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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, 18 March 20
SHIPPING MARKET INSIGHT - INTERMODAL
Despite we all knew about the Covid-19 weeks ago, few could realize the size of the thread until the last few days. The examples of China and Italy ...
Tuesday, 17 March 20
IT IS NOW UNQUESTIONABLE THAT 2020 WILL BE A MILESTONE YEAR FOR THE OIL MARKET, AS WELL AS THE WHOLE GLOBAL ECONOMY - ALLIED
It is now unquestionable that 2020 will be a milestone year for the oil market, as well as the whole global economy. The impact from the COVID-19 o ...
Tuesday, 17 March 20
PRELIMINARY FIELD EXPERIENCES ON THE EFFECTS OF LSFO AND VLSFO ON CYLINDER CONDITION - HANS JENSEN LUBRICATORS
It is now more than two months since the 0.5% sulphur cap entered into force, which have affected the operation of more than 70,000 vessels. As ant ...
Monday, 16 March 20
ULTRAMAX: S8 INDONESIA-INDIA AND S10 INDONESIA-CHINA ROUTES BOTH POSTED GAINS OF $1,412, AND $1,289 ON THE WEEK, TO CLOSE AT $5,575, AND $6,089 RESPECTIVELY - BALTIC BRIEFING
Capesize
The Capesize market came to work on Monday, with little expectation, or confidence, that the days ahead were going to bring anything o ...
Sunday, 15 March 20
CAPTIVE COAL OUTPUT RISES 19% IN APRIL-FEBRUARY - FINANCIAL EXPRESS
Coal production from captive mines in the first eleven months of the ongoing fiscal have increased by 18.8% year-on-year (y-o-y) to 51.7 million to ...
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- OPG Power Generation Pvt Ltd - India
- Singapore Mercantile Exchange
- Ind-Barath Power Infra Limited - India
- Rio Tinto Coal - Australia
- Directorate General of MIneral and Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kobexindo Tractors - Indoneisa
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Asmin Koalindo Tuhup - Indonesia
- Medco Energi Mining Internasional
- Straits Asia Resources Limited - Singapore
- Intertek Mineral Services - Indonesia
- Wilmar Investment Holdings
- Heidelberg Cement - Germany
- Banpu Public Company Limited - Thailand
- The University of Queensland
- Carbofer General Trading SA - India
- Sakthi Sugars Limited - India
- Global Green Power PLC Corporation, Philippines
- Aditya Birla Group - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Lanco Infratech Ltd - India
- Bhushan Steel Limited - India
- International Coal Ventures Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- GMR Energy Limited - India
- Global Business Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- SN Aboitiz Power Inc, Philippines
- Kapuas Tunggal Persada - Indonesia
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- South Luzon Thermal Energy Corporation
- Mercator Lines Limited - India
- Riau Bara Harum - Indonesia
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Price Waterhouse Coopers - Russia
- Coalindo Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Central Java Power - Indonesia
- Oldendorff Carriers - Singapore
- Madhucon Powers Ltd - India
- Energy Development Corp, Philippines
- Tata Chemicals Ltd - India
- Iligan Light & Power Inc, Philippines
- Mintek Dendrill Indonesia
- GVK Power & Infra Limited - India
- Parliament of New Zealand
- Jaiprakash Power Ventures ltd
- Bhatia International Limited - India
- Directorate Of Revenue Intelligence - India
- Interocean Group of Companies - India
- The State Trading Corporation of India Ltd
- Xindia Steels Limited - India
- Baramulti Group, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Borneo Indobara - Indonesia
- Sindya Power Generating Company Private Ltd
- Indika Energy - Indonesia
- Renaissance Capital - South Africa
- Dalmia Cement Bharat India
- GAC Shipping (India) Pvt Ltd
- Petrochimia International Co. Ltd.- Taiwan
- Sarangani Energy Corporation, Philippines
- Minerals Council of Australia
- Parry Sugars Refinery, India
- Sojitz Corporation - Japan
- Coal and Oil Company - UAE
- The Treasury - Australian Government
- Independent Power Producers Association of India
- Binh Thuan Hamico - Vietnam
- Grasim Industreis Ltd - India
- Goldman Sachs - Singapore
- MS Steel International - UAE
- Bhoruka Overseas - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- Bangladesh Power Developement Board
- Orica Australia Pty. Ltd.
