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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, 15 February 20
CHEN ZHIDA: NOVEL CORONAVIRUS - IMPLICATIONS FOR CHARTERPARTIES - SHIPOWNERS' CLUB
KNOWLEDGE TO ELEVATE
Last month, the Club issued a bulletin on the 2019 Novel Coronavirus (COVID-19) which explained the origin of the virus a ...
Saturday, 15 February 20
AFRAMAX: A MORE POSITIVE ATTITUDE EXISTED IN THIS SECTOR WITH RATES IMPROVING ON ALL ROUTES - BALTIC BRIEFING
VLCC
The market in the Middle East was unmoved this week, with Chinese refiners continuing to slow imports, allied with the impact of the Coron ...
Saturday, 15 February 20
A 56,000DWT VESSEL WAS CONCLUDED BASIS DELIVERY SINGAPORE VIA INDONESIA REDELIVERY CHINA IN THE LOW $6,000S - BALTIC BRIEFING
Capesize
Riding the downward momentum of the previous week, the market was always going to be hard pressed to make any sort of revival. With mu ...
Saturday, 15 February 20
U.S. COAL PRODUCTION WILL TOTAL 595 MMST IN 2020, DOWN 14% FROM 2019 - EIA
EIA forecasts that U.S. coal production will total 595 million short tons (MMst) in 2020, down 95 MMst (14%) from 2019.
Lower ...
Friday, 14 February 20
WHY THE WORLD ECONOMY WILL BE FACING CHINA'S CORONAVIRUS FOR A LONG TIME - CNBC
Everywhere we look we see the headlines and commentators talking about the coronavirus and its impact on tourism, trade and investment between Chin ...
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- Renaissance Capital - South Africa
- The University of Queensland
- Petron Corporation, Philippines
- Mintek Dendrill Indonesia
- Georgia Ports Authority, United States
- Rio Tinto Coal - Australia
- Marubeni Corporation - India
- GMR Energy Limited - India
- Merrill Lynch Commodities Europe
- White Energy Company Limited
- Planning Commission, India
- Sakthi Sugars Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- PowerSource Philippines DevCo
- Romanian Commodities Exchange
- Neyveli Lignite Corporation Ltd, - India
- Siam City Cement PLC, Thailand
- Coal and Oil Company - UAE
- Global Green Power PLC Corporation, Philippines
- Ambuja Cements Ltd - India
- Maheswari Brothers Coal Limited - India
- Cigading International Bulk Terminal - Indonesia
- Indonesian Coal Mining Association
- Edison Trading Spa - Italy
- Meralco Power Generation, Philippines
- Sindya Power Generating Company Private Ltd
- Directorate General of MIneral and Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Jindal Steel & Power Ltd - India
- Africa Commodities Group - South Africa
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Bukit Asam (Persero) Tbk - Indonesia
- Indogreen Group - Indonesia
- Mercator Lines Limited - India
- Altura Mining Limited, Indonesia
- Malabar Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Semirara Mining Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Straits Asia Resources Limited - Singapore
- Tamil Nadu electricity Board
- Minerals Council of Australia
- Riau Bara Harum - Indonesia
- Australian Coal Association
- PTC India Limited - India
- Heidelberg Cement - Germany
- International Coal Ventures Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Coastal Gujarat Power Limited - India
- Electricity Generating Authority of Thailand
- Indika Energy - Indonesia
- Power Finance Corporation Ltd., India
- Banpu Public Company Limited - Thailand
- Dalmia Cement Bharat India
- ASAPP Information Group - India
- Kartika Selabumi Mining - Indonesia
- Global Business Power Corporation, Philippines
- Bukit Baiduri Energy - Indonesia
- New Zealand Coal & Carbon
- Makarim & Taira - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Larsen & Toubro Limited - India
- Sree Jayajothi Cements Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Deloitte Consulting - India
- CNBM International Corporation - China
- Meenaskhi Energy Private Limited - India
- Metalloyd Limited - United Kingdom
- Asmin Koalindo Tuhup - Indonesia
- Essar Steel Hazira Ltd - India
- Globalindo Alam Lestari - Indonesia
- Central Java Power - Indonesia
- GVK Power & Infra Limited - India
- Timah Investasi Mineral - Indoneisa
- Orica Australia Pty. Ltd.
