Under the previous US administration, the US LNG industry made cautious steps towards global acceptance. Recall that it took years for the US to finally allow Cheniere to export natural gas in 2011, a privilege extended to a few other companies since, including Cameron Energy’s site in Louisiana and Carib Energy’s plant in Florida. Just recently, current President Donald Trump has set the stage for LNG exports from the US Gulf Coast to explode.
The announcement of a 100-day action plan between the US and China is a step towards a new trade deal between the two superpowers. The action point contained within that has the US LNG industry buzzing is that it will now allow Chinese companies to directly negotiate long-term contracts with US suppliers. Fundamentally, it doesn’t change the existing rules allowing greater access for China to US gas cargoes, but it clarifies the existing structure that long-term contracts are allowed. And it opens the gate for eventual greater access. China relies on Qatar and Australia for most of its LNG imports historically.
Things are expected to change now. Most of the world’s hungriest LNG markets – Japan and South Korea in particular – obtain their LNG from long-term contracts lasting 10-20 years, with flexible price mechanisms. Immediate shortages are dealt with on the spot market, purchasing available cargoes of LNG that are floating around. For US LNG, only the latter has been available to China. The only currently operating LNG export site, Cheniere’s Sabine Pass facility, exported nine cargoes to five Chinese terminals in 2016. All were purchased on the prompt spot market, often through brokers. While suppliers often receive better prices for spot sales, they crave the dependency of long-term contracts.
Even being limited to spot sales, the US accounted for 7% of China’s total LNG imports in March 2017. And the potential to grow is vast. China’s total LNG demand in 2016 was 26 million tons, and rising fast. Consultancy Wood Mackenzie expects Chinese LNG demand to triple to 75 million tons by 2030. Current major market players like Qatar, Australia and Malaysia are well-positioned to feed East Asian LNG demand, while consumers in Japan, South Korea and Taiwan signaled this year they are prepared to radically overhaul the ways in which LNG is sold worldwide, allowing for more flexibility. WoodMac’s estimates of U.S. LNG growth potential depend heavily on American competitiveness with local regional players.
The string of LNG export projects up and down the US Gulf Coast won’t be completely dependent on China. There are gas-hungry markets in Latin America to feed. In June, Cheniere will ship its first LNG cargo to Poland. In fact, Western Europe might prove to be a strong outlet for US LNG – the drive to wean countries off piped gas from Russia has led many countries to consider LNG import facilities. Some of that supply will come from the east, like the plan to pipe natural gas from Israel’s giant Leviathan field to southern Europe, but there will definitely be a lot of space and demand for American LNG.
The current slate of American LNG projects was built under the assumption that access to China was limited. What the industry hopes now is that the new deal will trigger a second round of major LNG developments on the Gulf Coast. And if rules are relaxed even further, Chinese buyers could eventually buy-in, invest and finance the liquefaction facilities themselves, the same way Japanese and Korean buyers currently do. That would be a great bone for the American natural gas industry. The previous time when the US was a net exporter of natural gas was in 1957, when Dwight Eisenhower was president. Times have radically changed now. In 2018, the US is expected to become the third-largest exporter of liquefied natural gas (LNG) in the world. A win for President Trump, boosting economic growth as he faces major political headwinds.
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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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