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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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Monday, 24 February 20
CHINA SAYS MAJOR COAL FIRMS RESTORE 95% OF PRODUCTION CAPACITY - REUTERS
China’s coal companies controlled by the central government have resumed operations and are back at more than 95% of their capacity, an offic ...
Sunday, 23 February 20
SHIPPING INDUSTRY FACES $370 MILLION HIT FROM NEW PANAMA CANAL CHARGE - REUTERS
A new “freshwater” charge that came in this month to help the Panama Canal cope with climate change will cost the shipping industry up ...
Sunday, 23 February 20
A 57,000DWT SHIP FIXING DELIVERY SOUTH KALIMANTAN TRIP, REDELIVERY CJK, AT $7,600 - BALTIC BRIEFING
Capesize
The Capesize market found little to cheer about this week as it again endured remarkable lows. The Atlantic continued to improve, with ...
Saturday, 22 February 20
THE SURPRISING MOVE IN MARINE FUEL SPREADS - ING
Middle distillates tank
One of the biggest surprises since the implementation of new International Maritime Organization (IMO) sulphur regulati ...
Friday, 21 February 20
CAPE: AVERAGE NOMINAL DAILY EARNINGS STILL ADMITTEDLY UNCHANGED W-O-W AT BELOW US$3000 - FEARNLEYS
CAPE
The worst may just about be over for the big ships. Average nominal daily earnings still admittedly unchanged w-o-w at below US$3k, but sent ...
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- IEA Clean Coal Centre - UK
- Bank of Tokyo Mitsubishi UFJ Ltd
- Port Waratah Coal Services - Australia
- SMG Consultants - Indonesia
- Singapore Mercantile Exchange
- Karbindo Abesyapradhi - Indoneisa
- Bulk Trading Sa - Switzerland
- Karaikal Port Pvt Ltd - India
- Kartika Selabumi Mining - Indonesia
- Kapuas Tunggal Persada - Indonesia
- White Energy Company Limited
- IHS Mccloskey Coal Group - USA
- Wilmar Investment Holdings
- OPG Power Generation Pvt Ltd - India
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- PetroVietnam Power Coal Import and Supply Company
- The University of Queensland
- Global Coal Blending Company Limited - Australia
- Kobexindo Tractors - Indoneisa
- PNOC Exploration Corporation - Philippines
- Binh Thuan Hamico - Vietnam
- Cement Manufacturers Association - India
- Petron Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Parry Sugars Refinery, India
- European Bulk Services B.V. - Netherlands
- Holcim Trading Pte Ltd - Singapore
- Manunggal Multi Energi - Indonesia
- Bhushan Steel Limited - India
- Ministry of Transport, Egypt
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- Star Paper Mills Limited - India
- Borneo Indobara - Indonesia
- MS Steel International - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- GVK Power & Infra Limited - India
- Carbofer General Trading SA - India
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- Iligan Light & Power Inc, Philippines
- South Luzon Thermal Energy Corporation
- Jindal Steel & Power Ltd - India
- Global Green Power PLC Corporation, Philippines
- Goldman Sachs - Singapore
- Samtan Co., Ltd - South Korea
- Oldendorff Carriers - Singapore
- Alfred C Toepfer International GmbH - Germany
- Formosa Plastics Group - Taiwan
- Minerals Council of Australia
- Toyota Tsusho Corporation, Japan
- Meenaskhi Energy Private Limited - India
- Sinarmas Energy and Mining - Indonesia
- ICICI Bank Limited - India
- Merrill Lynch Commodities Europe
- Agrawal Coal Company - India
- Miang Besar Coal Terminal - Indonesia
- Bhoruka Overseas - Indonesia
- TeaM Sual Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Krishnapatnam Port Company Ltd. - India
- Altura Mining Limited, Indonesia
- SMC Global Power, Philippines
- Maheswari Brothers Coal Limited - India
- Eastern Energy - Thailand
- Essar Steel Hazira Ltd - India
- Sojitz Corporation - Japan
- Ceylon Electricity Board - Sri Lanka
- Uttam Galva Steels Limited - India
- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
- The State Trading Corporation of India Ltd
- Vizag Seaport Private Limited - India
- Planning Commission, India
- Larsen & Toubro Limited - India
- Coal and Oil Company - UAE
- Kideco Jaya Agung - Indonesia
- Indian Oil Corporation Limited
- Central Java Power - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Vijayanagar Sugar Pvt Ltd - India
- Lanco Infratech Ltd - India
- Vedanta Resources Plc - India
- CNBM International Corporation - China
- Chamber of Mines of South Africa
