Last week in the world oil:
- Though unexpected, the OPEC deal reached last week is certainly welcome news for the oil markets, sending crude oil rising to its highest level in nearly two years, reaching US$55/b today. OPEC producers agreed to shave 1.2 mb/d from January onwards, with non-OPEC contributing an additional 600 kb/d of cuts, numbers that could (if adhered to) reduce considerably the current global supply glut.
Upstream & Midstream
- Justin Trudeaus administration in Canada has been delicately maintaining a balance between the environmental and energy lobbies. His decision to approve the Kinder Morgan pipeline expansion is an example of this. While Kinder Morgan will be allowed to build a second pipeline as an upgrade to the existing Trans Mountain pipeline to bring more oil to the West Coast to send to Asia, Trudeau has also blocked Enbridge from moving ahead with the Northern Gateway pipeline that would transport oil sands to the Pacific Coast directly through pristine rainforest.
- Japans Mitsui has agreed to buy Shells stakes in four US Gulf of Mexico oil blocks. The deal, for an undisclosed amount, will see the Japanese trading house acquire 20% stakes in four Mississippi Canyon blocks, which have an estimated recoverable volume of 100 million barrels of oil equivalent. The move represents bold steps for Mitsui, after it signed off on developing the Greater Enfield reserves in Western Australia and the third train of Tangguh LNG in Indonesia earlier this year.
- Supermajor ExxonMobil has relinquished 60 deepwater blocks in the Gulf of Mexico, including 20 that were part of a joint venture with Russias Rosneft, citing disappointing exploration results alongside persistent low crude oil prices. The two companies joined forces in 2013, when Rosneft bought a 30% stake in the 20 blocks.
- The US rig count is up again. Three new oil rigs and one new gas rig was added last week, bringing the total up to 477 and 119, respectively, as US oil players saw the OPEC decision as a lead-in to higher prices.
- Brazil wants to further reduce its gasoline imports by stimulating domestic ethanol production. Sugar (from sugarcane) is the main source of biofuels in Brazil, but mills have been prioritising sugar production over ethanol owing to the tight global supply of sugar. All gasoline sold in Brazil now contains 27% sugarcane-derived ethanol, and the proposed new ethanol program is aimed to stimulating output to increase this.
Natural Gas & LNG
- Nigeria and Morocco has signed an agreement that could see a gas pipeline built linking Africa to Europe. The joint venture was reached as the Moroccan King visited Nigeria, with the project aimed at linking the gas resources of Nigeria and surrounding West African nations, and piping it north to Morocco with the intent of connecting to European demand centres via Spain or Portugal.
Last week in Asian oil:
Upstream & Midstream
- Less than a year after re-joining OPEC, Indonesia has once again suspended its membership in the cartel, as it was unable or unwilling to agree to a supply cut. Though its crude output is dwindling, Indonesia still depends heavily on oil to fund its government and the proposed 37 kb/d cut in Indonesian production was unacceptable, leading to the countrys second withdrawal from OPEC.
- India has invited initial bids to begin filling its Karnataka strategic petroleum storage facility. The Padur facility will be the third such site in India, and is the largest with 2.5 million tons of storage space. If experience at the previous two facilities in Vizag and Mangalore are to go by, then the crude oil sources are likely to be Iraq and Iran, which have helped India boost its strategic reserves to 10 days a small number by global standards of at least 50 days, but far better than the precariously tight position the country was in previously.
- Just months after Shell cancelled its US$4.6 billion order for three FLNG vessels, Samsung Heavy Industries has been hit with another major cancellation, this time for a US$777 million FLNG substructure for a European firm. The order was cancelled as the client did not issue a work order, with the low crude oil price environment possibly being the main concern. South Korean shipbuilders have been in trouble recently, and will be hoping that the recent upswing in prices will continue.
Downstream & Shipping
- The cheap price environment of LPG is causing a few Asian petrochemical crackers to turn to propane as a feedstock. Idemitsu in Japan is embarking on an expansion to boost propane processing by up to four times at its joint venture with Mitsui Chemicals in Q317, relying on imported LPG brought into the neighbouring LPG facility at the Chiba refinery.
Gas & LNG
- Chinas CNPC the parent company of PetroChina will separate its natural gas sales and transportation divisions. CNPC currently supplies nearly 80% of Chinas gas market, and the Chinese government wants to open the sector up to more competition, compelling CNPC to separate its gas sales and transportation arms, which should encourage investment in areas that were previously monopolised by CNPC.
- BP has acquired Repsols 3.06% stake in the Tangguh LNG project for US$313 million, bringing the UK operators stake to just over 40%. This consolidates BPs control over Tangguh, which has been given the go-ahead for the US$8 billion expansion of the Tangguh third LNG train.
- The Azerbaijan state oil company SOCAR is beefing up its crude trading division in London, targeting China. Specifically, Socar wants to sell crude directly to the independent Chinese refiners the so-called teapots that were given licences to import crude directly this year.
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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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