China replaced South Korea as the world’s second-largest LNG importer in 2017, and again surprised the market in 2018 with a counter-seasonal conundrum of summer shortage and winter oversupply. But as the energy-consuming giant of Asia continues to grow its LNG infrastructure, and industry players focus on achieving stable and reliable supply, the spot market may be exposed to fewer shocks originating from China in the future. The trading frenzy seen in 2017 started to cool early 2018, visible in a steep backwardation structure in Asia LNG spot prices rolling from winter into spring. The day-on-day price drop was at $1.25/MMBtu, when the Platts JKM assessment rolled into the new front month of March from February on January 16, 2018, compared to a mere $0.21/MMBtu drop same day in 2019. The Chinese were at the forefront of the market between October 2017-February 2018, procuring winter spot amid tight global supply and colder-than-expected weather in North Asia. The irreversible part of their demand arose from a politically led coal-to-gas switch in 2017 that resulted in the replacement of coal-fired boilers in more than four million households. The additional upside volatility was attributed to several cold-snaps sweeping across the country and its neighbors, destabilizing gas flows into the massive Central-Asia pipe system that underpins China’s residential winter heating demand. Natural gas imports from Central Asian countries were then diverted, due to a surge in their own demand amidst a colder winter, sources said. That caused a supply crunch in the Chinese market, sending shocks down to the domestic trucked LNG prices and the residential sector – an undesirable situation that the state planner NDRC would never want to repeat. Tight summer market While the market expected supply to loosen up stepping into spring and summer 2018, the country continued to surprise on the upside. Maintenance works were carried out at some of the major gas pipelines, to prepare far ahead for winter 2018/19, as NDRC is under political pressure to ensure energy security for the residential sector during the heating season of mid-November to mid-March. The national oil companies (NOCs) were heard to have restricted both LNG and gas supply in the southern and eastern regions on persistent market tightness. In summer, electricity for air-conditioning and industrial usage make up the bulk of China’s LNG demand, notably in the warmer and production-heavy southern regions. To make matters worse, a sustained oil price rally between March and October 2018 kept LNG procurement costs buoyant in the international market, as LNG term contracts were predominantly signed on an oil-linked basis. The NOCs that did not expect a tight summer previously and refused to pay up in the spot market for additional cargoes, then had to put a cap on LNG send-outs. Summer tightness also set high price expectations for winter. With the fear of staying short for winter, the Chinese were prompted to rush and sign up for winter strips earlier in the year. Trade war effects filter in Summer strength did not last long however. Once the domestic supply shocks were over, soft fundamentals in the downstream market started to pass on bearish signals. As US-China trade tensions cast uncertainty over the economy, the government saw a rising need for economic stimulus in reviving the manufacturing sector. There were several cuts in power prices by NDRC in 2018 with the aim of cutting costs for the industrial and commercial sectors, restraining profits for transmission grid companies and major power generators. Domestic supply glut A downturn in the Chinese economy, led by the China-US trade war, had a gradual but profound spillover effect on LNG demand in winter 2018/19. The pace of coal-to-gas switching slowed notably, as decision-makers relaxed the pressure to replace coal-fired boilers. That was based on both a weaker economy and the fear of a severe backlash to repeat on gas shortage, like the one happened last winter. In contrast to the previous winter, the massive crowd of smaller industrial users who wanted to buy “every molecule of available LNG in the domestic market” – as sources put it – were absent. “There’s no way to support usage of such an expensive fuel, when the economy is cooling”, said an end-user. Smooth and stable imported gas flows through the Central-Asia pipes, coupled with soaring gas production, also contributed to a saturated domestic market. NOCs were faced with chronic bottleneck issues due to limited regasification and storage capacity. Utilization rates were already higher year-on-year and stretching infrastructure limits, with some terminals running at or above nameplate capacity. In the spot market, both the NOCs and independent buyers embarked on a selling spree, in an attempt to clear away unwanted yet expensive LNG, and ease their “tank-top” issues. There was talk of more than 10 cargoes floating around the Chinese terminals from end-November to early-December, with some being deferred or diverted. Significant bearishness continued to feed in towards the end of winter, with the realization later that China would not be on the buy side in the spot market scene. The