CAGR through 2025, to a total of 10.72 million b/d (see table below). Demand for light transportation fuels (gasoline, middle distillate and jet fuel) will grow nearly 1.8% CAGR from 2016 to 2025.

Latin American Refined Product Demand (2010-2035)

(million b/d)

Product 2010 2016 2020 2025 2030 2035
Gasoline 1.97 2.78 3.00 3.19 3.43 3.65
Regular  0.33 0.36 0.39 0.43 0.46 0.50
Premium  1.63 2.43 2.62 2.76 2.97 3.16
Naphtha 0.31 0.26 0.29 0.31 0.33 0.35
Jet Fuel 0.31 0.40 0.43 0.47 0.51 0.55
Kerosene 0.03 0.02 0.01 0.01 0.01 0.01
Middle Distillate 2.49 2.88 3.13 3.49 3.83 4.14
  Road Diesel 1.49 1.76 1.91 2.12 2.32 2.51
  Off-Road Diesel(1) 0.00 0.00 0.00 0.00 0.00 0.00
  Distillate Bunker 0.07 0.07 0.07 0.08 0.09 0.10
  Other Gas Oil 0.93 1.05 1.15 1.29 1.42 1.54
Residual Fuel 1.01 0.95 1.12 1.24 1.36 1.44
  Residual Bunker 0.24 0.23 0.28 0.31 0.35 0.37
LPG 1.05 0.90 0.95 1.00 1.05 1.09
Others(2)
0.92 1.03 1.00 1.01 1.03 1.04
Unfinished Oils 0.25 0.26 0.24 0.24 0.23 0.23
Base Lube Oils 0.04 0.04 0.03 0.03 0.03 0.03
White Spirit 0.01 0.01 0.01 0.01 0.01 0.01
Waxes 0.001 0.001 0.001 0.001 0.001 0.001
Asphalt 0.11 0.12 0.11 0.11 0.11 0.10
Petroleum Coke 0.22 0.28 0.26 0.26 0.26 0.25
Refinery Gas 0.29 0.33 0.34 0.37 0.39 0.41
Total 8.08 9.22 9.94 10.72 11.56 12.29

Notes:

(1) Contains diesel used in agriculture and on rail.
(2) Lubricants, asphalt, refinery fuel gas, coke and miscellaneous products.

Source: Stratas Advisors

The chart [Latin America Product Mix (2014-2035)], shows the Latin American product mix from 2014 through 2035, along with a column that shows incremental product demand during the 2014-2035 period. Gasoline share will decrease from 30.2% in 2016 to 29.7% in 2035. Jet/Kero share will increase from 4.5% in 2016 to 4.6% in 2035. Diesel share will increase from 31.2% in 2016 to 33.7% in 2035

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Gasoline and Naphtha

Motor gasoline demand in Latin America is expected to grow by 1.51% CAGR from 2.78 million b/d in 2016 up to 3.19 million b/d by 2025. Brazil is currently the largest contributor, growing from 1 million b/d in 2016 to 1.2 million b/d by 2035. Mexico is also significant, growing by 2.84% CAGR from 0.8 million b/d in 2016 up to 1.03 million b/d by 2025, thus remaining as the second-largest gasoline consumer in the region. A large share of the gasoline demand in Brazil is met with ethanol, including anhydrous ethanol and ethanol-gasoline blends containing up to 27 vol%.

Naphtha demand in Latin America is small, growing only marginally from 0.26 million b/d in 2016 to 0.34 million b/d by 2035.

Source: Stratas Advisors

Latin America is one of the most urbanized regions of the developing world, with about 80% of its population living in urban areas. The urbanization has occurred rapidly during the past 30 years, leading to an exponential growth of vehicle fleet, congestion and emissions. Vehicle emissions account for more than 70% of the air pollution in major cities and represent a significant public health concern.

There is limited harmonization of fuel quality standards throughout Latin American countries, except for Central American countries that share Central American Technical Regulation (RTCA) standards. Fuel-quality programs range from areas with limited regulation to countries seeking to meet gasoline and diesel specifications already set in North America or Europe. Some countries have ULSD specifications in place, and others will implement them within the next few years.

