The news coming out of Chinese shipyards regarding deliveries of the 87 jackups they still have under construction is that there is precious little news. All is silent with the occasional revelation that individual rigs remain under construction or have been launched.
Currently there are seventy (70) jackups under construction as various Chinese yards. Of these there are twenty-five (25) that have been ordered by bona-fide drilling contractors such as Seadrill, Northern Offshore, COSL, Dynamic, KS Drilling, Shengli and Apexindo. The remaining forty-five (45) have all been ordered on pure speculation with the intention of flipping them for a profit.
Deliveries on some of the seventy (70) have already been officially pushed back into late 2016 or later or were naturally behind schedule anyway. Twenty-seven (27) units were to have been delivered in 2015 and first quarter of 2016 according to their original construction schedule but have not appeared in the market. A high percentage of these are probably ready for delivery but are yet to be accepted by their owners. Not much information is being made available on these units.
Even for the twenty-five (25) rigs ordered by drilling companies there is no certainty that the drillers will accept delivery of the rigs they have ordered, although Shengli and Northern Offshore appear set to accept their rigs when ready. Seadrill have announced that they will not take delivery of any of their eight jackups in 2016 and then further announced that they consider the eight (8) rigs under construction at DSIC to be “an option to buy” which sounds ominous for DSIC. It would be a surprise if Dynamic, Apexindo and KS Drilling took delivery of their rigs without a contract in place, a remote event at this juncture. Paragon has continually stated that accepting delivery of the three Prospector rigs still under construction is unlikely. Some of the threats are probably posturing as the rigs are likely to be accepted once the market improves. Its just that the owners do not want to pay for them until then.
But the real question is what will happen to the other forty-five (45) jackups whose chances of being flipped for a profit are currently absolutely zero and whose chances of making any sale at all would depend on how much of a hit they are prepared to take on the original shipyard price. As most have only made a down payment of 5% they have relatively little to lose by walking away as compared to paying the $180-200m to the shipyard, taking delivery, and then perhaps only being able to sell on for $140m. This though is a moot point as the owners would not be able to get financing from the banks without a contract for the rig and in such a cut throat market as this one it is highly unlikely that they would win any contracts when competing against bone-fide drillers, themselves desperate for work.
Of course we have John Fredriksen sniffing around with his Sandbox venture with the stated intention of buying up distressed assets. Maersk Drilling has indicated they are in a position to move in on any opportunities but they will only aim for high spec harsh environment unit of which there are very few under construction. There are also rumours of a certain offshoot US drilling company in talks with CMIC to examine the possibility of taking over operatorship of their unsold jackup inventory on some sort of a lease purchase deal, presumably they would then be able to start a fleet replenishment exercise and condemn their old jackups to the scrapyard. There is no doubt there are other clever deals being thought through at present.
The emergence of Iran, allowed back into the international market, is seen by many of the speculators as The Opportunity, but it has been so since the building boom started and very few units were actually picked up by Iran, mostly 300ft rated smaller units. The National Iranian Drilling Company is said to be in negotiations with domestic and international investors from Asia and Europe with a view to acquiring five (5) jackups with a budget at $200 million for each and is said to have signed a memorandum of understanding with Chinese companies apparently based on a lease purchase scenario. Owners may be salivating but five (5) out of forty-five (45) is hardly encouraging. The other great hope was Mexico but that market has collapsed completely.
However, it is known that most of the Chinese yards are being very lenient with the owners, allowing completed units to remain in the yard at no cost and offering to help find buyers for the rigs at which point they would refund the down payment to the original owners, But this is certainly not a seller’s market. Patently this shows the yards are taking a very patient and long term view, albeit knowing they have government guarantees in their back pocket in case things don’t go as planned.
Although there are twelve (12) shipyards in China currently constructing jackups, three (3), namely CMHI, SWS and DSIC, have the most exposure and account for forty (40) of the seventy (70)) units under construction with CMHI most exposed with eighteen (18). With little prospects of sales in the near future it is not surprising there is little news nor that they are showing leniency to owners when the alternative is dumping them on the market at fire sale prices.
