Rigzone/2 October 2017

(Bloomberg) — China’s independent refiners burst onto the international oil market scene only a couple of years ago and lifted the nation past the U.S. as the world’s No. 1 crude buyer. Now, a new generation of firms building some of the globe’s biggest plants are threatening to eclipse them.

The original set of private processors, known as teapots, is clustered in the eastern Shandong province, and operate relatively small refineries that pump out fuels such as gasoline and diesel. By contrast, the budding giants supported by the regional governments in Zhejiang and Liaoning will focus on making petrochemicals — the building blocks of everything from sportswear to soda cans and Star Wars figures.

At last week’s Asia Pacific Petroleum Conference in Singapore, one of the industry’s largest gatherings, traders and company executives were speculating about how the upcoming Chinese mega refineries would shake up oil markets worldwide just as the smaller plants did. Saudi Arabia, OPEC’s largest producer, broke with tradition to sell a test cargo to one of the teapots, and the world’s top oil traders such as Trafigura Group have also sought to supply the companies. The refiners bought U.S. crude as well.

Still, it’s not been all smooth sailing for the Shandong firms. They have been plagued by infrastructure issues, have come under the scrutiny of China’s taxman, have been denied  fuel export licenses and are facing increased competition from the nation’s state-owned behemoths. And with the first of the new plants expected to come online in 2018, they are turning wary.

“Independent refiners in Shandong think of themselves as wolves, alongside tigers that are the national oil companies,” said Zhang Liucheng, vice president of Dongming Petrochemical Group, one of the largest teapot refiners. “But with the emergence of other bigger independents that will soon bring new capacity online, they will become the wolves, while the tigers remain, and we will be the sheep in their presence.”

Zhoushan Island

One of the version 2.0 plants is a $24 billion refinery on Zhoushan island in Zhejiang province, expected to refine 20 million metric tons a year, or about 400,000 barrels per day, when it’s completed in 2018.

The facility’s operator, Rongsheng Petrochemical Co., plans to double its capacity by 2020, a move that would make it bigger than energy giant Royal Dutch Shell Plc’s Singapore refinery, the company’s largest, as well as Exxon Mobil Corp.’s Baytown refinery in Texas. It would also rival plants run by India’s Reliance Industries Ltd. and South Korea’s SK Innovation Co.

At full capacity, the mega-complex will be able to produce 10.4 million tons a year of aromatics including paraxylene and 2.8 million tons of ethylene. Gasoline produced at the refinery will be marketed at pump stations operated by Rongsheng’s unit, Zhejiang Petroleum Co.

Hengli Group, another Chinese petrochemical giant, is planning a facility that aims to process 20 million tons in the northern Chinese city of Dalian in Liaoning province. The plan is supported by the country’s economic planner, according to a statement posted on the company’s official website earlier this month.

Shipping Logistics

While crude imports by teapots in Shandong have been plagued by shipping and logistical challenges because of shallow ports and the lack of pipeline infrastructure that has led to vessel pile-ups, the newcomers have the advantage of access to deep-water ports. That would benefit them by reducing freight costs as they can ship cargoes on larger vessels.

“The market is closely watching Rongsheng and Hengli as they’re able to accommodate larger vessels, which means it could be more viable to supply long-haul crudes in addition to regional barrels,” said Nevyn Nah, a Singapore-based analyst at industry consultant Energy Aspects Ltd. “The units come at a time when other refineries like Saudi Arabia’s Jazan, Malaysia’s Rapid and Brunei’s Hengyi are expected to be completed, adding to the list of new refinery builds that we’ll see in 2019.”

Rongsheng plans to import crude feedstock via purpose-built wharfs capable of receiving vessels that are of the very large crude carrier class or larger, while Hengli’s terminal will be able to handle VLCCs. The ability to receive bigger tankers will add to the ease and affordability of purchasing oil from farther-away sources such as the Middle East, Europe or the Americas.

Some Shandong units have struggled to do the same due to ports that can accommodate only smaller ships. Dongming is planning to build a bigger receiving terminal at Lanshan port.

