An expected surplus of gasoil in Asia from greenfield and upgraded refineries might flow into the marine fuel market in late 2014 or early 2015, trade sources said Wednesday.

Asia's maritime industry is looking to the possible supply as one solution as it grapples with stricter air pollution standards, sources said.

Starting January 1, 2015, ships traveling within 200 miles of countries with Emission Control Areas must comply with a 0.1% sulfur cap, lowered from the current 1% cap, under International Maritime Organization regulations.

ECA zones cover ports in North America, the Baltic Sea and the North Sea.

Shipowners have been weighing the cost-effectiveness of different ways to meet the new standards. The options include retrofitting fleets with gas-cleaning technology or scrubbers that remove sulfur from fuel emissions, installing LNG fuel systems, or switching to low sulfur marine gasoil.

Many shipowners have decided to focus on low sulfur marine gasoil as an immediate solution, with the rules looming eight months away, said attendees at last week's International Bunker Conference in Copenhagen, Denmark.

Retrofitting ships with scrubbers would take significant time, and LNG bunkering infrastructure is still in the exploratory stage for deepsea routes.

RISING CHINA, INDIA, MIDEAST SUPPLY

Asia could see an oil products glut in the coming years due to expanding refining capacity in the Middle East and Asia, traders said. The upgrades will produce more of the higher-end, cleaner distillate products and less of the dirty products like heavy fuel oil.

China has added an estimated 1 million-1.2 million b/d of refining capacity over 2012-13, but weak domestic demand growth has prompted a significant surge in gasoil exports since mid-2012.

India currently has 1.16 million b/d in surplus refining capacity, leaving private refiners like Reliance Industries Ltd. and Essar Oil to focus on exports.

Middle East refiners could add more than 1.5 million b/d of refining capacity in the next few years, traders said. Saudi Arabia alone will expand capacity by 1.2 million b/d to 3.3 million b/d by 2016 with three greenfield refineries.

The spread between the cash FOB Singapore 500 ppm sulfur gasoil and 380 CST high sulfur fuel oil, the typical marine bunker grade, stood at $322.07/mt at Tuesday's Asian close -- with gasoil at $904.50/mt and 380 CST HSFO at $582.43/mt.

That compares to the forward value of the same medium sulfur gasoil/HSFO grades in Singapore at around $292.87/mt for Q1 2015, Platts data showed.