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Wednesday, 12 February 20
REFINING SET FOR A CHALLENGING 2020 - WOOD MACKENZIE
 Downstream isn’t the glamorous end of the oil business. And in Big Oil, it’s typically dwarfed by upstream. Yet having been forced to restructure and focus on costs early this century, downstream’s cash flow has underpinned a third of the Majors’ shareholder returns over the last five years.
But a laser-like focus on costs and efficiency can only take you so far. If the external environment turns against you, downstream is as vulnerable as any part of the business. The Majors’ downstream results for Q4 2019 were among the poorest since 2015. Petrochemicals is part of that story, with earnings suffering from over-investment.
Now we’re also seeing refining margins come under increasing pressure, slipping to five-year lows in the last few weeks of 2019 and the first of 2020. Alan Gelder, VP Refining, identifies two main factors.
Firstly, new regulation on marine fuels was expected to boost refining margins this year – but that hasn’t played out as expected yet. The International Maritime Organization (IMO) regulations require all vessels to reduce the level of sulphur in their engine emissions from 3.5% to 0.5% or less from 1 January.
Essentially, IMO should trigger a shift out of low-value product (High Sulphur Fuel Oil, or HSFO) into higher value Very Low Sulphur Fuel Oil (VLSFO). Refinery capacity to make VLSFO is limited, so marine gasoil, which is closely linked to the price of diesel, would top up any shortfall. This shift to high-value products was expected to drive up refining margins in 2020.
It’s only half happened. The price of VLSFO surged in Q4 and HSFO duly collapsed. The surprise was that there’s been much more VLSFO available than expected. Traders had taken advantage of low-price feedstock in late summer 2019 and built up volumes of VLSFO in storage. When the demand came in, they were ready and cashed in, big time. A single tanker loaded with 2 million barrels of VLSFO could make over US$10/bbl on the spread and pull in US$20 million-plus in cash profit.
Producers with the right crude have also fared well. Santos revealed that it had sold a single cargo of heavy sweet crude, ideal feedstock for VLSFO, at an unheard-of US$30/bbl premium to Brent. Nice work if you can get it.
What didn’t really materialise was higher demand for marine gasoil – it’s just not been needed in the volumes anticipated. Weaker marine demand for gasoil has been compounded by soft demand from heating – a much bigger market – because of warm winter weather in the northern hemisphere and lacklustre economic growth. That’s led to a glut of gasoil in inventory which is depressing refining margins.
Second, global oil demand growth forecasts are falling back sharply – potentially a more fundamental problem. The biggest factor is the coronavirus, so we have reduced our demand forecasts in China by almost 0.6 million b/d for Q1 2020. We now expect China demand to fall year-on-year by 125,000 b/d for the quarter, the worst rate since 2009. Global demand will fall by 250,000 b/d, also the worst in over a decade.
So what’s next for refining?
The VLSFO surplus should be a short-term phenomenon. There’s not enough refining capacity to supply all bunker demand with VLSFO. That gap will have to be met by additional gasoil once the surplus VLSFO in inventory is soaked up, by H2 2020 at the latest.
The prospects for oil demand are more worrying and harder to call. At this stage, we have restricted our adjustments to Q1 and left the rest of the year largely unchanged. If the virus can be contained successfully in the coming weeks, demand could bounce back strongly – much as was the case with SARS in 2003.
Refining margins so far in Q1 suggest it will take a while before refining profitability recovers. Meantime, refiners will do what they must to keep costs down and maximise cash flows, including cutting refinery runs to limit the build-up in inventory. It’s about toughing it out, waiting and hoping for demand – China in particular – to perk up again.
Source: Wood Mackenzie
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Wednesday, 22 March 23
MARKET INSIGHT - INTERMODAL
The crude tanker market continues to gather momentum as we head towards the end of 1Q2023, against a backdrop of strong U.S. exports paired with a ...
Wednesday, 22 March 23
WILL LOWER GAS PRICES SPARK SWITCHING IN EUROPE AND ASIA?
Record high prices devastated demand for gas and LNG across Asia and Europe last year. But with prices falling, companies are starting to re-evalua ...
Monday, 20 March 23
NTPC MULLS 5.4 MILLION TONNES COAL IMPORT IN FIRST HALF OF 2023-24: PTI
State-run power giant NTPC is planning to import around 5.4 million tonnes of coal to meet the supply shortage during the first half 2023-24 fiscal ...
Monday, 20 March 23
S. AFRICA’S EXXARO RESOURCES SAYS COAL PRICES COOLING OFF - REUTERS
South Africa’s Exxaro Resources on Thursday posted a 28% jump in 2022 profit after seeing average coal prices surge more than 150%, but warne ...