Brent crude, the benchmark for more than half the world’s oil, traded at $56.58 a barrel on the London-based ICE Futures Europe Exchange at 1:20 p.m. in Singapore. Prices were at more than $115 a barrel in mid-2014.

Refiner Alliance

To better combat state-owned giants and the upcoming private rivals, some of the Shandong processors are teaming up for a $5 billion joint venture with the support of their province’s government, according to Dongming’s Zhang. They’ll also seek a fuel export license that’s proved elusive in 2017, he said in an interview during the APPEC conference, held by S&P Global Platts.

While the group will have an initial registered capital of 33.19 billion yuan, the JV aims to gather more private refiners, aiming for total registered capital of 90 billion yuan, according to Zhang. It will eventually integrate about 100 million tons a year, or about 2 million barrels a day, of processing capacity.

News Source: Rigzone

Rigzone/2 October 2017

VANCOUVER/CALGARY, Alberta, Oct 2 (Reuters) – Canada failed in its duty to consult First Nations and other groups on the Trans Mountain oil pipeline expansion, and therefore the approval of the C$7.4 billion ($5.9 billion) project must be overturned, lawyers for project opponents argued at the launch of a judicial review on Monday.

A decision against the Kinder Morgan Canada Ltd project would send it back into regulatory review, a move that would cause lengthy delays and could derail the project.

Shares of Kinder Morgan Canada fell 1.91 percent to C$16.99 on Monday on the Toronto Stock Exchange. Parent company Kinder Morgan Inc’s shares were also down slightly at midday in New York.

The Trans Mountain expansion would nearly triple the capacity of an existing pipeline from Alberta to British Columbia’s west coast and significantly increase crude tanker traffic.

Pipeline opponents’ lawyer Elin Sigurdson argued the Canadian government did not provide “meaningful consultation” with First Nations and other groups, and neglected to adequately review certain environmental issues.

Those failures meant the government’s approval was “not a decision made in the public interest.”

Lawyers for the opponents will present arguments over the next few days, with company and government solicitors to respond starting on Thursday. The hearings are to run for two weeks.

It is rare for Canada’s judiciary to review pipeline approvals. The last such review, heard in 2015, helped kill Enbridge Inc’s Northern Gateway pipeline.

The suit, in Canada’s Federal Court of Appeal in Vancouver, was brought by environmental and aboriginal groups, and coastal municipalities. On the other side are Kinder Morgan, the federal government and energy regulator, the National Energy Board.

The government has called the export of natural resources a “fundamental” responsibility, and said it has considered environmental concerns and views of affected aboriginal people in approving the project.

Kinder Morgan has said it went through extensive consultations with aboriginal groups and communities along the expansion’s path and remains dedicated to engaging them.

While there is no firm deadline for rendering a judgment, the court announced its decision against Northern Gateway in June 2016, about eight months after hearings ended.

Regardless of its outcome, any decision is likely be appealed in Canada’s Supreme Court.

News Source: Rigzone

Rigzone/2 October 2017

Oct 2 (Reuters) – Oil and gas producer Laredo Petroleum said on Monday it would sell its stake in a Permian pipeline unit for $825 million, lower than some industry estimates and prodding the company’s shares down nearly 8 percent.

Laredo and private equity firm Energy & Minerals Group said they would sell the unit, Medallion Gathering & Processing LLC, for $1.83 billion to infrastructure fund Global Infrastructure Partners.

Williams Capital Group analyst Gabriele Sorbara said Laredo’s estimated net proceeds of $825 million missed the brokerage’s expectation of $892 million and Wall Street’s expectations of as much as $1.25 billion.

Medallion Gathering is the largest privately-held crude oil transportation systems in the Midland basin, located in the east of the oil-rich Permian basin in West Texas, and has more than 800 miles of pipelines.

Laredo had said in July it was planning to sell the unit, in which it has a 49 percent stake, with Energy & Minerals Group owning the rest.

Pipeline companies such as Plains All American Pipeline LP and Kinder Morgan Inc have also signed deals for assets in the Permian as oil producers make a beeline for the biggest shale play in the United States.

