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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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Tuesday, 14 January 20
SHIPPING MARKET ANALYSIS - ALLIED SHIPBROKING
Uncertainty in the global geopolitical sphere seems to have not come to an end along with 2019, as 2020 commenced with renewed tensions between the ...
Tuesday, 14 January 20
DRY BULK MARKET: "THIS IS NOT THE END OF COAL" SAYS IEA - BALTIC EXCHANGE
A historic drop in coal-fired electricity generation will not sway global coal demand from its upward trajectory through to 2024, though growth wil ...
Saturday, 11 January 20
ARE YOU 95% CONFIDENT THAT YOUR VERY LOW SULPHUR FUEL IS ON SPEC AND MARPOL COMPLIANT? - GARD
KNOWLEDGE TO ELEVATE
Bunker fuel is a commodity and, like all commodities, is produced and sold according to specifications. Bunkers are usual ...
Saturday, 11 January 20
NEW PRICING COULD SPELL TROUBLE FOR CHINA'S COAL SECTOR - CHINA DIALOGUE
Benchmark coal tariffs have been the foundation of China’s electricity pricing since 2004 but this mechanism was replaced on January 1 with a ...
Saturday, 11 January 20
BALTIC BRIEFING TANKER REPORT - WEEK 2
VLCC
Escalating tensions between the USA and Iran, in addition to a continuing strong market, made for an interesting week, with rates firming ...
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- GAC Shipping (India) Pvt Ltd
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- Global Green Power PLC Corporation, Philippines
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- Parliament of New Zealand
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- Tamil Nadu electricity Board
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- Petron Corporation, Philippines
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- Kumho Petrochemical, South Korea
- Coastal Gujarat Power Limited - India
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- Baramulti Group, Indonesia
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- Standard Chartered Bank - UAE
- Asmin Koalindo Tuhup - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Meenaskhi Energy Private Limited - India
- Indogreen Group - Indonesia
- ICICI Bank Limited - India
- Sakthi Sugars Limited - India
- Bukit Baiduri Energy - Indonesia
- Orica Australia Pty. Ltd.
- Parry Sugars Refinery, India
- Kobexindo Tractors - Indoneisa
- Videocon Industries ltd - India
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- GN Power Mariveles Coal Plant, Philippines
- Indo Tambangraya Megah - Indonesia
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- Electricity Authority, New Zealand
- Coalindo Energy - Indonesia
- Antam Resourcindo - Indonesia
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- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- The University of Queensland
- Ind-Barath Power Infra Limited - India
- Samtan Co., Ltd - South Korea
- Karaikal Port Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- London Commodity Brokers - England
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kalimantan Lumbung Energi - Indonesia
- PNOC Exploration Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Krishnapatnam Port Company Ltd. - India
- Chettinad Cement Corporation Ltd - India
- International Coal Ventures Pvt Ltd - India
- Thai Mozambique Logistica
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- Global Coal Blending Company Limited - Australia
- Gujarat Mineral Development Corp Ltd - India
- Goldman Sachs - Singapore
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- Eastern Energy - Thailand
- Metalloyd Limited - United Kingdom
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- Altura Mining Limited, Indonesia
- Jindal Steel & Power Ltd - India
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- Alfred C Toepfer International GmbH - Germany
- Semirara Mining and Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
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- Therma Luzon, Inc, Philippines
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- San Jose City I Power Corp, Philippines
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- Heidelberg Cement - Germany
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- Commonwealth Bank - Australia
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- Deloitte Consulting - India
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- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Savvy Resources Ltd - HongKong
- IEA Clean Coal Centre - UK
- Semirara Mining Corp, Philippines
- Port Waratah Coal Services - Australia
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