Oct. 30 (Bloomberg) -- Iran, Qatar and Australia are increasing production of natural gas, raising supply of condensate, a by-product valued because of its suitability as a raw material to be processed into fuels.

Supply of condensate may climb 7.2 percent a year until 2010, U.K.-based consultant Poten & Partners said. Growth in the global economy is leading to higher demand for gasoline and diesel as consumers buy cars and travel further.

Condensate, a type of light oil produced in association with gas, can yield as much as 60 percent of light distillates such as naphtha and gasoline. This is double the gasoline yield of most crude. Condensate production may help compensate for a global shortage of light, sweet crude oil that refiners favor for processing into motor fuel.

``Condensate is the champagne of crude,'' said John Vautrain, senior vice president at industry consultant Purvin & Gertz Inc. in Singapore. ``Rising supply is good for everyone, from refiners, chemical makers, to motorists.''

Chemical makers in Asia including Formosa Petrochemical Corp. and Mitsui Chemicals Inc. are facing a shortage of naphtha and will benefit from an increase in condensate production, Vautrain said.

Asian petrochemical companies rely on Middle East refiners to supply most of the 30 million metric tons of naphtha they import each year to produce plastics and synthetic fibers. The supply deficit may worsen next year, as ethylene producers from South Korea to Singapore boost capacities to tap China's voracious demand for chemicals.

Processing Plants

Asia's naphtha shortage may widen to 34 million tons next year from the current 30 million tons, Purvin & Gertz said.

Royal Dutch Shell Plc, Iran's National Petrochemical Corp. and SK Corp., the fourth-largest refiner in Asia, are among companies that started condensate-processing plants in Asia this year to tap the region's surging demand for petrochemicals.

In the Middle East, the lack of refining capacities forced oil producers such as Iran to spend more than $3 billion on gasoline imports annually. Condensate splitters are turning the light oil into transportation fuel, and may ease the country's motor fuel shortage.

Supply of condensate in Iran, holder of the world's second- largest gas reserves, will increase as the country develops the South Pars field, the world's biggest deposit of natural gas. In March, Iran invited international contractors to develop several phases of the field.

Gas Fields

Shell's Pearl gas-to-liquids project, which will convert Qatar's North Field natural gas into motor fuels, will produce 120,000 barrels of condensate a day by the end of this decade. Qatar is the holder of the world's third-biggest gas reserves, after Russia and Iran.

In Asia, limited refinery production is encouraging refiners to make more gasoline at the expense of naphtha. That's resulted in higher demand for splitters that are able to process condensate into naphtha for plastic manufacturers and gasoline for consumers.

Prices of gasoline have risen against crude oil prices as refiners around the world operate near capacity to keep up with demand. The motor fuel's premium to crude oil averaged $11.17 a barrel in 2006, compared with $9.61 in 2005, and $5.30 in 2004.

Aromatics Thailand Pcl, the nation's third-largest public traded petrochemical company, will use condensate as a raw material for the aromatics petrochemical complex it's expanding for completion is 2008. The expansion, at a cost of almost $1.1 billion, will boost Aromatics Thailand's condensate consumption by 24 percent to 2.7 million tons a year, the company said on Feb. 9.

Gasoline Demand

``Increased availability of light products will help slow gasoline's price rise, which will ultimately benefit motorists,'' Vautrain said. ``The higher condensate output will be easily absorbed simply because there is so much demand for gasoline and diesel.''

The Echuca Shoals gas discovery off northern Australia, may hold as much as 250 million barrels of condensate.

The surge in demand for motor fuels pushed prices higher after hurricanes Katrina and Rita shut refineries along the Gulf of Mexico in August and September last year. Gasoline's price premium to Brent crude oil surged to a record $23.49 a barrel on Sept. 2, 2005.

``The world's short of the light stuff,'' said Colin Shelley, consultant at Poten & Partners Inc. ``Consumption will rise to match the increase in condensate supply, with several new splitters in Asia keeping the supply and demand in balance.''

To contact the reporter on this story: Trisha Huang in Singapore at thuang14@bloomberg.net

Last Updated: October 29, 2006 20:06 EST