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GEOJE, South Korea (Reuters) - Geoje Island, off the southeastern tip of the Korean peninsula, appears as prosperous as ever: foreign cars cruise the streets, young mothers pushing strollers converge on coffee shops, and workers on motorcycles pour into bustling shipyards.

It is what comes next that worries people in Geoje, the world's largest producer of ships by tonnage.

South Korean shipbuilders are facing their biggest ever crisis, with mass layoffs expected later this year as finished vessels leave the shipyards and few new orders come in.

"We've never had a serious downturn - ever," Kim Hyeon-gyu, director of Geoje's main industrial park, said on the sidelines of a public hearing to discuss looming layoffs.    

Because it takes about two years to build a ship, Geoje's docks are still busy. But without a major uptick in orders by September, which looks unlikely, 20,000 shipbuilding jobs in Geoje will be lost by March, city officials say.

Some 70 percent of Geoje residents rely for a living on shipbuilding, an industry that for four decades was a key engine of South Korea's export-driven growth and still employs about 200,000 across the country.

Now, a global slump in trade and commodities, plus rising competition from China, is forcing Geoje to find ways to ease its dependence on the shipyards.

"Past strong shipbuilding growth made us lax in finding ways for the tourists to spend money here instead of driving through," said Kwon Min-ho, the mayor of Geoje, which is building a 424-room resort as part of a plan to expand its tourist infrastructure.


But the shift is painful.

Subcontractors at the massive Daewoo Shipbuilding & Marine Engineering and Samsung Heavy Industries Co Ltd yards in Geoje and at Hyundai Heavy Industries Co Ltd in nearby Ulsan are especially hard-hit.

"The number of subcontractors going out of business has exploded this year," said Kim Dong-sung, an official with a lobby group representing them. "Unpaid wages and bonuses plus 20-30 percent pay cuts are now seen as the norm."

In the first quarter of this year, South Korea's total shipbuilding industry landed just eight orders totalling 171,188 CGT (compensated gross tonnage).

That compares with 68 ships totalling 2,886,589 CGT in the same period last year and roughly 100 per quarter during a 2003-2008 industry boom that saw massive capacity expansion.

The legacy of those boom days is still apparent, even as activity slows.

Geoje's gross regional domestic product exceeded $50,000 (£34,504) per person in 2013, nearly double the $27,214 national average in 2015, according to the Bank of Korea.

A short drive from traditional fishing villages and the massive shipyards stand smart apartment blocks resembling those of Seoul's well-to-do suburbs. The island's 270,000 residents include 14,800 foreigners mainly working in the shipyards as shipowner representatives or workers, giving Geoje's city centre a cosmopolitan feel.

"Business is alright near tourist spots, but it has slowed down in downtown stores," said Lee Mi-eun, owner of a large beef rib soup restaurant near one of Samsung's shipyards. "People ask for lower-priced menus, come in smaller groups."

Shipbuilding here was largely spared the state-driven restructuring many other South Korean industries went through during the 1997-98 Asian financial crisis as it earned valuable dollars and had years of orders in place.

While in the aftermath, some shipbuilders were bankrupted or sold, and Daewoo Shipbuilding was bailed out by a state-run bank, industry heavyweights built a dominant position against European and Japanese rivals.

More recently, as orders for traditional ships dried up or moved to China, Daewoo, Samsung and Hyundai - the world's three largest shipbuilders - bid aggressively to build complex, expensive offshore oil and gas facilities.

That kept the yards humming but cost overruns and delays led to combined net losses of $4.9 billion for the three giants in 2015.

Under prodding by Seoul, shipbuilders have been shedding assets and cutting staff and wages in hopes of riding out the downturn.

Clarksons Research previously said it expects global commercial ship orders to begin resuming some time around late 2017, with a full recovery only emerging in 2020.

Seen as "too-big-to-fail", the government is looking for ways to shore up the solvency of state-run creditor banks in the event that they need to step in to save one of the giant shipbuilders before then.

Cho Hyun-woo, planning manager at the Daewoo Shipbuilding workers' union, said restructuring should not cut so deeply that the industry loses expertise it has developed for high-end structures, which it should bid on once demand returns.

"If you kill the technology that can make these ships when they are ordered en masse starting 2018, it's painfully obvious the technology will go to China or Japan," he said.

By Joyce Lee

(Editing by Tony Munroe and Lincoln Feast)

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BP & The Expansion of the Caspian

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:

  • Shafag-Asiman, late 2019, targeting natural gas
  • SWAP, 3 sites, late 2019/2020, targeting oil
  • ‘Onshore gas project’, end 2019, targeting natural gas’
  • Block D230, 2019 (seismic assessment)/2020 (drilling), targeting oil
  • Shah Deniz ‘further assessment’, 2020, targeting natural gas
January, 22 2019

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:

  • Ownership: Petronas (50%), Saudi Aramco (50%)
  • Capacity: 300 kb/d CDU/3 mtpa olefins plant
  • Other facilities: 1.22 Gigawatt congeneration plant, 3.5 mtpa regasification terminal
  • Expected commissioning: March 2019
January, 21 2019
Forecasting Bangladesh Tyre Market | Zulker Naeen

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.

January, 18 2019