Easwaran Kanason

Co - founder of PetroEdge
Last Updated: April 2, 2017
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Business Trends
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This week, with a single stroke of a pen, President Trump rolled back eight years of Obama-era rules and directives designed to combat climate change. While Mr. Trump has yet to nix American participation in the 2015 Paris agreement, his administration’s reversal of Obama-era climate rules will make it difficult for the U.S. to meet its emission-reduction targets.  The recent move will promote aggressive exploitation of America’s vast energy resources, bolstered by the shale revolution, without having to consider climate change and environmental impact. Flanked by coal miners, he promises that the rolling back of restrictions will ‘end the theft of American prosperity’ and bring back all the coal and energy jobs lost over the past four decades.

Except it won’t. American coal production has actually increased since the 1970s, and even though it has dipped recently since the promotion of clean energy, it remains above a billion tons a year, up from 600 million tons in 1970. All of this has come from the benefits of automation and a change in mining techniques, shedding labour intensive jobs in favour of tireless machines. The jobs Trump touts will come back to coal country don’t exist anymore, says Caterpillar, a heavy machinery producer developing fully automated coal mining trucks. Coal country voted heavily for Trump, swayed by snake oil sales techniques, and they will be disappointed. The good old days are never coming back, but Trump is coasting on the pretence that they will. Ironically, Trump seems to be ignoring the real job growth story that is happening in the renewables sector. Interestingly in the state of Texas, ground zero of the Oil industry in the US, jobs in renewables grew by 34 percent last year, giving the state the third largest number of solar jobs in the nation. California is the top solar employer, with more than 100,000 jobs, followed by Massachusetts, which has more than 14,500, according to data from the Solar Foundation. These numbers are hard to ignore, if Trump is actually looking for votes again in the next 4 years.

Trump knows this. He must. But though his overtures are publicly to blue collar, working class Americans, the measures are actually designed to benefit corporate players, millionaires and billionaires that Trump identifies with like Carl Icahn. Gutting the EPA’s power – in the first two weeks of Trump moving into the White House, the section on climate change on the EPA’s website disappeared – and now removing the regulations designed to minimise climate change impact frees what much of the energy industry sees as burdens. Essentially, it is to regress the energy industry back to the rapacious, free wheeling days of the Wild West, an unregulated era that helped create dynasties such as the Rockefellers and Vanderbilts.

Throughout a recent important industry conference known as CERAWeek by IHS Markit, energy ministers, CEOs and other top executives showed that the industry is running ahead of policymakers on climate change, no longer treating it as an inconvenient theory, but rather as a hard reality to which it must adapt and change. Khalid al-Falih, the Saudi Arabian energy minister, called on his colleagues to find ways to “minimize the carbon footprint of fossil fuels.” Exxon Mobil chief executive Darren Woods said energy development can only move forward by protecting the environment and climate. Ben van Beurden, CEO of Royal Dutch Shell, said the industry needed to produce more energy with fewer carbon emissions. Supermajors have begun to strategically invest in the direction of cleaner fuels such as natural gas and renewables, and even if Trump’s machete to climate change benefits them in the short term – opening up drilling in the Arctic, for example – they know this is a momentary dip. Even Trump’s Secretary of State, Rex Tillerson, knows that renewables are the future. While the US regresses, China and Russia are moving ahead, plotting to assume leadership of the clean energy movement.  

General Electric Co. CEO Jeffrey Immelt recently defended efforts to reduce emissions and fight climate change, after President Donald Trump reversed rules that pushed U.S. utilities to use cleaner-burning fuels. Mr. Immelt said in a blog post that ‘climate change is real and the science is well accepted.’ Mr. Immelt mentioned the administration’s move and said climate change “should be addressed on a global basis through multinational agreements,” such as the 2015 Paris Agreement.

Rather oddly and in direct contradiction to the Trump administration, the Chinese government has come under a lot of pressure from its own population after years of ignoring climate protection. The government there is now actually supportive of the scientific consensus about climate change. Chinese state media has called President Trump "selfish" over his plan to abolish environmental regulations enacted by the Obama administration. The Global Times, a state-run tabloid argues that China is the largest emitter of greenhouse gasses in the world with the US in second but “China will remain the world’s biggest developing country for a long time. How can it be expected to sacrifice its own development space for those developed western powerhouses?” Interesting.

Trump’s myopia isn’t accidental or obtuse; his ability to cause regression is limited by his tenure, and meant to benefit and profit those closest to him during his short time in the White House. With scientists recently declaring the CO2 levels have reached the ‘point of no return’ globally, the world is at crossroads to deal with the looming climate crisis. From being a leader in climate protection, the US is now an administration of climate change deniers. And so it is now up to conscience of the American private sector to mitigate the worse excesses that Trump’s new policies will unleash or wait for another 4 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