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The vast Shah Deniz field in Azerbaijan’s portion of the South Caspian Sea marked several milestones in 2018. It has now produced a cumulative total of 100 billion cubic metres of natural gas since the field started up in 2006, with daily output reaching a new peak, growing by 12.5% y-o-y. At a cost of US$28 billion, Shah Deniz – with its estimated 1.2 trillion cubic metres of gas resources – has proven to be an unparalleled success, being a founding link of Europe’s Southern Gas Corridor and coming in relatively on budget and on time. And now BP, along with its partners, is hoping to replicate that success with an ambitious exploration schedule over the next two years.
Four new exploration wells in three blocks, along with a seismic survey of a fourth, are planned for 2019 and an additional three wells in 2020. The aggressive programme is aimed at confirming a long-held belief by BP and SOCAR there are more significant pockets of gas swirling around the area. The first exploratory well is targeting the Shafag-Asiman block, where initial seismic surveys suggest natural gas reserves of some 500 billion cubic metres; if confirmed, that would make it the second-largest gas field ever discovered in the Caspian, behind only Shah Deniz. BP also suspects that Shah Deniz itself could be bigger than expected – the company has long predicted the existence of a second, deeper reservoir below the existing field, and a ‘further assessment’ is planned for 2020 to get to the bottom of the case, so to speak.
Two wells are planned to be drilled in the Shallow Water Absheron Peninsula (SWAP) block, some 30km southeast of Baku, where BP operates in equal partnership with SOCAR, with an additional well planned for 2020. The goal at SWAP is light crude oil, as is a seismic survey in the deepwater Caspian Sea Block D230 where a ‘significant amount’ of oil is expected. Exploration in the onshore Gobustan block, an inland field 50km north of Baku, rounds up BP’s upstream programme and the company expects that at least one seven wells of these will yield a bonanza that will take Azerbaijan’s reserves well into the middle of the century.
Developments in the Caspian are key, as it is the starting node of the Southern Gas Corridor – meant to deliver gas to Europe. Shah Deniz gas currently makes its way to Turkey via the South Caucasus Gas pipeline and exports onwards to Europe should begin when the US$8.5 billion, 32 bcm/y Trans-Anatolian Pipeline (TANAP) starts service in 2020. Planned output from Azerbaijan currently only fills half of the TANAP capacity, meaning there is room for plenty more gas, if BP can find it. From Turkey, Azeri gas will link up to the Trans-Adriatic Pipeline in Greece and connect into Turkey, potentially joined by other pipelines projects that are planned to link up with gas production in Israel. This alternate source of natural gas for Europe is crucial, particularly since political will to push through the Nordstream-2 pipeline connecting Russian gas to Germany is slackening. The demand is there and so is the infrastructure. And now BP will be spending the next two years trying to prove that the supply exists underneath Azerbaijan.
BP’s upcoming planned exploration in the Caspian:
When it was first announced in 2012, there was scepticism about whether or not Petronas’ RAPID refinery in Johor was destined for reality or cancellation. It came at a time when the refining industry saw multiple ambitious, sometimes unpractical, projects announced. At that point, Petronas – though one of the most respected state oil firms – was still seen as more of an upstream player internationally. Its downstream forays were largely confined to its home base Malaysia and specialty chemicals, as well as a surprising venture into South African through Engen. Its refineries, too, were relatively small. So the announcement that Petronas was planning essentially, its own Jamnagar, promoted some pessimism. Could it succeed?
