We’ve all gotten used to the idea that much of our clothing and electronic gadgets are made in far corners of the world, where labor is cheaper and regulation may be less onerous. What’s less well-known is how dependent North America and Western Europe have become on foreign suppliers of the refined oil products on which we rely on for much of our power, heat and fuel for our cars, trucks and airplanes.

In the 40 years since 1980, refining capacity in the Asia Pacific region has risen by 23 million barrels a day, while rest of the world’s ability to turn raw crude into the products we rely on has fallen.

China’s refining capacity has nearly tripled in the past 20 years. It is set to overtake the U.S. as the world’s biggest crude processor this year, and it won’t stop there. The Asian nation will add another 2.6 million barrels a day by 2025 to take its processing capacity to about 20 million barrels a day. India is also growing rapidly and its capacity could jump by more than half to 8 million barrels a day in the same time.

That’s in part explained by the fact that oil demand has been growing far faster in Asia than anywhere else. It’s understandable the industrializing nations of the east would want to bring oil processing onshore, even if they’re still reliant on producers elsewhere to deliver the crude that’s helped power their expansion.

But recently there’s been a big, and largely unnoticed, shift. Those new refineries in Asia, and increasingly in the Middle East, are no longer only supplying local markets. They are starting to export increasing volumes of refined products to other markets.

Refiners in five countries — China, India, Saudi Arabia, Malaysia and, most recently, Brunei — have seen their combined share of global refined products exports almost double in the past decade, according to data from the Joint Organisations Data Initiative (see chart below). True, those figures aren’t complete. But the most obvious country missing, the United Arab Emirates, would probably add to the weight of these new refiners.

While most of the exports from Chinese refineries remain in Asia, the same is not true for plants in India or the Middle East. As my Bloomberg News colleague Jack Wittels noted here, the flow of clean petroleum products (mostly diesel, jet fuel and gasoil) from India to Europe hit a 13-month high in April as oil demand started recovering. Arrivals from the Middle East also rose sharply.

The biggest oil consumers in Europe — Germany, the U.K. and France, which eachconsume more than 1.5 million barrels a day of oil — have all been short of the refining capacity needed to meet demand for almost a decade. For Germany, it’s been much longer.

The U.S. is almost as dependent, regardless of successive shale booms that have boosted domestic crude production. The country has imported more than 2 million barrels a day of refined products over the past year. One foreign supplier sticks out — Russia — the second-largest shipper of refined oil products to the U.S. after Canada, according to the Department of Energy.

While U.S. refining capacity has risen steadily since the late 1990s, it hasn’t kept pace with the increase in oil demand. Only the successive slumps in consumption sparked by the 2008 financial crash and Covid-19 pandemic have brought the country anywhere close to meeting its needs.

The situation is only likely to get more pronounced as new oil refineries come into operation in Asia and the Middle East. Saudi Arabia’s new 400,000-barrel-a-day Jazan refinery is expected to start commercial operations next month. Neighboring Kuwait is expected to commence processing at its 615,000-barrel-a-day Al Zour plant later this year.

There’s unlikely to be investment in new refineries in Europe or the U.S. amid the shift away from fossil fuels. Tighter environmental restrictions on operations in these regions will make it increasingly expensive for ageing sites to meet limits on carbon emissions or other benchmarks. Several plants have already stopped processing crude, some to be reconfigured as biofuels plants, others to become storage terminals.

The outsourcing of manufacturing has led to job losses that have fueled voter anger and populist sentiment over the years. Outsourcing fuel production may be less visible, but it could bring similar backlash if we ever find ourselves short of the fuels we need to maintain our lifestyles.

Bloomberg, by Julian LeeBookmark , May 10, 2021