Announced in 2015, the West Coast Refining and Petrochemicals Project in India was to have been commissioned in 2022. A joint venture between the three Indian state refiners – IndianOil, HPCL and BPCL – to feed India’s soaring energy demand, land acquisition for the refinery in the Ratnagiri district of Maharashtra state hasn’t even been completed, making that target 2022 date very unlikely. But it will go through, not least because the refinery has now secured the backing of Saudi Aramco and Abu Dhabi’s Adnoc.
Last week, Adnoc signed on to buy a stake in the US$44 billion project, brought in as a strategic partner by Aramco. Together, the two Middle Eastern titans will hold an equal majority stake of 50% in the project, with IndianOil at 25% and BPCL and HPCL at 12.5% each. That’s an unusual move, considering that this is a state project, and some have questioned given the foreign firms such a high stake. But as much as Saudi Aramco and Adnoc need to secure outlets for their crude in an increasingly competitive world, India needs crude far more. And with the latest US moves possibly curbing India’s sourcing from Iran, the project has to fall back on the country’s stalwart providers.
And Ratnagiri will need a lot of crude. When completed – the new target date is a still-optimistic 2025 – it will equal or best the capacity of Jamnagar (also in India), the current largest refinery in the world. The planned capacity is for 1.2 million barrels per day of crude processing while petrochemical capacity is said to be in the 18 million tons per annum region. Currently, India has a refining capacity of about 232 mmtpa, with domestic demand reaching 194.2 mmtpa in fiscal 2017. According to the International Energy Agency, this demand is expected to reach 458 mmtpa by 2040. The country is also now the world's third-biggest oil importer. More than financial certainty and domestic demand, Aramco and Adnoc’s participation guarantees that Ratnagiri will always have enough crude to run. And it fulfils Aramco and Adnoc’s ambitions to move further down the value chain into downstream, with Aramco fulfilling its target of having stakes in key refineries in Asia (India, China, Southeast Asia through Malaysia) and the Americas (Port Arthur). Adnoc, too, has invested in India before – having bought a stake in the country’s strategic petroleum reserve in Mangalore.
With financing and partners in place, it would seem as if Ratnagiri is a done deal. But there is one major stumbling block – land. The state government of Maharashtra has yet to secure the 15,000 acres required for the refinery, facing stiff opposition from local farmers and laws that state that at least 70% of land owners must give consent for land acquisition. With general elections due in India next spring and opposition parties seizing on the issue, it is likely that no on-the-ground moves will be made until the next government is in place. The National Democratic Alliance (NDA) led by Narendra Modi is expected to win, but will be treading cautiously around this contentious issue. The 2025 target seems ambitious, and by the time it starts operations, India’s oil demand may have grown even more.
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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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