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Last Updated: August 23, 2018
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Market Watch

Headline crude prices for the week beginning 20 August 2018 – Brent: US$72/b; WTI: US$66/b

  • Trade and geopolitical worries continue to dominate the short, mid and long-term outlook for oil, with crude prices staying entrenched in their current range, sandwiched by the opposing factors.
  • China and the US are going back to the negotiating table after a two month impasse, hoping to ease the escalating trade war between the two. Most observers, however, do not expect much, if any, progress given the aggressive position of America.
  • Though LNG remains exempt from Chinese tariffs for now, news that PetroChina has considered halting spot purchases of American LNG this winter in favour of sourcing from other countries rattled US exporters, at a time when LNG infrastructure is ramping up in the Gulf Coast.
  • Despite pledging to increase output to President Trump, Saudi Arabia appears to have actually cut production, with OPEC also forecasting lower demand for its crude in 2019 due to increased supply from Russia and the US.
  • The question of how Iranian volumes will be replaced remains unanswered, though the US is now pulling back from strict interpretation of its sanctions, dangling the possibility of waivers to allies who comply. India, for example, is now aiming to halve its imports from Iran to secure a waiver based on the new American guidelines.
  • Iran is putting pressure on the EU to ‘save the nuclear deal’ to avoid companies pulling out of Iran, with reports that even Chinese ship owners may be avoiding carrying Iranian crude due to the impending sanctions.
  • In an effort to counter the removal of Iranian crude, the US Department of Energy is offering 11 million barrels of crude from the US Strategic Petroleum Reserve from October 1-November 30 2018.
  • The largest weekly stockpile build in US crude inventories since March 2017 spooked crude prices last week, underscoring the risk of slowing demand.
  • With crude prices still stuck in range, the active American rig count is flat, as no new oil and gas rigs started up, keeping the total count at 1,057.
  • Crude price outlook: The fragile global situation over trade and sanctions will remain, and with the November deadline looming for Iranian crude, we expect crude prices to inch up. Brent should trade at US$73-75/b and WTI at US$66-68/b.

Headlines of the week

Upstream

  • Iraq and Petrofac has signed a US$369 million deal to build a new 200 kb/d crude processing facility, which would boost the output at the giant Majnoon field from 230,000 b/d to 450,000 b/d by 2021; the Majnoon oilfield is now operated by Basra Oil Co after Shell departed the field in June.
  • Eni has acquired the new Nour offshore exploration licence in the East Nile Delta basin in Egypt, and has also received a 10-year extension of the Abu Madi West Development Lease, which contains the prolific Nooros field.
  • The much-touted recent Gulf of Mexico US exploration auction proved to be a damp squib with bids received for only 1% of the 14,575 blocks on offer.
  • Total is aiming to drill up to five exploration wells offshore French Guiana next year, hoping to strike similar riches that have been discovered in Guyana.

Downstream

  • New Mexican President Andres Manuel Lopez Obrador has pledged more than US$11 billion to boost the country’s refining capacity, split between a US$2.6 billion modernisation plan and a new US$8.4 billion refinery.
  • Japanese firms are cashing in on US LPG cargoes for heating, cooking and transport, after Chinese buyers began eschewing American propane and butane due to escalating trade tensions between the two countries.
  • PDVSA’s American subsidiary Citgo plans to resume long-delayed work to refurbish the idled 235,000 b/d Aruba refinery in the Caribbean.
  • Nigeria’s NNPC is mulling over a consideration to allow private investors to install new 100 kb/d refineries on the sites of its existing Port Harcourt and Warri sites to overcome chronic underutilization of its refining system.
  • Shell’s global refining boss Lori Ryerkerk will be stepping down after five years, to be replaced by Robin Mooldijk, VP of Manufacturing Americas.

Natural Gas/LNG

  • PetroChina may temporarily halt its purchases of American LNG this winter, switching to spot cargoes on the open market to feed its winter demand as the US-China trade war threatens to grow to include tariffs on LNG.
  • Cheniere’s Corpus Christi LNG project enters its commissioning phase, having been granted approval to feed first gas by energy regulator FERC.
  • Panama and the US have signed an agreement to pave way for more private investment into LNG importation and distribution, aimed at boosting US LNG exports into Central and South America.
  • Bangladesh has started up its first LNG import terminal after a three-month delay as the Excellence FSRU is now permanently moored. This will help offset a prolonged decline in the country’s natural gas production.
  • Japan’s Mitsubishi Corp has acquired 25% of the Summit LNG terminal in Bangladesh, which involves an FSRU unit to be installed off Moheshkali in Cittagong, with a target for commercial operations to begin in Q1 2019.
  • BP has inked a 5-year deal with PNG LNG, with purchases starting at 450,000 tpa over the first three years, then rising to 900,000 ton for the remaining two years.


