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Last Updated: June 27, 2016
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  1. Global crude oil prices fell over Thursday and Friday, spilling into this week, as the UK’s Brexit decision to leave the European Union rocked financial and commodity markets worldwide; with the UK now dealing with more uncertainty over how or even if to proceed with the divorce, expect a bumpy road ahead.

  2. Saudi Arabia’s oil minister, Khalid Al-Falih, declared that ‘the oil glut is over’, with most interpreting the statement as the end to the kingdom’s attempt to wipe up US shale producers by raising production to keep prices low. Some 81 North American oil companies have gone bankrupt since the start of 2015, but Saudi Arabia has also taken a monetary hit. If this statement is followed by a scaling back of oil production, expect the oil markets to cheer and begin to beat a path to US$60/b.

  3. India has big ambitions for its eastern state of Assam, planning to raise oil and gas production there to 9.4 million metric tons of oil equivalent. All that oil will have to go somewhere, and India’s roadmap is to create a 5,000 km mega petroleum pipeline grid that would not only serve its north-eastern states, but also Bhutan, Bangladesh, Nepal, Myanmar and possibly even South-East Asia.

  4. Indonesia’s Pertamina is preparing to spend up to US$100 billion by 2030 to reach its target of 943 kb/d output target. Much of the focus is domestic – eyeing blocks of a production capacity of 35 kb/d and above held by private companies – but foreign investment is also being considered, particularly in Iran.

  5. The Kurdistan Regional Government, a semi-autonomous area of Iraq, is in talks with Iran on a pipeline deal that would transport Kurdish crude (and natural gas) across the border from Sulaimaniya and Kirkuk fields. Reports suggest that the volumes being look at are about 250 kb/d.

  6. The end of the April/May maintenance season in China has led to a boost in Chinese crude runs in June, with healthy refining margins also playing a factor. Sinopec, PetroChina and CNPC are all planning run rates of 80%, up from 75% in May, even as domestic petroleum demand appears to be slowing down.

  7. More Iranian deals ahead, this time in Central Asia. Iran and Kazakhstan are in talks to develop a joint oil refinery in Kazakhstan, using Kazakh crude. Offtake is earmarked to head to Iran, as the country attempts to balance its new-found popularity as a crude exporter with its own fuel hungry population.

  8. A fire broke out at the Petron oil refinery in Port Dickson, temporarily disrupting operations. Put out within hours, Petron is investigating the cause of the fire and has assured customers that there would be no supply disruptions.

  9. Growing demand for condensate in Asia, which yields the naphtha for petrochemicals production, is a boon for new condensate projects in Australia as Qatar and Iran both aim to scale back condensate exports in favour of domestic splitters. Australia’s Inchtys comes online next year, with 100 kb/d of output, with Gorgon and Angel already operational.

  10. Oil and gas exploration is one of the sectors earmarked to be opened to private investment in China, as part of the country’s bid to halt a worrying slide in investment growth. China will also attempt to encourage private investors by improving and providing more transparency in financing and market access, along with creating a more dynamic competitive environment.

  11. China’s CITIC and Japan’s Itochu are joining together to invest in oil and gas prices, aiming to capitalise on rising oil prices. The Chinese oilfield operator will collaborate with Itochu on identifying, acquiring and investing in E&P assets and projects worldwide.

  12. TransCanada is officially suing the United States government over the controversial Keystone XL oil pipeline, first supported in the US then cancelled by Barack Obama’s administration over environmental concerns. Keystone XL was to carry crude from Canada’s tar sands oil fields across to continental US to refineries in the Gulf of Mexico, with TransCanada seeking US$15 billion in compensation.

  13. While no new attacks in Nigeria occurred last week, with the country’s military ramping up operations, the Niger Delta Avengers have issued their over-arching demand – a referendum on Nigeria’s unity, aiming to break up the federation into as many as five separate countries; the separatist movement has been gaining in Nigeria, over complaints that the Niger Delta and south do not receive enough share of oil wealth.

  14. The US oil rig count dropped by 6 last week to 331, as worries over volatile oil prices snapped a three-week rise in the rig count. Gas rigs rose by 4, bringing the total operational rig count to 421.

  15. Plans to launch Nigeria’s first private oil refinery have been unveiled by Aliko Dangote, Africa’s richest man. The planned refinery has an optimistic start date of 2019, with capacity of 650kb/d and costing US$12 billion. It should help ease Nigeria’s chronic fuel shortages and expand the market in West Africa, with the idea of being the Africa equivalent of India’s Jamnagar refinery a long-term goal.

  16. Industrial action in France and high existing inventories have trimmed refinery appetite in Europe, with crude cargoes finding few buyers there; peak refinery utilisation comes in summer, but refiners are preferring to draw down stockpiles instead of importing fresh cargoes.

  17. International gas prices bucked the Brexit trend as the UK National Balancing Point prices rose in the wake of the referendum; being denominated in sterling, the sharp fall in the pound will have made natural gas cheaper for foreign buyers. The UK natural gas price is used as the reference mark for many gas traders, including in Asia. 

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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
RAPID Rises

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