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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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Saturday, 18 March 23
HEDGE TO OFFSET LNG VOLATILITY, TRADERS TOLD - BALTIC EXCHANGE
A shift in imports from Asia to Europe led to significant volatility in liquefied natural gas shipping last year, prompting industry experts to urg ...
Friday, 17 March 23
INDONESIAN COAL PRICE REFERENCE UP AROUND 2.17% IN MARCH 2023
COALspot.com: Indonesian Coal Price Reference up around 2.17% in March 2023.
According to the new HBA regulation No. 41.K/MB.0 ...
Saturday, 11 March 23
MARKET INSIGHT - INTERMODAL
Uncertainty over the recovery of Chinese demand, demand destruction in Europe, as well as weather conditions will pivot the LNG market this summer. ...
Wednesday, 08 March 23
INDONESIAN COAL REFERENCE PRICE FORMULA HAS OFFICIALLY CHANGED
Indonesian Minister of Energy and Mineral Resources has officially changed the guideline for determining the benchmark price for the sale of coal c ...
Thursday, 02 March 23
INDIA'S SEABORNE CRUDE OIL IMPORTS IN 2022 INCREASED BY 11.5% YOY - BANCHERO COSTA
2022 has turned out to be a very positive year for crude oil trade, despite the surging oil prices and risks of economic recession, Banchero Costa ...
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- Offshore Bulk Terminal Pte Ltd, Singapore
- Meenaskhi Energy Private Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Essar Steel Hazira Ltd - India
- Economic Council, Georgia
- Coalindo Energy - Indonesia
- Meralco Power Generation, Philippines
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- Coastal Gujarat Power Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- PTC India Limited - India
- Aboitiz Power Corporation - Philippines
- Indian Oil Corporation Limited
- Global Green Power PLC Corporation, Philippines
- Tata Chemicals Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Petron Corporation, Philippines
- Jaiprakash Power Ventures ltd
- Edison Trading Spa - Italy
- Bhatia International Limited - India
- Kobexindo Tractors - Indoneisa
- Leighton Contractors Pty Ltd - Australia
- Gujarat Mineral Development Corp Ltd - India
- Heidelberg Cement - Germany
- Therma Luzon, Inc, Philippines
- Grasim Industreis Ltd - India
- Lanco Infratech Ltd - India
- IEA Clean Coal Centre - UK
- Ministry of Transport, Egypt
- Bangladesh Power Developement Board
- Miang Besar Coal Terminal - Indonesia
- Uttam Galva Steels Limited - India
- Parliament of New Zealand
- Toyota Tsusho Corporation, Japan
- Dalmia Cement Bharat India
- Electricity Generating Authority of Thailand
- Thai Mozambique Logistica
- Posco Energy - South Korea
- Wilmar Investment Holdings
- GMR Energy Limited - India
- Kumho Petrochemical, South Korea
- Formosa Plastics Group - Taiwan
- Sinarmas Energy and Mining - Indonesia
- Romanian Commodities Exchange
- GN Power Mariveles Coal Plant, Philippines
- Aditya Birla Group - India
- Deloitte Consulting - India
- Energy Link Ltd, New Zealand
- Merrill Lynch Commodities Europe
- CIMB Investment Bank - Malaysia
- Indian Energy Exchange, India
- Pipit Mutiara Jaya. PT, Indonesia
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- Australian Coal Association
- Pendopo Energi Batubara - Indonesia
- Riau Bara Harum - Indonesia
- Power Finance Corporation Ltd., India
- Intertek Mineral Services - Indonesia
- Singapore Mercantile Exchange
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- Central Java Power - Indonesia
- Ambuja Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Straits Asia Resources Limited - Singapore
- Globalindo Alam Lestari - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Agrawal Coal Company - India
- Neyveli Lignite Corporation Ltd, - India
- Bhoruka Overseas - Indonesia
- Siam City Cement - Thailand
- SMC Global Power, Philippines
- Mercuria Energy - Indonesia
- Xindia Steels Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Orica Mining Services - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- Standard Chartered Bank - UAE
- Baramulti Group, Indonesia
- Global Business Power Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Alfred C Toepfer International GmbH - Germany
- Bhushan Steel Limited - India
