Last week in world oil:
All of Saudi Arabia’s bluster can’t hide the fact that the tenuous OPEC agreement to cut production had hit a number of obstacles, with the latest being that Iraq wants exemption from the cuts, just as Nigeria, Libya and Iran do. That was enough to send oil prices lower today, though they remain just above the US$50/b level.
Mexico has approved Italy’s Eni to go ahead with test drilling at the Amoca 2 well, a shallow water field in the Gulf of Mexico. It is only the second well to be drilled in Mexico since reforms to open up its energy sector dissolved Pemex’s upstream monopoly. The first well was Amoca 1, also by Eni, part of an acreage that is estimated to hold some 800 million barrels of oil and 480 bcf of associated gas.
Announcements of asset sales by supermajors are common these days, particularly from Shell, seeking to pay for its acquisition of the BG Group. The latest involves some US$1.3 billion of non-core oil and gas properties in western Canada exchanging hands between Shell and Tourmaline Oil, including onshore land in the Gundy area of British Columbia and the Deep Basin area of Alberta that currently have a minor production output of 25 kb/d, with reasonable room for growth.
Higher prices spur more rigs, and the US operational oil rig count jumped by 11 last week, bringing the total to 443. Gas rigs also added 3 to their number, up to 108, as nimble onshore producers react to the positive price signals. The number of offshore rigs remains unchanged at 23.
There’s a problem looming in PDVSA and it threatens to spill over into the US Gulf. Beset with a huge amount of debt, the Venezuelan national oil company has been attempting to negotiate short-term measures to defer its debt, with the spectre of a default looming on the horizon. Already, Curacao appears to be abandoning PDVSA, seeking Chinese involvement in its refinery, while the woes are affecting PDVSA’s subsidiary Citgo in the USA and its Aruba refinery. A default would also wreck havoc with the US Gulf Coast refining system, dependent on Venezuela’s output that supplies a third of the crude processed along the Gulf Coast.
Qatargas has inked a deal with Petronas LNG UK to supply 1.1 million tons of LNG per year through 2023, extending a contract that was due to expire at the end of 2018. The deal is particularly important for Qatar, as it seeks to secure long-term supply agreements in the face of a looming global glut of gas supplies from Australia and the US, with Europe being a priority target. The LNG will be supplied from Qatargas 4, a joint venture between Qatar Petroleum and Shell, with the supplies delivered to the Dragon LNG terminal in Milford Haven in the UK. Qatargas is also looking at securing supply agreements in Rotterdam, which would be its gateway into western continental Europe.
The Chinese upstream sector is considered expensive, inefficient and now, declining. China’s crude output fell by 9.8% y-o-y in September, as low oil prices make imports cheaper while making the case that the country’s high-cost fields, like Daqing and Shengli, should be shut down. Crude output in August fell by 9.9%, the highest y-o-y decline on record, while September crude imports growth reached 18%.
Petrobras has finally reached a deal for its mothballed Nansei Seikyu refinery in Okinawa, agreeing to sell it to Japan’s Taiyo Oil for US$129.3 million as it continues on its asset sale spree to reduce its debt. The Okinawan refinery, an oddball choice that was acquired by Petrobras in 2007, has proven particularly difficult to sell, having its refining operations shut down last year due to the industry downturn.
With the downstream oil market in doldrums but the petrochemical industry still holding strong, Saudi Arabia is aiming to capitalise on that by focusing on a giant crude-to-chemicals project. Saudi Aramco and SABIC have formed a joint management team, together with a unnamed third party, to assess the viability of such a project that would cut out the middle link in petrochemical production, bypassing gasoline and diesel to go straight into chemicals. A preliminary study is expected in 2017, and is in line with the Kingdom’s stated desire to diversify its economy away from crude petroleum sales.
After the US$15 billion Inpex/Shell plan to boost output at the Masela natural gas field by 2.5 mtpa utilising a floating LNG facility was rejected by the Indonesian government in March, a new plan has been proposed to build an onshore LNG plant on the islands of Aru or Saumlaki. The anticipated start date of the giant gas field has been pushed into the late 2020s, and to recoup investment, Inpex is proposing a near quadrupling of output, to between 7.5-9.5 mtpa in total now. A decision on the new proposal is expected from the Indonesian government within the month.
Under pressure gas player Santos has sold its offshore natural gas assets in Victoria to Australia’s Cooper Energy for US$62 million. The sale marks the exit of Santos from offshore Victoria following the sale of its Kipper field for US$520 million in March. The assets include interests in the Casino-Henry gas project, as well as control of the Sole field and Orbost gas plant in Gippsland Basin.
In another sign that petrochemicals are booming, India’s Reliance has beaten forecasts by posting an 18% y-o-y increase in its Q2 profit, buoyed by its petrochemicals business. Reliance’s petrochemicals margins for Q216 were 15%, the highest in nearly four years, while its refining margins fell sharply due to weak product prices.
Meanwhile in the rig-making sector, Singapore’s Keppel Oil saw its quarterly profits fall by 38% on a weak offshore market. Cost-cutting measure and job cuts – more than 8,000 so far in 2016 – are continuing, and the company will also look at mothballing some facilities until 2020.
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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.
Headline crude prices for the week beginning 14 January 2019 – Brent: US$61/b; WTI: US$51/b
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