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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
Your Weekly Update: 14 - 18 January 2019

Market Watch

Headline crude prices for the week beginning 14 January 2019 – Brent: US$61/b; WTI: US$51/b

  • After a rally, crude oil prices took a breather at the start of this week, as the market moved from a bullish mood to a cautious one as slowing Chinese trade data spooked the market
  • The US government shutdown – now the longest ever in history – continues with no end in sight, with Republicans and President Donald Trump at a stalemate with energised Democrats
  • That ended a week-long rally that allowed crude oil to bounce back from sub-US$50/b levels in December over OPEC+’s implementation of a new deal to shrink supplies and Saudi Arabia’s promise to ‘do more if needed’
  • Even Russia, which showed some reluctance in implementing a speedy cut, has made strides in reducing output, releasing data that showed that production fell by 30,000 b/d in December and is on track for a decrease of 50,000 b/d in January relative to October levels
  • However, the OPEC+ group is now reportedly struggling to set a date for their next meeting, where the supply deal will be reviewed; the review is set for April, ahead of OPEC’s usual Vienna meeting in June/July, but an April review is necessary to assess the expiration of American waivers on Iranian crude
  • Some downside to price trends is that the waivers on Iranian crude exports have nullified the impact of American sanctions; both Turkey and India have recently resumed imports of Iranian crude after a brief hiatus, with India electing to pay for all its crude in rupees
  • Although WTI prices have improved, American drillers are still reticent to add sites, wary of changing market conditions; Baker Hughes indicates that the active American drill count was flat last week, with the loss of 4 oil rigs offset by a gain of 4 gas ones
  • Crude price outlook: Upward momentum should continue with crude price this week, but at a more gradual pace, as fears of a slowing global economy weigh on the market. Brent should stay in the US$61-63/b range and WTI in the US$52-54/b range


Headlines of the week

Upstream

  • BP is proceeding with a major US$1.3 billion expansion of the Atlantis Phase 3 in the Gulf of Mexico, aimed at adding 38,000 b/d of additional output
  • Venezuela has announced plans to remap its Caribbean oil and gas prospects, a move that potentially puts it on collision course with ExxonMobil over the country’s long-disputed borders with the now oil-rich Guyana
  • New seismic studies at BP have identified a billion more barrels of oil in place at the deepwater Thunder Horse platform in the Gulf of Mexico
  • Saudi Arabia has published an updated figure of its oil reserves – its first in 40 years – pegging total volumes at 268.5 billion barrels
  • Norway has cut its crude production forecast, predicting the output will be 1.42 mmb/d in 2019, the lowest level since 1988
  • BP is reportedly looking to sell its 28% stake in the North Sea Shearwater assets to offset its recent US$10.6 billion acquisition of US shale fields
  • The Unity fields in South Sudan have resumed production, after being halted for five years over a civil war, with initial production targeted at 20,000 b/d
  • Eni and Thailand’s PTTEP have secured exploration rights to an oil and gas concession in Abu Dhabi, with Adnoc participating at 60% if oil is struck
  • TransCanada Corp – ahead of name change to TC Energy – is planning to start construction on the controversial Keystone XL oil pipeline in June, even in the face of continued social and legal setbacks
  • Spirit Energy’s Oda field in the Norwegian North Sea has received permission from the Norwegian Petroleum Directorate to start up
  • Aker Energy has completed successful appraisal of the offshore Pecan field in Ghana, estimating some 450-550 mmboe of resources in place
  • Shell and BP have submitted plans to begin exploratory drilling in Brazil’s Pau Brasil and Saturno pre-salt areas in early 2020

Downstream

  • Saudi Arabia has reiterated plans to build a US$10 billion oil refinery in Pakistan’s deepwater port of Gwadar, part of the larger China-Pakistan Economic Corridor plan that is part of the Belt and Road initiative
  • Shell Chemicals has started up its fourth alpha olefins unit at in Geismar, Louisiana, adding 425,000 tpa of capacity to a new total of 1.3 mtpa
  • After being idled over the paralysis between PDVSA and ConocoPhillips, the 335,000 b/d Isla refinery in Curacao has restarted, with operations likely to shift from PDVSA to Saudi Aramco’s Motiva US refining subsidiary

Natural Gas/LNG

  • After seemingly receiving official go-ahead from all levels of government and even indigenous groups, Shell’s US$31 billion Kitimat LNG project in Canada has now been blockaded by a group of protesting First Nation holdouts
  • Completion of major LNG projects in Australia’s west coast have allowed its LNG exports to increase by 23% in 2018, with greater growth expected in 2019
  • The NordStream 2, long championed by German Chancellor Angela Merkel, now faces new opposition in Germany over Russian global political interference – which could result in the controversial pipeline being delayed or cancelled
  • Shell has completed its acquisition of a 26% stake in the Hazira LNG and port venture in India from Total, bringing its equity interest to full ownership
  • BP has announced plans to drill six new exploration wells in Azerbaijan by 2020, hoping to strike a new natural gas play to rival its giant Shah Deniz field
January, 18 2019