Pre conference troduction
Mart 7 and Mart 8 CEE (Central and East European) Gas Conference will be held in Zagreb Croatia. The title of conference is 8 predictions on the future of the Central & Eastern European gas market. The conference will The bring together regional and international industry stakeholders, gas suppliers, TSOs, regulators, government members, commercial executives and industry consultants - to share insights, meet new and existing customers and suppliers, and capitalise on the opportunities presented by these dynamic markets.
The conference is organised by Croatian national Oil Company INA, East West Institute, Energy Community, LNG Croatia, LNG Allies, Tellurian, National Croatian Gas Distribution Company – Plinacro and CEGH.
The Conference comes in time when Gas production in Croatia from Pannonian Basin and North Adriatic Offshore has trend of decrease. At the moment, domestic production satisfies approximately 60% of Croatian needs, but without further investment in Exploration and Production, this percentage will decrease, and in the future Croatian dependences on imported gas will grow.
Certain reserves of gas can be storage in Underground Gas Storage Okoli, and in the future is new peak Underground Gas Storage is planned.
Another supply direction is planned from new floating LNG terminal that should be installed at Island Krk (Primorsko – Goranska County).
This conference comes only four days after demonstration against new LNG terminal were held in Rijeka City, the capitol of the Primorsko Goranska County.
Regarding all emerging issues, I expect to see interesting discussion at this conference.
At the end, special thanks to the Company NRG Edge, Singapore ( www.nrgedge.net ), that enables me to be there as their representative.
CEE Gas Conference Day 1.
CEE Gas Conference, Hotel Sheraton, Zagreb.
Gas conference started wary intensively, after Welcome words by Organiser, Minister of Economy And president of the board of the Croatian national oil company INA, sessions started with LNG Croatia Keynote by Goran Frančić, Managing Director LNG Croatia.
The most important information’s were on public discussion on Environmental Impact Assessment on LNG Terminal in Omišalj (Island Krk) held on Monday.
According to dynamics, they expect location permit by the end of April, and expected finalising the project was predicted by the end of 2019.
At the moment conceptual project is finalized, and the main project is ongoing.
Due economical feasibility, according to National energetic institute Hrvoje Požar, it is expected to be feasible in capacities between 700 x 106 Sm3/year to 900 x 106 Sm3/year.
Since the present domestic production of gas at the moment satisfies 40% of needs, 60 % came from the import, mostly from Russian Federation.
LNG in long term will enable diversification of supply and consequently expected decrease of prices.
In spite that LNG ensure more expensive gas than pipeline, for LNG terminal it needs to be liquefied and after gasified, supply by pipeline is often covered by risks of global political situation, unfair prices, etc. The good example was the problem of Russian Gas supply through the Ukraine several years ago.
At the territory of European Union, at the moment 25 LNG terminals are operative, and which can increase the offer of natural gas, respectively, LNG terminals can be a factor of price and supply balance.
The main question on LNG terminal is sustainability, which depends of price, time of installation and total capacity. One negative example is LNG terminal in Tuscany, built in relatively long period of 5 years with total expenses of about 850 x 106 EUR.
With maximum expected expenses for LNG terminal in Omišalj of about 200 x 106 EUR, it should be feasible in capacities of about 109 Sm3/year .
Spreading of market for LNG has a big space in transportation sector, for example, large Italian truck producer IVECO, produce LNG driven vehicles.
LNG terminal at Island Krk will be performed in two phases, in the first phase it is planned to be installed offshore as floating terminal with total capacity of 5 – 6 x 109 Sm3/year , and in second phase it is planned to be installed onshore with total capacity of 6 – 8 x 109 Sm3/year. The main problem of location of the LNG terminal was a land owning. More than year ago, the owners weren’t even known so to avoid problems with interrupting properties, it was planned to install offshore terminal. During the last year, all surfaces was bought, so onshore LNG terminal, as previously was planned, and was chosen to be built.
Since the LNG business is according to opinion of majority of visitors is driven by politics rather than market, it was suggested to rebrand LNG project from Croatian to regional or EU project, which will enable integration of non EU countries into the system (Serbia, Albania, Bosnia and Herzegovina, etc.). The main problems in that part are bureaucracy and infrastructure. In this part it was pointed as a question what was first chicken or egg, respectively, what should be first infrastructure or the offer?
The other problem is legislative, possible new more restrictive environmental legislative for Mediterranean area, the similar problem appeared in Poland where new legislative literarily driven majority of energetic investors out of country, from 14 of them, only 2 or 3 left.
The environmental regulative for EU predicts a use of natural gas as a transfer fuel toward renewable in next 20 to 25 years, and use of natural gas was planned to decrease. This represents a problem for investments in new pipelines, roads, etc, since this is a relatively short period. In spite of that it is expected that gas demand will grow, and price will depend primarily on Chinese needs.
USA has the great interests on LNG export, since they expect significant increase of shale gas production in following years. Their formal attitude is that they don’t force anyone for buying their LNG since them already has a big market in South America and Asia.