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Latin America 2015 2020 2025 2030 2035
Market Octane (R+M)/2 87.4 87.8 87.9 87.9 87.9
Refinery Produced Octane* (R+M)/2 84.6 85.1 85.2 85.1 85.1

* Does not include oxygenates and non-crude-derived gasoline components.

Source: Stratas Advisors

On a weight average basis for the entire region, sulfur levels are expected to decline from 205 ppm in 2015 to 20 ppm by 2035. A gasoline sulfur content of 10 ppm will be achieved by 2025 in Brazil and Argentina, while Mexico will follow by 2030.

In Brazil, gasoline sulfur levels were reduced to 50 ppm for premium and 125 ppm for regular in 2015, and expected to be 30 ppm for both grades by 2020 and 10 ppm by 2025.

Mexico aims to align its standards with those of the US to enable the introduction of Tier II gasoline vehicles and new-generation diesel engines. In 2013, the Mexican government enacted a regulation (drafted in 2012) that institutes fuel economy requirements for light-duty vehicles (LDVs), becoming the first Latin American country to implement fuel economy standards. Mexico is 30 ppm sulfur as of 2016 for all grades.

Argentina was at 50 ppm in 2016 and is forecast to be at 30 ppm by 2020 and 10 ppm by 2025.

Venezuela in 2016 was at 800 ppm for premium and 600 ppm for regular. The country is forecast to tighten standards to 150 ppm for premium and 240 ppm for regular by 2020. By 2030, sulfur levels for all grades are expected to be 50 ppm.

Chile has already achieved its low-sulfur specification of 15 ppm nationwide.

The table below summarizes Latin American average gasoline quality specifications for 2016 (current) through 2035 (projected). Reductions in sulfur content will drive quality improvement. Later quality initiatives will begin to focus on benzene and aromatics reductions.

Latin American Trends for Gasoline Quality (2016-2035)

Time Frame      Sulfur
 (ppm, max)
   Aromatics
 (vol%, max)
    Benzene
 (vol%, max)
Current(1)       224         33.8        1.1
2020 estimated(2)       135         33        1.0
2025 estimated(2)        45         33        1.0
2030 estimated(2)        25         33        1.0
2035 estimated(2)        20         33        1.0

Notes:

(1) Weighted average fuel quality based on 2016 specifications and actual market quality.
(2) Projected average fuel quality based on regional/international trends analysis.

Source: Stratas Advisors

The table below shows regional gasoline demand by sulfur category. Gasoline usage with more than 500 ppm sulfur is expected to be discontinued across the region after 2020, while a maximum sulfur content of 50 ppm is projected for 2035. A few Latin American countries, most likely Brazil and Argentina, will reduce sulfur in gasoline to 10 ppm starting by 2025.

Latin American Gasoline Demand by Sulfur Category (2016-2035)
(million b/d)

Sulfur Category 2016 2017 2020 2025 2030 2035
< 10 ppm 0.00 0.00 0.00 1.12 2.39 2.66
11 - 50 ppm 1.28 1.37 2.06 1.11 0.46 0.99
51 - 500 ppm 0.96 0.91 0.43 0.95 0.59 0.00
> 500 ppm 0.54 0.55 0.52 0.00 0.00 0.00
Total 2.78 2.83 3.00 3.19 3.43 3.65


Source: Stratas Advisors

Middle Distillate

The chart below [Latin America Middle Distillate and On-Road Diesel demand (2010-2035)] shows historical and projected demand for total middle distillates and for the on-road diesel’s share on the middle distillate pool. On-road diesel currently accounts for 61.1% of the middle distillate pool and is the major demand driver of middle distillate.

Demand will grow with continued economic expansion in the region; middle distillate demand will increase 2.1% CAGR between 2016 and 2025, growing from 2.88 million b/d to 3.49 million b/d. On-road diesel demand will grow 2% annually over this period, increasing from 1.76 million b/d to 2.12 million b/d.