It has. The RAPID refinery – part of a larger plan to turn the Pengerang district in southern Johor into an oil refining and storage hub capitalising on linkages with Singapore – received its first cargo of crude oil for testing in September 2018. Mechanical completion was achieved on November 29 and all critical units have begun commissioning ahead of the expected firing up of RAPID’s 300 kb/d CDU later this month. A second cargo of 2 million barrels of Saudi crude arrived at RAPID last week. It seems like it’s all systems go for RAPID. But it wasn’t always so clear cut. Financing difficulties – and the 2015 crude oil price crash – put the US$27 billion project on shaky ground for a while, and it was only when Saudi Aramco swooped in to purchase a US$7 billion stake in the project that it started coalescing. Petronas had been courting Aramco since the start of the project, mainly as a crude provider, but having the Saudi giant on board was the final step towards FID. It guaranteed a stable supply of crude for Petronas; and for Aramco, RAPID gave it a foothold in a major global refining hub area as part of its strategy to expand downstream.
But RAPID will be entering into a market quite different than when it was first announced. In 2012, demand for fuel products was concentrated on light distillates; in 2019, that focus has changed. Impending new International Maritime Organisation (IMO) regulations are requiring shippers to switch from burning cheap (and dirty) fuel oil to using cleaner middle distillate gasoils. This plays well into complex refineries like RAPID, specialising in cracking heavy and medium Arabian crude into valuable products. But the issue is that Asia and the rest of the world is currently swamped with gasoline. A whole host of new Asian refineries – the latest being the 200 kb/d Nghi Son in Vietnam – have contributed to growing volumes of gasoline with no home in Asia. Gasoline refining margins in Singapore have taken a hit, falling into negative territory for the first time in seven years. Adding RAPID to the equation places more pressure on gasoline margins, even though margins for middle distillates are still very healthy. And with three other large Asian refinery projects scheduled to come online in 2019 – one in Brunei and two in China – that glut will only grow.
The safety valve for RAPID (and indeed the other refineries due this year) is that they have been planned with deep petrochemicals integration, using naphtha produced from the refinery portion. RAPID itself is planned to have capacity of 3 million tpa of ethylene, propylene and other olefins – still a lucrative market that justifies the mega-investment. But it will be at least two years before RAPID’s petrochemicals portion will be ready to start up, and when it does, it’ll face the same set of challenging circumstances as refineries like Hengli’s 400 kb/d Dalian Changxing plant also bring online their petchem operations. But that is a problem for the future and for now, RAPID is first out of the gate into reality. It won’t be entering in a bonanza fuels market as predicted in 2012, but there is still space in the market for RAPID – and a few other like in – at least for now.
RAPID Refinery Factsheet:
Tyre market in Bangladesh is forecasted to grow at over 9% until 2020 on the back of growth in automobile sales, advancements in public infrastructure, and development-seeking government policies.
The government has emphasized on the road infrastructure of the country, which has been instrumental in driving vehicle sales in the country.
The tyre market reached Tk 4,750 crore last year, up from about Tk 4,000 crore in 2017, according to market insiders.
The commercial vehicle tyre segment dominates this industry with around 80% of the market share. At least 1.5 lakh pieces of tyres in the segment were sold in 2018.
In the commercial vehicle tyre segment, the MRF's market share is 30%. Apollo controls 5% of the segment, Birla 10%, CEAT 3%, and Hankook 1%. The rest 51% is controlled by non-branded Chinese tyres.
However, Bangladesh mostly lacks in tyre manufacturing setups, which leads to tyre imports from other countries as the only feasible option to meet the demand. The company largely imports tyre from China, India, Indonesia, Thailand and Japan.
Automobile and tyre sales in Bangladesh are expected to grow with the rising in purchasing power of people as well as growing investments and joint ventures of foreign market players. The country might become the exporting destination for global tyre manufacturers.
Several global tyre giants have also expressed interest in making significant investments by setting up their manufacturing units in the country.
This reflects an opportunity for local companies to set up an indigenous manufacturing base in Bangladesh and also enables foreign players to set up their localized production facilities to capture a significant market.
It can be said that, the rise in automobile sales, improvement in public infrastructure, and growth in purchasing power to drive the tyre market over the next five years.