EU, Singapore free-trade oil deal may start at end of 2014

A free-trade agreement between the European Union and Singapore that removes taxes on jet fuel and diesel exports to Europe will come into effect as early as 2014, potentially boosting petroleum shipments to the EU.
The full ratification process will take about two years, the Singapore trade ministry said. The pact is similar to an accord approved two years ago between the EU and South Korea that led to an unprecedented flow of North Sea crude oil to the Asian nation.
At least 53 million barrels have been exported to South Korea since the agreement began that exempted refiners in the Asian nation from a 3% tariff. That is equivalent to about three weeks of imports.
“The EU and Singapore will now seek approval for the deal from their respective political authorities and envisage initialing the draft agreement in Spring 2013,” the EU said in a December 16 statement, citing Trade Commissioner Karel de Gucht and Minister of Trade and Industry Lim Hng Kiang.
Both governments are attempting to build on the growing trade in goods, estimated at US$86 billion in 2011 by the island nation’s trade ministry. Removal of taxes would allow refiners in Singapore, such as Royal Dutch Shell Plc and ExxonMobil Corp., to ship distillate fuels to the EU, opening an export route that is dominated by companies in India and the Middle East. It may, however, exacerbate worsening refining profit margins in Europe, where the second recession in four years is cutting demand.
“This could be disastrous for European refiners,” Olivier Jakob, managing director at Zug, Switzerland-based Petromatrix GmbH, said. “The FTA with Korea is already taking crude out of Europe and increasing the cost of it for Europeans, now you have another challenge for them with competition for distillate flows from Singapore. It’s already bad for them and is going to get worse.”
Singapore, Asia’s largest export refining country, ships oil products including gasoline, diesel fuel and jet fuel to nations as far away as the U.S., according to government data. The EU currently imposes a 4.7% tax on jet fuel and 3.5% tariff on diesel fuel imports from Singapore.
Asian gasoil, a benchmark for diesel fuel and jet fuel, during February was at a discount of US$18.22 per metric ton compared to European prices, according to data compiled by Bloomberg. Import taxes and shipping costs erode potential profits in moving fuels to other markets.
“Complex refineries in Asia are able to process heavy and cheaper crude to produce top of the barrel oil products at a much lower cost and are hence able to export products to destinations as far as Europe at a competitive price,” Abhishek Deshpande, an analyst at Natixis SA in London, said.
There are currently no taxes levied on EU petroleum or crude imports into Singapore.
The pact will be presented to the European Commission, EU member states and the European Parliament for approval by May, a government official involved in the talks said. The European Commission is the 27-nation EU’s executive arm in Brussels.
Buyers in Europe were slated to import about 1.4 million tons of jet fuel from the Middle East and Asia in February, according to a January 21 Bloomberg survey. This is a slight decrease from the 1.5 million tons imported in December when volumes rose to the highest in three months.
Singapore, which has a refining capacity of about 1.4 million barrels a day, did not export any jet fuel or diesel fuel to the EU in the five weeks through January 30, data from the trade ministry showed.
Several European refineries have reduced production counter-seasonally due to a fall in processing margins and more will probably curb operations if profits do not recover, the International Energy Agency said in its monthly report in January.
Shell’s Pernis facility in the Netherlands and ExxonMobil’s Fawley site in the UK were among sites operating at reduced rates, the IEA said.
Singapore’s trade ministry said in December that local exporters of electronics, pharmaceuticals, chemicals and processed food products will benefit from the removal of EU tariffs. (February 2, 2013)