- Economic Council, Georgia
- Tata Chemicals Ltd - India
- Sree Jayajothi Cements Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Posco Energy - South Korea
- Bukit Makmur.PT - Indonesia
- Standard Chartered Bank - UAE
- Power Finance Corporation Ltd., India
- Cigading International Bulk Terminal - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- The Treasury - Australian Government
- Australian Coal Association
- Coalindo Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Interocean Group of Companies - India
- Banpu Public Company Limited - Thailand
- LBH Netherlands Bv - Netherlands
- Romanian Commodities Exchange
- Edison Trading Spa - Italy
- International Coal Ventures Pvt Ltd - India
- Sakthi Sugars Limited - India
- Trasteel International SA, Italy
- Maharashtra Electricity Regulatory Commission - India
- Straits Asia Resources Limited - Singapore
- Indonesian Coal Mining Association
- Central Electricity Authority - India
- Ind-Barath Power Infra Limited - India
- Siam City Cement - Thailand
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Meralco Power Generation, Philippines
- Ministry of Mines - Canada
- Indian Energy Exchange, India
- Mercator Lines Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Aditya Birla Group - India
- Bayan Resources Tbk. - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Simpson Spence & Young - Indonesia
- Therma Luzon, Inc, Philippines
- Metalloyd Limited - United Kingdom
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
- Madhucon Powers Ltd - India
- Coastal Gujarat Power Limited - India
- Medco Energi Mining Internasional
- VISA Power Limited - India
- Directorate Of Revenue Intelligence - India
- Orica Australia Pty. Ltd.
- SN Aboitiz Power Inc, Philippines
- Grasim Industreis Ltd - India
- India Bulls Power Limited - India
- Orica Mining Services - Indonesia
- Sical Logistics Limited - India
- Deloitte Consulting - India
- Bukit Baiduri Energy - Indonesia
- Indogreen Group - Indonesia
- Thai Mozambique Logistica
- Antam Resourcindo - Indonesia
- Mjunction Services Limited - India
- Billiton Holdings Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Sindya Power Generating Company Private Ltd
- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement PLC, Thailand
- Global Business Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Electricity Generating Authority of Thailand
- Kumho Petrochemical, South Korea
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhatia International Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Gujarat Electricity Regulatory Commission - India
- Kaltim Prima Coal - Indonesia
- Salva Resources Pvt Ltd - India
- Tamil Nadu electricity Board
- Energy Development Corp, Philippines
- Georgia Ports Authority, United States
- Latin American Coal - Colombia
- Renaissance Capital - South Africa
- PowerSource Philippines DevCo
- Bukit Asam (Persero) Tbk - Indonesia
- Bharathi Cement Corporation - India
- New Zealand Coal & Carbon
- Petrochimia International Co. Ltd.- Taiwan
- ASAPP Information Group - India
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- Indika Energy - Indonesia
- Mintek Dendrill Indonesia
- Energy Link Ltd, New Zealand
- Anglo American - United Kingdom
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- Baramulti Group, Indonesia
- Heidelberg Cement - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Independent Power Producers Association of India
- Riau Bara Harum - Indonesia
- Commonwealth Bank - Australia
- Ambuja Cements Ltd - India
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Marubeni Corporation - India
- Indo Tambangraya Megah - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Rio Tinto Coal - Australia
- Aboitiz Power Corporation - Philippines
- Wood Mackenzie - Singapore
- Makarim & Taira - Indonesia
- GMR Energy Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Globalindo Alam Lestari - Indonesia
- Timah Investasi Mineral - Indoneisa
- PTC India Limited - India
- Rashtriya Ispat Nigam Limited - India
- San Jose City I Power Corp, Philippines
- Videocon Industries ltd - India
- Australian Commodity Traders Exchange
- Eastern Coal Council - USA
- McConnell Dowell - Australia
- Gujarat Sidhee Cement - India
- Mercuria Energy - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Electricity Authority, New Zealand
- Jaiprakash Power Ventures ltd
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