Laredo, which made it first investment in the unit in late 2013, said the $825 million proceeds is more than three times its invested capital and equivalent to an internal rate of return of more than 65 percent. (http://bit.ly/2fCsC0k)

The company said it expects the deal will not impact its cost structure. It plans to use the proceeds to mainly pay down debt and estimated the interest savings to help it become cash-flow neutral by the end of 2019.

Medallion had Jefferies LLC and Wells Fargo Securities LLC as financial advisers and Locke Lord LLP as its legal counsel.

Akin Gump Strauss Hauer & Feld LLP is Laredo’s legal counsel and Global Infrastructure Partners was advised by White & Case LLP.

News Source: Rigzone

Rigzone/28 September 2017

(Bloomberg) — U.S. fuel consumption to its highest level in a decade for the month of August, driven by a rise in distillate demand, as gasoline deliveries fell, the American Petroleum Institute said.

Total deliveries of petroleum products, a measure of demand, climbed 1.3 percent from a year earlier to average 20.5 million barrels per day, according to a monthly report Thursday from the industry-funded group. Distillate deliveries rose 6.5 percent to 4.13 million barrels a day, the best August in 10 years.

Gasoline demand slipped 1.5 percent in August from the year earlier to 9.55 million barrels a day, even though it was the peak of the traditional summer driving season.

At the end of August, Hurricane Harvey struck the the Gulf Coast and stymied Texas oil refiners. Nonetheless, strong economic fundamentals throughout the course of the month was seen as boosting overall refined products demand.

“Strong economic growth is boosting petroleum demand,” Hazem Arafa, director of statistics at the API in Washington, said in an e-mailed statement. “Meanwhile domestic production remains high allowing consumers and businesses to continue to enjoy relatively low fuel costs.”

U.S. crude oil production reached 9.3 million barrels per day in August, its second highest tally for the month in 45 years. It marked the seventh-straight month during which daily output topped 9 million barrels.

U.S. crude oil imports dropped 7 percent from August 2016 to 7.46 million barrels per day in August, while refined product imports decreased 6.4 percent. Both were the lowest imports since November 2015.

News Source: Rigzone

CNBC/28 September 2017

• Brent crude slipped below $56 a barrel after posting its biggest third-quarter gain since 2004.
• U.S. drillers added oil rigs for first week since mid-August, Baker Hughes reported on Friday.
• OPEC oil output rose in September, led by increases in Iraq and Libya, a Reuters survey found.

Oil fell more than $1 a barrel on Monday, as a rise in U.S. drilling and higher OPEC output put the brakes on a rally that saw prices score their biggest third-quarter gain in 13 years.

U.S. energy companies added oil rigs for the first week in seven and Iraq announced its exports increased slightly in September, when OPEC boosted overall output, according to a Reuters survey.

U.S. crude ended Monday’s session down $1.09, or 2.1 percent, at $50.58. The U.S. benchmark posted its strongest quarterly gain since the second quarter of 2016.

Brent crude, the global benchmark, was down 85 cents, or 1.5 percent, at $55.94 a barrel by 2:19 p.m. ET (1819 GMT). It notched up a third-quarter gain of around 20 percent, the biggest third-quarter increase since 2004 and traded as high as $59.49 last week.

“I think it’s going to be a struggle to move above $60 Brent,” said Olivier Jakob, oil analyst at Petromatrix.

Brent crude oil 10-day performance, source: FactSet

Oil’s rally has been driven by mounting signs that a three-year supply glut is easing, helped by a production cut deal by global producers led by the Organization of the Petroleum Exporting Countries.

“Brent crude oil prices have gone from strength to strength as surplus oil stocks are being depleted,” Bank of America Merrill Lynch said in a report. “Importantly, this rally is supported by a tighter physical market, providing a fundamental backbone that was not present before.”

But a Reuters survey on Friday found OPEC oil output rose last month, gaining mostly because of higher supplies from Iraq and also from Libya, an OPEC member exempt from cutting output.

The Libyan gain appears short-lived, though. The country’s largest oilfield, Sharara, has been closed since Sunday, an engineer at the field and a Libyan oil source said.