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Independent Power Producers Association of India
- IEA Clean Coal Centre - UK
- Sojitz Corporation - Japan
- Vijayanagar Sugar Pvt Ltd - India
- Indian Oil Corporation Limited
- Savvy Resources Ltd - HongKong
- Chamber of Mines of South Africa
- Gujarat Electricity Regulatory Commission - India
- India Bulls Power Limited - India
- Vedanta Resources Plc - India
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Sidhee Cement - India
- Petrochimia International Co. Ltd.- Taiwan
- Price Waterhouse Coopers - Russia
- Baramulti Group, Indonesia
- Kobexindo Tractors - Indoneisa
- The Treasury - Australian Government
- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- Salva Resources Pvt Ltd - India
- Vizag Seaport Private Limited - India
- Miang Besar Coal Terminal - Indonesia
- Karaikal Port Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Maharashtra Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Borneo Indobara - Indonesia
- ICICI Bank Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- South Luzon Thermal Energy Corporation
- Gujarat Mineral Development Corp Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Oldendorff Carriers - Singapore
- Agrawal Coal Company - India
- Commonwealth Bank - Australia
- Ministry of Finance - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Ind-Barath Power Infra Limited - India
- Toyota Tsusho Corporation, Japan
- MS Steel International - UAE
- Tata Chemicals Ltd - India
- Pendopo Energi Batubara - Indonesia
- Iligan Light & Power Inc, Philippines
- Ministry of Transport, Egypt
- Manunggal Multi Energi - Indonesia
- Videocon Industries ltd - India
- Kaltim Prima Coal - Indonesia
- Aboitiz Power Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- Therma Luzon, Inc, Philippines
- Port Waratah Coal Services - Australia
- Wood Mackenzie - Singapore
- Posco Energy - South Korea
- Lanco Infratech Ltd - India
- Sarangani Energy Corporation, Philippines
- Star Paper Mills Limited - India
- SMC Global Power, Philippines
- SMG Consultants - Indonesia
- Madhucon Powers Ltd - India
- Chettinad Cement Corporation Ltd - India
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- San Jose City I Power Corp, Philippines
- Intertek Mineral Services - Indonesia
- VISA Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- CIMB Investment Bank - Malaysia
- GN Power Mariveles Coal Plant, Philippines
- Samtan Co., Ltd - South Korea
- Medco Energi Mining Internasional
- Kepco SPC Power Corporation, Philippines
- Electricity Authority, New Zealand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Grasim Industreis Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- Siam City Cement - Thailand
- Cement Manufacturers Association - India
- Energy Development Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- PetroVietnam Power Coal Import and Supply Company
- Jaiprakash Power Ventures ltd
- Ministry of Mines - Canada
- IHS Mccloskey Coal Group - USA
- Anglo American - United Kingdom
- Aditya Birla Group - India
- Orica Mining Services - Indonesia
- Eastern Coal Council - USA
- Indian Energy Exchange, India
- Attock Cement Pakistan Limited
- LBH Netherlands Bv - Netherlands
- Thiess Contractors Indonesia
- Australian Commodity Traders Exchange
- Bharathi Cement Corporation - India
- OPG Power Generation Pvt Ltd - India
- Energy Link Ltd, New Zealand
- Barasentosa Lestari - Indonesia
- Carbofer General Trading SA - India
- Central Electricity Authority - India
- Pipit Mutiara Jaya. PT, Indonesia
- Coalindo Energy - Indonesia
- Uttam Galva Steels Limited - India
- The State Trading Corporation of India Ltd
- Parry Sugars Refinery, India
- Leighton Contractors Pty Ltd - Australia
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Kumho Petrochemical, South Korea
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Xindia Steels Limited - India
- Bhatia International Limited - India
- Antam Resourcindo - Indonesia
- London Commodity Brokers - England
- PNOC Exploration Corporation - Philippines
- Bhushan Steel Limited - India
- Billiton Holdings Pty Ltd - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Rashtriya Ispat Nigam Limited - India
- Sical Logistics Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Eastern Energy - Thailand
- Bhoruka Overseas - Indonesia
- Alfred C Toepfer International GmbH - Germany
- European Bulk Services B.V. - Netherlands
- Parliament of New Zealand
- Indo Tambangraya Megah - Indonesia
- Latin American Coal - Colombia
- Mercuria Energy - Indonesia
- Economic Council, Georgia
- Bulk Trading Sa - Switzerland
- Standard Chartered Bank - UAE
- Krishnapatnam Port Company Ltd. - India
- Trasteel International SA, Italy
- Bangladesh Power Developement Board
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