Last week in world oil:
- Rising production in the US and Iraq have raised fears that OPEC’s attempt to raise prices might be prove to be insufficient. While the rise in the US is expected, additional output from Iraq over December based on loadings in Basra points to the difficulty in whipping OPEC members in line. Oil started this week at US$55/b for Brent and US$52/b for WTI.
Upstream & Midstream
- The rise is Iraqi exports of crude oil, responsible for the dip in crude oil prices as the week started, has been blamed on the country’s Kurdish region. The autonomous Kurdish region has been exporting more than its allocated share of oil, hampering Iraq’s attempt to comply with its OPEC quota, which is now 4.3 mmb/d. Kurdish authorities reportedly pumped more than twice its allocated crude amount under the national Iraqi budget, funnelling it through Turkey to avoid passing through Baghdad.
- The US rig count increased for the tenth consecutive week, gaining four oil and three gas sites to start the year with a total active rig count of 665.
- US refiner LyondellBasell has decided to retain its Houston refinery following a broad strategic review of options. The Houston site was reportedly up for sale last year, in the crosshairs of Saudi Aramco’s post-divorce Motiva as an acquisition target, but the company has now decided to keep the 264 kb/d site within its asset portfolio. Natural Gas & LNG.
- Mexican gasoline prices have risen, part of a broader price liberalisation strategy pursued by President Enrique Pena Nieto. While necessary to make the Mexican energy sector more competitive, the hikes have proven highly unpopular. Mexicans have been taking the streets to protest daily since last Friday, spilling over into wider violence and looting.
- Nigeria’s oil union is threatening to strike at fuel depots in the country owned by Chevron and ExxonMobil if talks with the government fail. The union is unhappy over a spat of recent sackings. If the strike goes ahead, as many as 10,000 union workers could down tools, potentially crippling distribution across Nigeria’s entire downstream sector.
Natural Gas & LNG
- ExxonMobil has taken over at the Mamba gas field in Mozambique. The American supermajor bought a 20% stake in the project from Italy’s Eni in August, fulfilling its goal of expanding its natural gas asset portfolio while assisting Eni in monetizing its Mozambique LNG ambitions. As part of the deal, ExxonMobil also takes over operatorship of Mamba from Eni.
- The Blackstone Group has abandoned its US$5 billion attempt to purchase assets owned by Energy Transfer Partners. Energy Transfer is one of the largest oil and gas infrastructure firms in the US, while the Blackstone Group is a major buyout firm globally. Instead, Energy Transfer Partners will pursue a private placement deal worth US$568 million with its parent entity Energy Transfer Equity, as it gears up to face challenges it’s the Dakota Access oil pipeline it is currently building.
Last week in Asian oil:
Upstream & Midstream
- Timor Leste has torn up its maritime treaty with Australia. The CMATS agreement – which created a temporary maritime border in the Timor Sea and its estimated US$40 billion of oil/gas deposits – will end in three months. The move follows Timor Leste’s attempt to negotiate the maritime border with Australia at the International Court of Arbitration, and is likely an acknowledgement by Australia that it can no longer bully its smaller neighbour. The next step is for both countries to agree on a permanent maritime border.
- China has revised its crude oil production target for 2017, down to 4 mmb/d as it acknowledges that a deficit of new production sites will be unable to offset the natural decline in the country’s largest fields in the northeast and Bohai Bay. Falling domestic production means increased imports, which will only strengthen China’s resolve to acquire overseas upstream assets to secure a steady supply of necessary crude.
Downstream & Shipping
- After years of promises, Indonesia has finally officially lowered the sulphur content in its subsidised diesel, from 3,500ppm to 2,500ppm. Indonesia is one of the main laggards in Asia in terms of fuel specifications, still tottering around Euro II levels while the rest of the continent is adopting Euro IV. The move won’t have a significant impact on trade flows; in fact, it will be welcomed by refiners, who have found it increasingly hard to supply high-sulphur gasoil to Indonesia, which is off-spec for Asia. Higher spec diesel – 500ppm and 350ppm – is also used in Indonesia, but is only a fraction of the volumes of subsidised diesel.
- China has announced ambitious plans to plough some US$362 billion through 2020 into renewable power generation, focusing on wind, solar, hydro and nuclear power over its existing reliance on dirty coal power. In this drive, other fossil fuels, mainly natural gas/LNG, will also gain as China seeks a multi-pronged approach to reduce its excessive pollution.
Natural Gas & LNG
- BP has signed a long-term agreement with Thailand’s PTT, which will see the UK supermajor supply the Thai energy conglomerate with 1 millions tons per annum of LNG over 20 years. Faced with declining domestic production, Thailand and its power utilities have been on the hunt for LNG contracts over last year, to ensure that its natural gas-fed power and petrochemicals infrastructure does not go hungry.
- Chevron’s massive Gorgon project is back online after being out for a month. Gorgon LNG Train 1 was taken offline in late November to ‘assess performance variations’, while Gorgon LNG Train 2 remained unaffected. The US$54 billion, with its masses of LNG destined for East Asia, has been plagued by a string of operational issues since its start up in March 2016.
- The first LNG from a US shale source has arrived in Japan, opening what American shale gas producers hope will be a floodgate to Asia. Japan’s JERA – a joint venture between Tokyo Electric and Chubu Electric – received the shipment from Cheniere’s Sabine Pass terminal in Louisiana, which is also the first American LNG to arrive in Japan from the lower 48 states of the USA. The parcel is the first of a contracted 700,000 tons through January 2018 in a short-term agreement between JERA and Cheniere.
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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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