Middle Eastern oil producers are concerned the price rise will only stir U.S. shale producers into more drilling and push prices lower again. Key OPEC producers consider a price above $60 as encouraging too much shale output.

In February, oil industry sources said Saudi Arabia would like to see oil around that $60 level.

In its report on Friday, General Electric Co’s Baker Hughes energy services firm said drillers added six oil rigs in the week to Sept. 29, bringing the total count up to 750.

“Weve seen them add rigs for the first time in seven weeks, so that changes sentiment as well,” said John Tjornehoj, energy market analyst at CHS Hedging.

Technical charts suggest the rally may be running out of steam. Jakob of Petromatrix said Brent’s weekly chart had formed a “shooting star,” a pattern seen as indicating a market has reached a top.

Hedge funds have accumulated a record bullish position in middle distillates such as diesel, heating oil and gasoil, anticipating stocks will be relatively tight this winter.

“We’ve seen a run up in heating oil futures, and I think that particular product has supported the rise of WTI,” said Tjornehoj, while noting that distillate prices fell on Monday. “As we reverse here lower we see the recent strong correlation continuing.”

News Source: CNBC

Singapore Business Review/27 September 2017

Students aged 15-24 looked for vacation jobs.

This chart from the Ministry of Manpower (MOM) shows the resident unemployment rate in June was the highest for those below 30 years old at 7.8% YoY.

It increased from last year’s 7.1%.

MOM said the increase in unemployment among those aged below 30 was due to more students aged 15-24 looking for vacation jobs.

People within the 50 and over age ranged followed with a rate of 3.7%, up from last year’s 3.4%.

The unemployment rate amongst those 40 to 49 years old reached 3.2%, unchanged from last year.

Only unemployment rate for the 30 to 39-year-olds declined YoY by 3.0% from 3.4%.

News Source: Singapore Business Review

The Guardian/27 September 2017

Progress in making Britain’s homes more energy efficient has stalled, but the government could salvage billions in wastage by taking a few key steps, a new report with wide backing has found.

Ministers are preparing a new “clean growth” plan after the scrapping of the green deal, which left the UK without a government policy on making homes more energy efficient and tackling fuel poverty.

Ministers have also abandoned regulations for all new homes to be constructed to zero-carbon standards, leaving housebuilders with little obligation to build new homes to energy efficient specifications. As a result, the rapid improvements to efficiency in the UK’s housing stock seen before 2015 have stalled.

Now a new report, Affordable warmth, clean growth written by Frontier Economics, has won the backing of more than 20 organisations, including green campaigners, thinktanks, companies selling insulation and services, and the energy companies E.ON and Npower.

The 88-page report recommends:

• reinstating a requirement for new homes to be zero carbon by 2020
• bringing all existing homes up to an energy performance rating of C, midway on the current A to G scale, by 2035
• assisting all low-income households to achieve such a rating by 2030, through subsidies
• changing stamp duty to offer rebates on buying homes that are improved to a good standard
• tax breaks for private sector landlords who install efficiency measures, such as insulation
• 50% subsidies to social sector landlords, such as housing associations, which make their housing stock more energy efficient

In the decade from 2004 to 2015, gas consumption for typical dual fuel households fell by 37% and electricity usage by 18%. This was in part because of the installation of insulation, but also improvements in technology, such as new boilers and new lightbulbs.

However, after the demise of the green deal in 2015, there has been a halving of the annual investment in domestic energy efficiency, and an 80% decline in the number of improvement measures installed in homes between 2012 and 2015.

This leaves huge scope for cost savings, which could benefit UK consumers to the tune of more than £7bn if improvements were carried out, or the equivalent of six Hinkley Point C nuclear reactors, according to a recent report by the UK Energy Research Centre.

Reuters/27 September 2017

SYDNEY/MELBOURNE (Reuters) – Australia’s three east coast LNG plants have staved off threatened export curbs after promising to plug a projected domestic gas supply shortfall in 2018, Australian Prime Minister Malcolm Turnbull said on Wednesday.