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Source: Stratas Advisors

Growing diesel consumption in Latin America is prompting many countries in the region to pay more attention to particulate emissions and enact diesel quality improvement regulations. More countries are gradually introducing lower-sulfur on-road diesel specifications into the region, but differences still remain among countries. Governments and companies are becoming more aware of the importance of aligning fuel quality requirements with those of neighboring countries.

Many countries have announced plans to reduce sulfur content in on-road diesel to 15 ppm or even 10 ppm. It is expected that demand will remain significant for higher sulfur middle distillate used off-road, for heating, in industry and as distillate marine fuel.

In Mexico, ultra-low sulfur diesel (S<15 ppm) was brought online in the northern frontier zone in 2007 and in Mexico City, Guadalajara and Monterrey in January 2010. The ULSD supply on these areas was provided by domestic production on existing plants (three hydrotreaters and one H-Oil plant) and by diesel imports. The ULSD domestic supply to the rest of the country depends on the completion of plant revamps (Clean Diesel Project) in the six existing Mexican refineries. The Cadereyta refinery in northern Mexico has started the revamp of its existing diesel hydrotreater under the Clean Diesel Project. The remaining refinery revamp projects were approved by the end of 2016. According to Stratas Advisors, some of the plants would come on-stream within 15-40 months; however, the drop in crude oil prices has forced the Mexican government to delay the start of the works. Pemex is preparing a transitional supply program to maximize the coverage area of clean diesel, and for the time being will keep ULSD imports to meet domestic demand.

In Brazil, the on-road quality specification for metropolitan areas is capped at 500 ppm sulfur. Starting in 2014, diesel sulfur content of 1,800 ppm is being used only for off-road transportation. The 10 ppm diesel that replaced 50 ppm has been distributed in selected metropolitan regions in the north and northeast and for public transportation bus fleets in selected metropolitan regions in the northeast, south and southeast.

In Argentina, on-road diesel sulfur limits stand at 1,500 ppm for Grade 2 (with max 500 ppm in select areas) and 10 ppm for Grade 3. Starting Jan. 1, 2019, the sulfur limit for Grade 2 will be reduced to 1,000 ppm. Additionally, come Jan. 1, 2022, the sulfur limit for Grade 2 will be reduced to a flat level of 350 ppm.  Venezuela in 2016 was at 5000 ppm and is expected to go down to 50 ppm by 2030.

Uruguay introduced 50 ppm sulfur diesel in July 2012, which was implemented nationwide by June 2014, while Colombia enacted 50 ppm sulfur diesel standards nationwide on Jan. 1, 2013. Also in 2013, Chile reduced the sulfur content nationwide for diesel specifications to 15 ppm in September 2013.  The table below summarizes current average quality specifications for Latin American on-road and off-road diesel fuels, as well as projected trends of fuel quality through 2035. Even though transport diesel fuel in the majority of Latin America has had limited regulatory control, more countries are implementing low-sulfur diesel standards and supplying more low-sulfur diesel to the market. It is expected that on-road diesel sulfur content will decline below 500 ppm in average by 2016 and thereafter below 50 ppm by 2025. Off-road diesel sulfur content will also decline but at a much slower pace. Off-road diesel quality is projected to average less than 2,000 ppm by 2025. 

Latin American Trends for Transport Diesel Quality (2016-2035) 

Time Frame Fuel Type(1) Sulfur Cetane Number
(ppm, max)
 
Current(1,2) On-Road 518 46
  Off-Road 2262 -
2020 estimated(1,3) On-Road 190 47
  Off-Road 2670 -
2025 estimated(1,3) On-Road 40 47
  Off-Road 1720 -
2030 estimated(1,3) On-Road 35 47
  Off-Road 1690 -
2035 estimated(1,3) On-Road 35 47
  Off-Road 1670 -

Source: Stratas Advisors

Notes:
(1) Off-road contains diesel used in agriculture, on rail and in domestic navigation and fishing.
(2) Weighted average fuel quality based on 2016 specifications and actual market quality.
(3) Projected average fuel quality based on regional/international trends analysis.

The table below shows regional middle distillate demand by sulfur category. In addition to on-road and off-road categories, the table covers the whole middle distillate volume, including international marine bunker and industry use. 

