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Last Updated: March 15, 2017
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Last Week in World Oil:

Prices

  • With US drilling rising and crude inventories soaring, WTI crude oil has slipped underneath the US$50/b psychological barrier, with Brent not far behind at US$51/b. Some OPEC producers already calling for an extension of the six-month output freeze, but all that will do is stabilise prices.

Upstream & Midstream

  • Shell will be withdrawing almost entirely from Canadian oil sands, an acknowledgement that expensive projects are non-starters in the current price environment. It will sell its existing and undeveloped oil sands interest to Canadian Natural for US$8.5 billion – going a long way to reducing its debt from acquiring BG – and will also reduce its share in the Athabasca Oil Sand Project from 60% to 10%. The net gain for Shell will be US$7.25 billion, as it has also purchased half of Marathon Oil Canada.
  • In other Shell news, the supermajor is reluctant to reopen the Trans Forcados pipeline in Nigeria, leaving the 400 kb/d Forcados export terminal idle, fearing new attacks by militants. Though attacks by the Niger Delta Avengers have lessened, Shell is demanding additional protection from a government desperate to bring nearly 500 kb/d of offline capacity back. The pipeline was bombed twice last year, the second time just 48 hours after seven months of repairs were completed.
  • Eight new oil rigs were activated last week, joining five new gas rigs to bring the US active rig count to 768, the eight consecutive weekly rise.

Downstream

  • The liberalisation of the Mexican fuel retail industry, breaking the Pemex monopoly and introducing price reforms, has downstream companies buzzing. The biggest of these is BP, which is planning to open up some 1,500 service stations over the next five years, another sign that the British supermajor may be warming back to the idea of downstream retailing after years of focusing on upstream. And it isn’t the only big player interested; trader Glencore is also mulling a move into Mexican retail, investing over US$200 million in a 15-year supply deal.
  • Austria’s OMV is selling its Turkish fuel supply and distribution unit Petro Ofisi to Vitol for US$1.45 billion, as it moves to shed non-core assets, particularly in the low-margin Turkish market. Current political tensions between Turkey and the EU may have also contributed to the sale.

Natural Gas and LNG

  • Russia’s Gazprom has announced a round of delays for its LNG projects, pushing the Sakhalin-2 project from 2021 to 2023/4, and the Baltic LNG plant in Leningrad from 2021 to 2022/3. The delays could leave Russia behind Canada, Australia and the US in the race to supply LNG-hungry Asia, and behind its target to triple its current market share by 2035.

Corporate

  • As Saudi Aramco tidies up its vast holdings – including its split with Shell over the Motiva Enterprises venture in the US – fund managers and institutional investors are expecting it to achieve a market capitalisation of up to US$1.5 trillion in its planned IPO, which would instantly make it the most valuable public company in the world.


Last Week in Asian Oil:

Upstream & Midstream

  • The sale of Chevron’s Bangladesh natural gas assets may be attracting  friction between the government and China. After a request to hike gas prices failed in 2015, the US supermajor put its assets – which account for roughly 60% of Bangladesh’s production from the onshore Bibiyana, Jalalabad and Moulavi Bazar fields – up for sale and cancelled a planned US$650 million investment. State-owned Petrobangla has first refusal, but China’s Zenhua Oil is also in the running, pricing the assets at about US$2 billion. Zhenhua is an arm of China’s NORINCO, a state-run defence industry player, and is one of the minor energy players stepping out of the Sinopec and PetroChina shadows to assert China’s influence globally.
  • Myanmar has given the go-ahead on the MD-7 project, which will see French major Total purchase a 50% interest in the offshore deepwater block from Thailand’s PTTEP. PTTEP has traditionally been the major upstream player in Myanmar, a holdover from the days when the country was considered a pariah nation, and has an on-going collaboration with Total that stretches back 30 years.  
  • Spain’s Repsol sold its 50% interest in the Indonesian Ogan Komering PSC (Production Sharing Contract) to local player Jadestone Energy. The tiny South Sumatran block, producing an average of 3 kb/d, is seen by Jadestone as key in expanding its Indonesia presence. Pertamina retains the other 50%, with Repsol seemingly more interested in the discovery it made in Alaska’s North Slope, the largest conventional onshore discovery in the US for over 30 years.

Downstream & Shipping

  • Two months after a setting a monthly crude import record, February 2017 crude imports reached China’s second-highest level, despite the shorter month. Volumes entering China rose to 8.286 mmb/d, with the demand from independent teapots driving the rise. Imports should ease over the next few months, as some major refineries enter maintenance periods, but the strong teapot demand may keep imports high.

Natural Gas & LNG

  • Malaysia’s Petronas has inked a new LNG deal, the third signed so far this year with the client once again being Japanese. The contract will send some 130,000 tons of LNG per year to the Hokkaido Electric Power Company over a 10 years, supplied from the Bintulu LNG complex.
  • BP’s Tangguh Train 2 in Indonesia’s West Papua will be shut down for nearly two months beginning early April. The routine maintenance should not affect the Tangguh LNG’s production plan for the year, which include 63 uncommitted cargoes. Tangguh Train 1 will remain operational.

Corporate

  • There might be a new name in China to watch. With ambitions of becoming the‘second Sinopec’, private Chinese conglomerate CEFC China Energy has already bought a 4% stake in an Abu Dhabi oilfield for US$900 million and has approached several large independent teapots in Shandong with an idea to acquire its first domestic refinery operation. It is the first example of a large private firm attempting to break into the ranks of Chinese energy majors, a motivation encouraged by Beijing as it seeks to foster competition in the domestic market. CEFC already owns a refinery in Romania, a network of service stations in Europe and an oilfield in Chad, all acquired on the quiet in just two years.

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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