The agreement follows six months of government pressure on the producers of liquefied natural gas (LNG), led by Royal Dutch Shell, ConocoPhillips, Origin Energy and Santos Ltd, who have been blamed for sapping the local market of gas and driving up prices.

The Australian Energy Market Operator (AEMO) this week projected there would be a gas shortfall of between 54 and 107 petajoules in 2018, or up to 17 percent of demand, which the companies have now vowed to supply.

“They have given us a guarantee that they will offer to the domestic market the gas that was identified as the expected demand shortfall, by AEMO, in 2018,” Turnbull told reporters in Sydney after meeting with the three LNG operators.

The threat of export controls on the three LNG plants had raised alarm about sovereign risk, especially for the investors in those plants and their Chinese, Japanese, Korean and Malaysian customers.

Gas has become a hot political issue as soaring prices are hurting households and threatening jobs at manufacturers like food, building materials and chemical producers, as well as driving up electricity prices, as gas-fired power is needed to back up wind and solar energy.

To deal with the crisis the government passed a law earlier this year that would allow it to limit exports from any of the three LNG plants on the east coast to beef up local supply in any year that it deems there will be a shortfall.

For 2018, the export controls will now not be invoked.

“We are very pleased to contribute to a solution which will provide certainty for Australian customers to have access to available gas,” Australia Pacific LNG chief executive Warwick King said in emailed comments. Australia Pacific LNG is run by ConocoPhillips and Origin.

Shell said it had set up an Australian trading business because it saw an opportunity to sell gas from Queensland to customers in the country’s southeast, where there is little competition among suppliers.

The deal did not include a guarantee on prices. Turnbull said prices would “vary with the global price.”

The Australian Competition and Consumer Commission this week flagged that producers were offering gas at A$10-$16 a gigajoule to industrial users, well above the forecast Asian LNG price for 2018 netted back to Australia plus local pipeline costs, which worked out to A$7.77.

“The new announcement should open up the market for contracting again and flush out the real demand, as the 107 PJ supply shortfall announced by AEMO remains highly questionable,” said Wood Mackenzie analyst Saul Kavonic.

News Source: Reuters

Reuters/27 September 2017

TOKYO (Reuters) – JXTG Nippon Oil & Energy Corp, Japan’s biggest oil refiner, said on Wednesday it will shut its Muroran petrochemicals plant due to falling demand for gasoline in Japan.

Muroran mostly produces feedstock for plastics, with gasoline as a byproduct, but falling demand for gasoline due to a declining population and more efficient cars means it is running at a loss, JXTG Executive Vice President Takashi Noro said.

JXTG will halt output from Muroran in March, 2019 and convert it to a terminal for storing and shipping oil products. The company will discuss the future of about 230 staff with the plant’s union, Noro told a briefing.

Muroran was once a 180,000 barrels-a-day oil refinery that was converted to a petrochemicals complex in 2014 as Japan’s government pushed the country’s bloated refining industry into the biggest shake-up in its history.

It was owned by JX Holdings which merged with TonenGeneral Sekiyu in April to create JXTG. Two other Japanese refiners, Idemitsu Kosan Co and Showa Shell Sekiyu are also planning to merge.

In the year through March, Muroran produced 430,000 tonnes of feedstock for paraxylene, which is used to make plastics, and 160,000 tonnes of cumen, a material for making components in computers and mobile phones.

Muroran also produced about 5.3 million barrels of gasoline and nearly 2 million barrels of kerosene.

The petrochemical products are exported to Ulsan Aromatics in South Korea, which JXTG owns with SK Innovation. JXTG said it would continue to supply Ulsan with feedstock from others plants in Japan.

JXTG shares ended down 2.4 percent, while other refiners were up and the Nikkei 225 closed down 0.3 percent.

News Source: Reuters

Reuters/27 September 2017

WASHINGTON (Reuters) – The U.S. Environmental Protection Agency said on Tuesday it has granted Puerto Rico a temporary waiver allowing it to burn high sulfur diesel in generators used for emergency purposes as the island recovers from Hurricane Maria.

The EPA said the waiver that allows the burning of fuel that pollutes more would last through Oct. 15.

News Source: Reuters