At the moment in Croatia, domestic gas production decreases rapidly so it will be necessarily to invest in further exploration and production. The most perspective area is Adriatic offshore, but the further investigation is expensive. So national Croatian Oil company INA, search for partners, but applications are expected after new Law on Hydrocarbons will be ratified in Parliament, which can be done even by the end of March.
CEE Gas Conference Day 2.
CEE Gas Conference, Hotel Sheraton, Zagreb.
Second day of the conference was planned to encircle question oh transportation, regulatory framework, forming of prices at the market, hubs and regulations.
Regarding traffic issue, it was pointed that this topic in the past usually wasn’t considered, or if it was it was mostly at the margins. At this conference transportation issue was a part of it, and in the future it is expected that it will be more and more important.
At European Union CO2 emissions reached a level from 1999, only in traffic sector they have a trend of growth. This is important since 1/3 of all CO2 emissions came from traffic. At the maritime traffic, regulation on protection of Mediterranean Sea (MARPOL Convention) requires continuous decrease of the pollutant.
Maritime traffic was recognised as a great market niche for the LNG, but at the conference was pointed a question on Chicken or Egg, does ships needs to be driven by LNG or to install appropriate terminals first? Of course it would be ideal if it would be simultaneously.
Generally after investment in maritime transport, there is a lot of space for spreading LNG toward a road transportation, which was recognised in Italy, so their truck producer IVECO started to produce trucks driven by the LNG, recently Scania and Volvo joined into race, and Volvo developed a truck driven by new bi fuel engine, diesel and LNG. In Italy it is expected that 1 million tons of LNG per year will be used in traffic by 2030.
The main problem for the LNG market in Europe is a regulation, first of all the regulatory is issued in Bruxelles. At the moment, it is expected that energy efficiency will rise up to 35% by 2030, and new upcoming regulative on Renewable energy and Energy efficiency will influence to the business in the future.
The main spreading of the LNG infrastructure is expected to be between 2025 and 2035, and it is important to include all stakeholders, distributors, final users, traders, etc. That means the LNG represents a big business opportunity in the future.
The issue of LNG prices is a question should it be regulated according to oil prices, should it be separated from oil, should it be regulated by state or by market?
State monopoly doesn’t allow creation of market price, but if gas business turns from national to regional, what is a vision of the EU, it will enable to include more players on the market, attract investors, create more hubs which will enable greater flexibility in gas supply. In this constellation upstream can also jump in directly to distribution on the market.
In spite of importance of market influence, energetic projects can’t be a 100% market driven because they need to ensure security of distribution toward final users.
Some options of financing are private financing, financing by European Bank Of Reconstruction and Development, Structural Funds, Horizon 2020 (Only for research).
European Investment Bank is interested in financing of such projects, and between 2014 and 2016 it financed a gas infrastructure in 1.6 billion euro. For application of financing, EIB in energy projects, take a special care to Carbon Footprint and their threshold for financing is 150 g of CO2 per kWh.
Post conference Conclusion
The main target of the CEE gas conference in Zagreb was development of the LNG – terminals, infrastructure, discussion of potential market chances. LNG represents more expensive option in compare to pipeline gas. On the other hand it enables flexibility of gas supply, and decrease potential risks of global politic situation, which are higher in pipeline transport. On the other hand potential solution for feasibility achievement are market spreading toward border and non EU countries, toward a new sectors such as production of electricity and a new fuel for transportation. These projects in Croatia are unfortunately influenced by politics which can use a demonstration for collecting points. The main issue in Croatia is still a communication between investors and stakeholders. At the moment I prepare this report, demonstrations against new LNG terminal in Omišalj (Island Krk) were held. New LNG terminal brings more expensive gas, but in the other hand enable diversification of supply. This will be important in upcoming years due depletion of domestic gas production. In the introduction I wrote that domestic production covers approx. 60% of gas needs (2 years old data), but at the conference it was pointed that today it covers no more than 40% and still decline.
New LNG project can set Croatia as a regional leader in energy distribution, but it should be performed fast and efficient.
Dr.Sc. Ratko Vasiljević, Grad.Eng.Geol.
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Less than two weeks ago, the VLCC Navarin arrived at Tanjung Pengerang, at the southern end of Peninsular Malaysia. It was carrying two million barrels of crude oil, split equally between Saudi Arab Medium and Iraqi Basra Light grades.
The RAPID refinery in Johor. An equal joint partnership between Malaysia’s Petronas and Saudi Aramco whose 300 kb/d mega refinery is nearing completion. Once questioned for its economic viability, RAPID is now scheduled to start up in early 2019, entering a market that is still booming and in demand of the higher quality, Euro IV and Euro V level fuels RAPID will produce.