Saturday, 18 March 23
RUSSIAN LNG EXPORTS TO EUROPE REMAIN HIGH - VESSELS VALUE
Russian LNG exports to Europe remained at very high levels in February at 3.6 million CBM, following a 13 month high in January of 4.1 million CBM. ...
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- Thiess Contractors Indonesia
- Metalloyd Limited - United Kingdom
- Ambuja Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Trasteel International SA, Italy
- Globalindo Alam Lestari - Indonesia
- Indika Energy - Indonesia
- Electricity Authority, New Zealand
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- Global Business Power Corporation, Philippines
- Sakthi Sugars Limited - India
- Antam Resourcindo - Indonesia
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- Gujarat Mineral Development Corp Ltd - India
- SMC Global Power, Philippines
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- Eastern Coal Council - USA
- Sindya Power Generating Company Private Ltd
- VISA Power Limited - India
- Makarim & Taira - Indonesia
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- Altura Mining Limited, Indonesia
- Ministry of Finance - Indonesia
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- Eastern Energy - Thailand
- The University of Queensland
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- Indogreen Group - Indonesia
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- Holcim Trading Pte Ltd - Singapore
- Salva Resources Pvt Ltd - India
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- Central Java Power - Indonesia
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- Kohat Cement Company Ltd. - Pakistan
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
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- Ind-Barath Power Infra Limited - India
- Tata Chemicals Ltd - India
- Vizag Seaport Private Limited - India
- Therma Luzon, Inc, Philippines
- Bhatia International Limited - India
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- Alfred C Toepfer International GmbH - Germany
- Offshore Bulk Terminal Pte Ltd, Singapore
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- Economic Council, Georgia
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- Larsen & Toubro Limited - India
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- Minerals Council of Australia
- Wilmar Investment Holdings
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- Heidelberg Cement - Germany
- Carbofer General Trading SA - India
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
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- Global Coal Blending Company Limited - Australia
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- Wood Mackenzie - Singapore
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- Sojitz Corporation - Japan
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- Indonesian Coal Mining Association
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- Goldman Sachs - Singapore
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- IHS Mccloskey Coal Group - USA
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- Mintek Dendrill Indonesia
- Chettinad Cement Corporation Ltd - India
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- Africa Commodities Group - South Africa
- Aboitiz Power Corporation - Philippines
- Attock Cement Pakistan Limited
- Edison Trading Spa - Italy
- Energy Link Ltd, New Zealand
- Posco Energy - South Korea
- Timah Investasi Mineral - Indoneisa
- Petron Corporation, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
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- Parliament of New Zealand
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- The State Trading Corporation of India Ltd
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- New Zealand Coal & Carbon
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- Ministry of Transport, Egypt
- Neyveli Lignite Corporation Ltd, - India
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- Tamil Nadu electricity Board
- Mjunction Services Limited - India
- Independent Power Producers Association of India
- Bhoruka Overseas - Indonesia
- Ministry of Mines - Canada
- Romanian Commodities Exchange
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- Savvy Resources Ltd - HongKong
- Gujarat Sidhee Cement - India
- Lanco Infratech Ltd - India
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- IEA Clean Coal Centre - UK
- Electricity Generating Authority of Thailand
- Leighton Contractors Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- MS Steel International - UAE
- Dalmia Cement Bharat India
- Intertek Mineral Services - Indonesia
- Jindal Steel & Power Ltd - India
- Sical Logistics Limited - India
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- Simpson Spence & Young - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- European Bulk Services B.V. - Netherlands
- Iligan Light & Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Cement Manufacturers Association - India
- Sree Jayajothi Cements Limited - India
- Australian Commodity Traders Exchange
- Mercator Lines Limited - India
- Kapuas Tunggal Persada - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Videocon Industries ltd - India
- Chamber of Mines of South Africa
- Bangladesh Power Developement Board
- Star Paper Mills Limited - India
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- SN Aboitiz Power Inc, Philippines
- Barasentosa Lestari - Indonesia
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- Bulk Trading Sa - Switzerland
- PetroVietnam Power Coal Import and Supply Company
- Jorong Barutama Greston.PT - Indonesia
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- India Bulls Power Limited - India
- Formosa Plastics Group - Taiwan
- Essar Steel Hazira Ltd - India
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- Semirara Mining and Power Corporation, Philippines
- McConnell Dowell - Australia
- The Treasury - Australian Government
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- Coal and Oil Company - UAE
- Planning Commission, India
- Kepco SPC Power Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- Deloitte Consulting - India
- London Commodity Brokers - England
- Commonwealth Bank - Australia
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