- Savvy Resources Ltd - HongKong
- Indogreen Group - Indonesia
- India Bulls Power Limited - India
- Makarim & Taira - Indonesia
- Global Coal Blending Company Limited - Australia
- Bukit Makmur.PT - Indonesia
- White Energy Company Limited
- Krishnapatnam Port Company Ltd. - India
- Deloitte Consulting - India
- Edison Trading Spa - Italy
- Kartika Selabumi Mining - Indonesia
- Ministry of Transport, Egypt
- ICICI Bank Limited - India
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Meralco Power Generation, Philippines
- Larsen & Toubro Limited - India
- Gujarat Sidhee Cement - India
- Mjunction Services Limited - India
- Trasteel International SA, Italy
- Offshore Bulk Terminal Pte Ltd, Singapore
- VISA Power Limited - India
- Essar Steel Hazira Ltd - India
- Georgia Ports Authority, United States
- Electricity Authority, New Zealand
- Kepco SPC Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Romanian Commodities Exchange
- Semirara Mining Corp, Philippines
- Uttam Galva Steels Limited - India
- European Bulk Services B.V. - Netherlands
- Bukit Asam (Persero) Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- New Zealand Coal & Carbon
- Simpson Spence & Young - Indonesia
- Economic Council, Georgia
- IHS Mccloskey Coal Group - USA
- Maharashtra Electricity Regulatory Commission - India
- Bayan Resources Tbk. - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Star Paper Mills Limited - India
- McConnell Dowell - Australia
- Altura Mining Limited, Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Aboitiz Power Corporation - Philippines
- SMG Consultants - Indonesia
- ASAPP Information Group - India
- London Commodity Brokers - England
- Bank of Tokyo Mitsubishi UFJ Ltd
- Commonwealth Bank - Australia
- Energy Link Ltd, New Zealand
- Therma Luzon, Inc, Philippines
- Petron Corporation, Philippines
- Africa Commodities Group - South Africa
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Kaltim Prima Coal - Indonesia
- Malabar Cements Ltd - India
- Salva Resources Pvt Ltd - India
- Kumho Petrochemical, South Korea
- Billiton Holdings Pty Ltd - Australia
- Metalloyd Limited - United Kingdom
- Planning Commission, India
- Wood Mackenzie - Singapore
- Indian Energy Exchange, India
- Videocon Industries ltd - India
- Power Finance Corporation Ltd., India
- Sical Logistics Limited - India
- Attock Cement Pakistan Limited
- Port Waratah Coal Services - Australia
- Coastal Gujarat Power Limited - India
- Thai Mozambique Logistica
- Gujarat Mineral Development Corp Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- San Jose City I Power Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Antam Resourcindo - Indonesia
- Barasentosa Lestari - Indonesia
- Indonesian Coal Mining Association
- Latin American Coal - Colombia
- Jorong Barutama Greston.PT - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Agrawal Coal Company - India
- Chamber of Mines of South Africa
- PNOC Exploration Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Indo Tambangraya Megah - Indonesia
- Kideco Jaya Agung - Indonesia
- Maheswari Brothers Coal Limited - India
- TeaM Sual Corporation - Philippines
- Ceylon Electricity Board - Sri Lanka
- Ministry of Mines - Canada
- Mercuria Energy - Indonesia
- Meenaskhi Energy Private Limited - India
- Leighton Contractors Pty Ltd - Australia
- Holcim Trading Pte Ltd - Singapore
- Cigading International Bulk Terminal - Indonesia
- LBH Netherlands Bv - Netherlands
- Siam City Cement PLC, Thailand
- Bahari Cakrawala Sebuku - Indonesia
- Posco Energy - South Korea
- Samtan Co., Ltd - South Korea
- Anglo American - United Kingdom
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- PTC India Limited - India
- PetroVietnam Power Coal Import and Supply Company
- CNBM International Corporation - China
- IEA Clean Coal Centre - UK
- Australian Coal Association
- Cement Manufacturers Association - India
- Alfred C Toepfer International GmbH - Germany
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Timah Investasi Mineral - Indoneisa
- Karaikal Port Pvt Ltd - India
- Ambuja Cements Ltd - India
- Standard Chartered Bank - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Thiess Contractors Indonesia
- Semirara Mining and Power Corporation, Philippines
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Marubeni Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bharathi Cement Corporation - India
- CIMB Investment Bank - Malaysia
- Siam City Cement - Thailand
- Toyota Tsusho Corporation, Japan
- SMC Global Power, Philippines
- PowerSource Philippines DevCo
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