- Independent Power Producers Association of India
- International Coal Ventures Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- Malabar Cements Ltd - India
- White Energy Company Limited
- Asmin Koalindo Tuhup - Indonesia
- Attock Cement Pakistan Limited
- TNB Fuel Sdn Bhd - Malaysia
- Indonesian Coal Mining Association
- Anglo American - United Kingdom
- New Zealand Coal & Carbon
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Mjunction Services Limited - India
- McConnell Dowell - Australia
- Semirara Mining Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- CNBM International Corporation - China
- Central Electricity Authority - India
- Oldendorff Carriers - Singapore
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sojitz Corporation - Japan
- Global Coal Blending Company Limited - Australia
- Star Paper Mills Limited - India
- London Commodity Brokers - England
- Eastern Energy - Thailand
- Rashtriya Ispat Nigam Limited - India
- GAC Shipping (India) Pvt Ltd
- Kideco Jaya Agung - Indonesia
- Antam Resourcindo - Indonesia
- Altura Mining Limited, Indonesia
- Trasteel International SA, Italy
- Ministry of Mines - Canada
- Madhucon Powers Ltd - India
- Manunggal Multi Energi - Indonesia
- Sical Logistics Limited - India
- San Jose City I Power Corp, Philippines
- VISA Power Limited - India
- MS Steel International - UAE
- Carbofer General Trading SA - India
- AsiaOL BioFuels Corp., Philippines
- GVK Power & Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Mintek Dendrill Indonesia
- Renaissance Capital - South Africa
- Latin American Coal - Colombia
- Energy Development Corp, Philippines
- Billiton Holdings Pty Ltd - Australia
- Interocean Group of Companies - India
- Rio Tinto Coal - Australia
- Salva Resources Pvt Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Kalimantan Lumbung Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bayan Resources Tbk. - Indonesia
- Vedanta Resources Plc - India
- Simpson Spence & Young - Indonesia
- Vizag Seaport Private Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- ASAPP Information Group - India
- Ind-Barath Power Infra Limited - India
- Cement Manufacturers Association - India
- SMG Consultants - Indonesia
- Iligan Light & Power Inc, Philippines
- Videocon Industries ltd - India
- Planning Commission, India
- Wood Mackenzie - Singapore
- Timah Investasi Mineral - Indoneisa
- Thiess Contractors Indonesia
- Kepco SPC Power Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Savvy Resources Ltd - HongKong
- Indo Tambangraya Megah - Indonesia
- ICICI Bank Limited - India
- Bharathi Cement Corporation - India
- Electricity Authority, New Zealand
- Sarangani Energy Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Karaikal Port Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Metalloyd Limited - United Kingdom
- Eastern Coal Council - USA
- Marubeni Corporation - India
- The Treasury - Australian Government
- Africa Commodities Group - South Africa
- Cigading International Bulk Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Maheswari Brothers Coal Limited - India
- Indika Energy - Indonesia
- Jindal Steel & Power Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Karbindo Abesyapradhi - Indoneisa
- Mercator Lines Limited - India
- Australian Commodity Traders Exchange
- India Bulls Power Limited - India
- Borneo Indobara - Indonesia
- IHS Mccloskey Coal Group - USA
- Bukit Asam (Persero) Tbk - Indonesia
- Coal and Oil Company - UAE
- European Bulk Services B.V. - Netherlands
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- Ministry of Finance - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Minerals Council of Australia
- TeaM Sual Corporation - Philippines
- Kartika Selabumi Mining - Indonesia
- Tamil Nadu electricity Board
- Orica Australia Pty. Ltd.
- Chettinad Cement Corporation Ltd - India
- Price Waterhouse Coopers - Russia
- Siam City Cement PLC, Thailand
- Sindya Power Generating Company Private Ltd
- Medco Energi Mining Internasional
- Sakthi Sugars Limited - India
- The University of Queensland
- Sree Jayajothi Cements Limited - India
- Makarim & Taira - Indonesia
- Larsen & Toubro Limited - India
- Commonwealth Bank - Australia
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