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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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Friday, 23 February 24
STRONG OUTLOOK FOR THE TANKER MARKET IN 2024 AND BEYOND - DNV
Several factors have aligned over the past two years to create a robust and profitable market for tanker owners, which is expected to drive newbuil ...
Friday, 23 February 24
AUSTRALIAN COAL FLOWS TO ASIA HOVER ABOVE LAST YEAR’S VOLUME TONNES - SIGNAL GROUP
In the final days of February, the dry bulk freight market appeared to maintain a relatively stable momentum, particularly evident in the large ves ...
Friday, 23 February 24
RUSSIAN COAL SHIPMENTS FALL 14% AS SANCTIONS BITE - BIMCO
During the first seven weeks of 2024, Russian coal shipments have fallen 14% y/y. Volumes have gradually declined since October 2023 when logistica ...
Thursday, 22 February 24
BIMCO PUBLISHES SHIP FINANCING FORMS TO ENSURE UNINTERRUPTED USE OF SHIPS
BIMCO has published two standard Quiet Enjoyment Letters (QELs), the first standard form QELs available to the industry, to offer a tool that can e ...
Monday, 19 February 24
METALS INVESTMENT: THE DARKEST HOUR IS JUST BEFORE THE DAWN - WOOD MACKENZIE
Things often seem at their worst just before they get better. In terms of meeting our net zero 2050 scenario, we’ve reached a watershed momen ...
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- Sarangani Energy Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Baramulti Group, Indonesia
- Xindia Steels Limited - India
- Antam Resourcindo - Indonesia
- Jaiprakash Power Ventures ltd
- Central Electricity Authority - India
- European Bulk Services B.V. - Netherlands
- Bangladesh Power Developement Board
- Sakthi Sugars Limited - India
- London Commodity Brokers - England
- Bahari Cakrawala Sebuku - Indonesia
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Maharashtra Electricity Regulatory Commission - India
- Planning Commission, India
- Dalmia Cement Bharat India
- Kalimantan Lumbung Energi - Indonesia
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- Indonesian Coal Mining Association
- Commonwealth Bank - Australia
- Kideco Jaya Agung - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- White Energy Company Limited
- Krishnapatnam Port Company Ltd. - India
- Mercator Lines Limited - India
- Trasteel International SA, Italy
- SMC Global Power, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meenaskhi Energy Private Limited - India
- Singapore Mercantile Exchange
- PTC India Limited - India
- Medco Energi Mining Internasional
- Kumho Petrochemical, South Korea
- Global Green Power PLC Corporation, Philippines
- Petron Corporation, Philippines
- Africa Commodities Group - South Africa
- Price Waterhouse Coopers - Russia
- PowerSource Philippines DevCo
- Miang Besar Coal Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Indian Oil Corporation Limited
- Mercuria Energy - Indonesia
- McConnell Dowell - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Aboitiz Power Corporation - Philippines
- Gujarat Electricity Regulatory Commission - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- PetroVietnam Power Coal Import and Supply Company
- Goldman Sachs - Singapore
- Carbofer General Trading SA - India
- Makarim & Taira - Indonesia
- Parliament of New Zealand
- Uttam Galva Steels Limited - India
- Romanian Commodities Exchange
- GMR Energy Limited - India
- Kobexindo Tractors - Indoneisa
- Bukit Makmur.PT - Indonesia
- MS Steel International - UAE
- GN Power Mariveles Coal Plant, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Savvy Resources Ltd - HongKong
- Minerals Council of Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ministry of Mines - Canada
- Australian Commodity Traders Exchange
- Grasim Industreis Ltd - India
- Salva Resources Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Intertek Mineral Services - Indonesia
- Bukit Baiduri Energy - Indonesia
- Vedanta Resources Plc - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- The State Trading Corporation of India Ltd
- Iligan Light & Power Inc, Philippines
- Malabar Cements Ltd - India
- Toyota Tsusho Corporation, Japan
- Rio Tinto Coal - Australia
- Bharathi Cement Corporation - India
- Bayan Resources Tbk. - Indonesia
- Borneo Indobara - Indonesia
- Power Finance Corporation Ltd., India
- Central Java Power - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Bhushan Steel Limited - India
- Standard Chartered Bank - UAE
- Global Business Power Corporation, Philippines
- Lanco Infratech Ltd - India
- Orica Mining Services - Indonesia
- Indo Tambangraya Megah - Indonesia
- Vizag Seaport Private Limited - India
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Binh Thuan Hamico - Vietnam
- Parry Sugars Refinery, India
- Timah Investasi Mineral - Indoneisa
- New Zealand Coal & Carbon
- Ind-Barath Power Infra Limited - India
- IHS Mccloskey Coal Group - USA
- Manunggal Multi Energi - Indonesia
- Anglo American - United Kingdom
- AsiaOL BioFuels Corp., Philippines
- Attock Cement Pakistan Limited
- Oldendorff Carriers - Singapore
- Siam City Cement PLC, Thailand
- Interocean Group of Companies - India
- Merrill Lynch Commodities Europe
- The University of Queensland
- Orica Australia Pty. Ltd.
