Easwaran Kanason

Co - founder of PetroEdge
Last Updated: October 3, 2016
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Last week in the world oil

Oil Prices. After a burst of optimism following last weeks informal OPEC agreement to cut output, cynicism and doubt over the organisations power and will to enforce the new quotas have shaved prices somewhat, with crude prices starting this week near US$50/b for Brent and US$48 for WTI. (Read about this - https://www.nrgedge.net/article/1475125708-opec-shows-its-fangs-finally)

With rising oil prices comes more US oil rigs. The number of operating US oil rigs rose by seven to 425, with gas rigs also rising, by four to 96. Two of the additions were offshore rigs, which could be taken as a sign of optimism for prices, which touched US$50/b after the OPEC meeting.

BPs head of refining economics has warned that the downstream industry is evolving in a way to slash the need for oil products produced in refinery. Richard de Caux expects a significant portion of the worlds expanding energy demand to be for petrochemicals, which will progressively be supplied directly by natural gas liquids (NGLs) production from US shale gas, with ethane, propane and butane replacing naphtha as petrochemicals feed. Last week, the first US ethane cargo arrived in Europe, at Scotland, with BP calls a harbinger of supply to come that will further depress margins of refineries worldwide.

Finland has proposed that the five Nordic countries including Sweden, Norway, Iceland and Denmark set a joint target on biofuelds. All five countries have a similar strategic outlook for the adoption of biofuels, in line with Finlands target of 20% of all transport fuel by 2020 and 40% by 2030, though without a legally binding target. The Nordic target is far higher than the broader EU target, which is a minimum of 10% by 2020.

Theres movement in the Caribbean. After news that Curacao might be handing operation of its Isla refinery away from PDVSA to China, Aruba has now moved to restart its 235 kb/d refinery, previously operated by Citgo, PDVSAs US arm. The refinery was shut in 2012 over low margins, but the new development suggest that there is interest in reviving operations at a site previously aimed at supplying American demand.

The consortium behind Israels massive Leviathan natural gas field has secured its first customer, signing a US$10 billion deal to supply 1.6 tcf of gas to Jordans National Electric Power Company over 15 years beginning 2019 or 2020. Israels neighbours are natural outlets for its natural gas, but geopolitical tensions prevents many deal, leading Israel to look further to Turkey and Western Europe, so the Jordan deal is a major step forward for economic cooperation in the Levant.

The future of Russian LNG production in Sakhalin is taking shape. Shell has agreed on the marketing strategy for the additional five million tons coming from the planned Sakhalin-2 third train with its partners Gazprom, Mitsui and Mitsubishi, while Rosneft will take a final investment decision on its Far East LNG project in 2017 or 2018, with production at the joint project with ExxonMobil, Sodeco and ONGC starting in 2023

The territorial dispute between minnow Timor-Leste and Australia will move to the permanent court of arbitration in The Hague, after Australia failed to have the case dismissed over non-jurisdiction. The dispute centres on the Sunrise and Greater Sunrise fields in the Timor Sea. Timor Leste argues that the Australia-Timor Leste maritime boundary should be equidistant between the two countries, supported by international law precedent, which would put most of the exploitable territory in its territory. Australias counter-argument hinges on the 2006 treaty that divides the revenues from the joint development era, but places most of the Sunrise fields under its control that is a parallel to Chinas claims in the South China Sea. Australia will appear at the court under compulsary conciliation after it was revealed that Australian intelligence officers placed bugs in the Timor Leste government cabinet room to spy on internal discussions and negotiations.

Chinas Wison Offshore & Marine has successfully completed tested of the worlds first natural gas floating liquefaction unit (FLNG). The Caribbean FLNG vessel is meant for Exmar, which will moored it at the Creciente gas field offshore Colombia, and successful completion heralds a promising new future for offshore LNG projects, as they moves into deeper, more challenging offshore territory.

Shell has declared force majeure on base chemicals supplied from its Bukom plant in Singapore. The disruption to supply comes as Shell had to shut down the Pulau Bukom ethylene cracker to repair a compressor. Repairs are underway, with no set date for operations to resume. Pulau Bukom has significant ethylene capacity, producing more than 900,000 tons of product each year.

Taiwans Formosa Chemicals will shut down its Changhua petrochemical plastics plant indefinitely as it negotiates with the country-level government over operating permits. The Changhua local government has declined to renew permits for the plants cogeneration equipment, insisting that new permits be applied for over changes in the plants power mix. Formosa claims that its permit renewal applications were rejected 37 times, with the government playing hardball over a closure that will affect over a thousand workers and 3% of the groups revenues.

After receiving approval by the Canadian government last week, Petronas may now exit the US$27 billion Canadian LNG export plant in British Columbia. In the intervening years between 2014 and now, the slide in crude and LNG prices have called into question the logic of the project, particularly for Petronas, which is still struggling to adapt to the new price environment. A sale may be difficult in the current market conditions, given that other BC projects have also faced delays over the same concerns, including Chevrons Kitimat project. An exit from the project, which has not received its FID, would highlight the financial situation of Petronas and be a blow to its ambitions of becoming a global power in natural gas.

Have a productive week ahead!

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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