State-run Bangladesh Petroleum Corporation plans to start imports of 10 ppm sulfur gas oil in July 2018, ahead of a government mandate to switch to the ultra-low sulfur diesel grade from 2019, a senior BPC official said December 6.
The country’s sole gas oil importer expects to import around 1.75 million mt of 10 ppm sulfur gas oil during July-December 2018, he added.“We want to start importing the cleaner gas oil earlier from mid-2018 to stay in advance over the mandatory provision of shifting the gas oil specifications to lower sulfur content,” he said.
BPC is set to roll out tighter gas oil specifications in January 2019, from the current 500 ppm sulfur gas oil grade under a directive from the Ministry of Environment and Forests.
But the directive only applies to imports as Bangladesh’s sole refinery is still producing 0.25% sulfur gas oil.
In general, oil companies need a lead time — which can take up to several months — ahead of any mandatory switch to tighter specifications fuel in order to clear existing supply and flush their distribution lines and storages.
While BPC’s existing gas oil suppliers are able to start supply of 10 ppm sulfur gas oil from early 2018 as many newly built refineries are producing ultra-low sulfur diesel in larger volumes, BPC is already in the final stage of awarding its oil products tender for first-half 2018 that includes 780,000-980,000 mt of 500 ppm sulfur gas oil, the official said.
Adding to this, BPC is in final negotiations with term suppliers to import 0.05% sulfur gas oil during H1 2018, which means BPC will not be able to take in 10 ppm sulfur gas oil until its next term cycle, he added. Meanwhile, BPC may have to raise pump prices of gas oil to offset higher import costs of 10 ppm sulfur gas oil. Currently, the retail price of 500 ppm sulfur gas oil is Taka 65/liter (81 cents/liter).BPC last lowered the sulfur content in its gas oil import specifications in January 2015 to 500 ppm, from 2,000-2,500 ppm.
Its 1.5 million mt/year (33,000 b/d) refinery at Chittagong however, is still producing 0.25% sulfur gas oil. The refinery is expected to be upgraded to produce 10 ppm sulfur gas oil after the planned 3 million mt/year refinery, that can meet ultra-low sulfur diesel specifications, to be built near the existing unit comes online by 2021.
Bangladesh has been importing around 3.5 million-3.7 million mt/year of gas oil over the past several years to meet mounting domestic demand.
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Headline crude prices for the week beginning 10 December 2018 – Brent: US$62/b; WTI: US$52/b
Headlines of the week
The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.
The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.
Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.
And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.
Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.
As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”
The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.
Recent Announced Permian Pipeline Projects
Headline crude prices for the week beginning 3 December 2018 – Brent: US$61/b; WTI: US$52/b
Headlines of the week