- Semirara Mining and Power Corporation, Philippines
- Posco Energy - South Korea
- Coastal Gujarat Power Limited - India
- Rashtriya Ispat Nigam Limited - India
- Formosa Plastics Group - Taiwan
- Cement Manufacturers Association - India
- Larsen & Toubro Limited - India
- Bhatia International Limited - India
- Sree Jayajothi Cements Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Australian Coal Association
- Energy Development Corp, Philippines
- Karaikal Port Pvt Ltd - India
- ICICI Bank Limited - India
- Thai Mozambique Logistica
- Heidelberg Cement - Germany
- Jindal Steel & Power Ltd - India
- Agrawal Coal Company - India
- Mjunction Services Limited - India
- Kaltim Prima Coal - Indonesia
- Samtan Co., Ltd - South Korea
- Chettinad Cement Corporation Ltd - India
- Bulk Trading Sa - Switzerland
- South Luzon Thermal Energy Corporation
- Madhucon Powers Ltd - India
- Edison Trading Spa - Italy
- Simpson Spence & Young - Indonesia
- Ministry of Transport, Egypt
- Marubeni Corporation - India
- Billiton Holdings Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- Georgia Ports Authority, United States
- Bukit Asam (Persero) Tbk - Indonesia
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Renaissance Capital - South Africa
- Electricity Authority, New Zealand
- Global Coal Blending Company Limited - Australia
- LBH Netherlands Bv - Netherlands
- Wilmar Investment Holdings
- Aditya Birla Group - India
- Sojitz Corporation - Japan
- Energy Link Ltd, New Zealand
- The Treasury - Australian Government
- Mintek Dendrill Indonesia
- SMG Consultants - Indonesia
- CIMB Investment Bank - Malaysia
- Kohat Cement Company Ltd. - Pakistan
- Electricity Generating Authority of Thailand
- Deloitte Consulting - India
- Metalloyd Limited - United Kingdom
- Eastern Energy - Thailand
- Gujarat Sidhee Cement - India
- CNBM International Corporation - China
- Therma Luzon, Inc, Philippines
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- Semirara Mining Corp, Philippines
- Altura Mining Limited, Indonesia
- Latin American Coal - Colombia
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Independent Power Producers Association of India
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- Star Paper Mills Limited - India
- Indogreen Group - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sinarmas Energy and Mining - Indonesia
- Kartika Selabumi Mining - Indonesia
- Tata Chemicals Ltd - India
- Economic Council, Georgia
- VISA Power Limited - India
- Sical Logistics Limited - India
- India Bulls Power Limited - India
- Ministry of Finance - Indonesia
- Globalindo Alam Lestari - Indonesia
- Port Waratah Coal Services - Australia
- Coal and Oil Company - UAE
- Riau Bara Harum - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kapuas Tunggal Persada - Indonesia
- Siam City Cement - Thailand
- Alfred C Toepfer International GmbH - Germany
- Meralco Power Generation, Philippines
- ASAPP Information Group - India
- Barasentosa Lestari - Indonesia
- Tamil Nadu electricity Board
- Petrochimia International Co. Ltd.- Taiwan
- Cigading International Bulk Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Maheswari Brothers Coal Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Pendopo Energi Batubara - Indonesia
- Videocon Industries ltd - India
- Coalindo Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Straits Asia Resources Limited - Singapore
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