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Latin American Middle Distillate Demand by Sulfur Category (2014-2035) (million b/d)

Sulfur Category 2014 2016 2020 2025 2030 2035
       ≤10 ppm 0.32 0.32 0.48 0.66 0.73 0.78
     11 - 50 ppm 0.54 0.55 0.82 0.91 0.99 1.06
     51 - 500 ppm 1.15 1.19 1.07 1.04 1.14 1.23
     > 500 ppm 0.81 0.81 0.77 0.87 0.97 1.06
Total 2.81 2.88 3.13 3.49 3.83 4.14

(1) Contains diesel used in agriculture and on rail.

Source: Stratas Advisors

Residual Fuel

Residual fuel demand declined significantly before 2005 because of its substitution by natural gas in power generation. Demand stabilized and remained flat through 2012. It is expected that demand will slightly decrease through 2016, mostly driven by a pronounced drop in Mexico’s demand. After that, demand will increase through 2020. Demand will approach 1.12 million b/d by 2020 and then increase through 2035. The drivers of increasing demand, followed by a reversal by 2020, are other Latin American countries such as Venezuela, which will experience a pronounced increase on demand through 2020 followed by a drop thereafter. 

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Source: Stratas Advisors

In October 2016, the International Maritime Organization (IMO) confirmed that sulfur content of marine fuels will be capped at 0.5% S m/m globally with effect from January 1, 2020. The new limit will replace the current global cap of 3.5% S m/m.

Stratas Advisors participated as a member of a consortium commissioned by the MEPC (Marine Environmental Protection Committee) to assess whether sufficient fuel would be available in 2020.  After extensive discussion, MEPC agreed to introduce the 0.5% S m/m sulfur cap with effect from Jan 1, 2020.

For a ship operator, the compliance options from 2020 onwards are:

  • Switch to low-sulfur petroleum fuel (<=0.5% S m/m, or <=0.1% S m/m in ECAs)
  • Install an approved exhaust gas cleaning system to achieve equivalent or lower SOx reductions than when using 0.5% m/m S fuel
  • Switch to an alternative low-sulfur fuel such as Liquefied Natural Gas (LNG) 

Mandatory IMO SOx Emission Control Areas (ECA) and non-IMO Emission Control Zones (ECZ)

For this analysis, from 2020, the 0.5 wt% sulfur global limit is applied. To comply with stringent sulfur requirements, a portion of the bunker market is assumed to be transferred to low sulfur fuel oil. The remainder of the bunker market will continue to be supplied as a residual fuel. However, not all residual bunker fuel is expected to be desulfurized to 0.5% S m/m, an alternative to using compliant fuel is 3.5% S m/m fuel with scrubber technology.

Jet Fuel/Kerosene

Jet fuel and kerosene represented 4.5% of Latin American product demand in 2016. Jet fuel is 95% of the jet fuel/kerosene pool. Jet fuel grew at 4.2% annually between 2005 and 2011. The economic recession had a large impact on the jet fuel market and consumption declined in 2009. Demand rebounded in 2010 with 6.5% growth and will experience average growth of 1.7% CAGR between 2016 and 2025.

Demand for kerosene (industrial, residential and commercial) has been flat and will remain about 0.02 million b/d through 2035.

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Source: Stratas Advisors

Jet fuel specifications allow for sulfur as high as 3,000 ppm; however, market product runs well below this limit at about 1,000 ppm. Reductions in jet fuel sulfur have been discussed for other regions, with initiatives aimed at global harmonization at lower sulfur levels. However, recent discussions on global jet fuel quality have been directed more toward reduction of CO2 emissions, which might prove to be a much stronger driving force for global quality change than sulfur content. For this study, it has been anticipated that regional jet fuel sulfur will be reduced to 350 ppm by 2025.

Other

Other products in Latin America represent 10% of demand. Lubricants and asphalt account for 21% of “other,” and refinery fuel gas and coke amount to 51%. Other product demand will increase at an average of 0.61% CAGR through 2025. More than 90% of this increase will be for refinery fuel, as refinery throughput and heavy oil conversion processing will increase to meet growing demand.

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