Beyond fuel products, RAPID will also have massive petrochemical capacity. Meant to come on online at a later date, RAPID will have a collective capacity of some 7.7 million tons per annum of differentiated and specialty chemicals, including 3 mtpa of propylene. To be completed in stages, Petronas nonetheless projects that it will add some 3.3 million tons of petrochemicals to the Asia market by the end of next year. That’s blockbuster numbers, and it will elevate Petronas’ stature in downstream, bringing more international appeal to a refining network previously focused mainly on Malaysia. For its partner Saudi Aramco, RAPID is part of a multi-pronged strategy of investing mega refineries in key parts of the world, to diversify its business and ensure demand for its crude flows as it edges towards an IPO.
RAPID won’t be alone. Vietnam’s second refinery – the 200 kb/d Nghi Son – has finally started up this year after multiple delays. And in the same timeframe as RAPID, the Zhejiang refinery by Rongsheng Petro Chemical and the Dalian refinery by Hengli Petrochemical in China are both due to start up. At 400 kb/d each, that could add 1.1 mmb/d of new refining capacity in Asia within 1H19. And there’s more coming. Hengli’s Pulau Muara Besar project in Brunei is also aiming for a 2019 start, potentially adding another 175 kb/d of capacity. And just like RAPID, each of these new or recent projects has substantial petrochemical capacity planned.
That’s okay for now, since demand remains strong. But the danger is that this could all unravel. With American sanctions on Iran due to kick in November, even existing refineries are fleeing from contributing to Tehran in favour of other crude grades. The new refineries will be entering a tight market that could become even tighter. RAPID can rely on Saudi Arabia and Nghi Son can depend on Kuwait, both the Chinese projects are having to scramble to find alternate supplies for their designed diet of heavy sour crude. This race to find supplies has already sent Brent prices to four-year highs, and most in the industry are already predicting that crude oil prices will rise to US$100/b by the year’s end. At prices like this, demand destruction begins and the current massive growth – fuelled by cheap oil prices – could come to an end. The market can rapidly change again, and by the end of this decade, Asia could be swirling with far more oil products that it can handle.
Upcoming and recent Asia refineries:
Headline crude prices for the week beginning 8 October 2018 – Brent: US$84/b; WTI: US$74/b
Headlines of the week
Source: U.S. Energy Information Administration, Monthly Crude Oil and Natural Gas Production
As domestic production continues to increase, the average density of crude oil produced in the United States continues to become lighter. The average API gravity—a measure of a crude oil’s density where higher numbers mean lower density—of U.S. crude oil increased in 2017 and through the first six months of 2018. Crude oil production with an API gravity greater than 40 degrees grew by 310,000 barrels per day (b/d) to more than 4.6 million b/d in 2017. This increase represents 53% of total Lower 48 production in 2017, an increase from 50% in 2015, the earliest year for which EIA has oil production data by API gravity.
API gravity is measured as the inverse of the density of a petroleum liquid relative to water. The higher the API gravity, the lower the density of the petroleum liquid, meaning lighter oils have higher API gravities. The increase in light crude oil production is the result of the growth in crude oil production from tight formations enabled by improvements in horizontal drilling and hydraulic fracturing.
Along with sulfur content, API gravity determines the type of processing needed to refine crude oil into fuel and other petroleum products, all of which factor into refineries’ profits. Overall U.S. refining capacity is geared toward a diverse range of crude oil inputs, so it can be uneconomic to run some refineries solely on light crude oil. Conversely, it is impossible to run some refineries on heavy crude oil without producing significant quantities of low-valued heavy products such as residual fuel.
Source: U.S. Energy Information Administration, Monthly Crude Oil and Natural Gas Production
API gravity can differ greatly by production area. For example, oil produced in Texas—the largest crude oil-producing state—has a relatively broad distribution of API gravities with most production ranging from 30 to 50 degrees API. However, crude oil with API gravity of 40 to 50 degrees accounted for the largest share of Texas production, at 55%, in 2017. This category was also the fastest growing, reaching 1.9 million b/d, driven by increasing production in the tight oil plays of the Permian and Eagle Ford.
Oil produced in North Dakota’s Bakken formation also tends to be less dense and lighter. About 90% of North Dakota’s 2017 crude oil production had an API gravity of 40 to 50 degrees. The oil coming from the Federal Gulf of Mexico (GOM) tends to be more dense and heavier. More than 34% of the crude oil produced in the GOM in 2017 had an API gravity of lower than 30 degrees and 65% had an API gravity of 30 to 40 degrees.
In contrast to the increasing production of light crude oil in the United States, imported crude oil continues to be heavier. In 2017, 7.6 million b/d (96%) of imported crude oil had an API gravity of 40 or below, compared with 4.2 million b/d (48%) of domestic production.
EIA collects API gravity production data by state in the monthly crude oil and natural gas production report as well as crude oil quality by company level imports to better inform analysis of refinery inputs and utilization, crude oil trade, and regional crude oil pricing. API gravity is also projected to continue changing: EIA’s Annual Energy Outlook 2018 Reference case projects that U.S. oil production from tight formations will continue to increase in the coming decades.