new normal While Chinese demand fell short of reviving the winter spot market, the country still posted an impressive year-on-year growth of 35% in LNG imports 2018, albeit lower than the 50% hike in 2017. With a total of 51 million mt LNG imports in 2018 and the current massive expansion in LNG storage and regasification infrastructure, China is on track to overtake Japan as the world’s largest LNG buyer by 2022, reaching 73 million mt/year, as forecast by S&P Global Platts Analytics. However, as Chinese buyers rush out to sign short-term strips and long-term contracts in an attempt to fill up new regasification capacity – in the interests of energy security and supply stability – little room could be left for spot trade growth despite an overall growing pie. In the coming years, the policy-driven growth in China’s LNG demand has now been accepted by many as the new normal, rather than a surprise factor. The post Chinese LNG goes counter-seasonal: summer shortage, winter overdose appeared first on The Barrel Blog. from https://blogs.platts.com/2019/03/06/chinese-lng-goes-counter-seasonal/
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Steel tariffs and the looming end of the tax credits in 2020 could slow the booming wind build out in the coming years. Solar and wind energy are expected to be the fastest growing sources of US electricity generation over the next two years, according to the US Energy Information Administration. EIA’s January 2019 Short-Term Energy Outlook forecasts wind generation to grow by 12% in 2019 and 14% in 2020, even while total U.S. electricity generation across all fuels will fall by 2% this year and then show very little growth in 2020. Electricity generated from wind this year will surpass hydropower generation, as the share of total U.S. electricity generation produced by all renewables, excluding hydropower, will increase to 13% of total generation in 2020 from 10% in 2018, according to EIA. However, the introduction of a 25% tariff on steel imports one year ago changed trade flows and set off a chain reaction of retaliatory tariffs and additional safeguard measures from other countries. “The tariffs are increasing the cost of wind energy and will reduce our ability to grow, and in fact, we may end up laying men and women off because of these tariffs,” said Tom Kiernan, American Wind Energy Association president and CEO, in a General Electric video titled “The Trade War on Wind.” The tariffs helped push domestic steel prices to eight-year highs. Steel plate is a major input in the construction of wind towers. The US price for steel plate surged by 66% between November 2017 and December 2018 on the back of the tariffs and improved demand from energy markets, particularly from oil and gas midstream companies for pipeline projects. Still, most of the price increase occurred during the first quarter of 2018 when prices rose by 29% and remained mostly stable through the remainder of 2018. Denmark-based Vestas, which in 2018 surpassed global installations of 100GW of wind turbines with the completion of the 250MW Arbor Hill project in the US, has raised concerns surrounding the impacts of the tariffs. The company has production facilities located globally, with US operations based in Colorado. “Considering the amount of steel and many key parts in a wind turbine, Vestas is naturally not immune to those kinds of tariffs,” Vestas said in its annual report 2018. “The eventual impact obviously depends on numerous factors and with details changing daily, Vestas continues to monitor and explore multiple avenues of mitigating the impacts.” Projected renewables growth is coming from new generating capacity, including about 11 GW of wind scheduled to come online in 2019, which would be the largest amount of new wind capacity installed in the United States since 2012, according to EIA. An additional 8 GW of wind capacity is scheduled to come online in 2020 to push the total US generation from wind up to 9% in 2020 from 7% in 2018, according to EIA. Go deeper: S&P Global Platts podcast on US wind power development and steel price impacts The Electric Reliability Council of Texas, which represents about 90% of the state’s electric load, currently has nearly 21.8 GW of installed wind capacity, the most of any state in the nation, with plans to add more than 7 GW this year and another 6.7 GW in 2020, according to ERCOT. In the neighboring Southwest Power Pool, which covers all or parts of Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming, there is currently 21.5 GW of installed wind capacity with 64 GW of wind in all stages of study and development across its footprint. SPP has about 10 GW of unbuilt wind with signed interconnection agreements, and expects nearly 23 GW of wind generation to be installed in 2020, with between 28 GW and 33 GW forecast for installation in 2025, according to SPP data. Meanwhile, the California Independent System Operator has about 6,505 MW on installed wind capacity. “We have about $150 billion invested in wind energy across the country and its’ exciting because we’re approaching 10% of all electricity in this country is from the wind industry,” Kiernan said in the video. “We’re looking at a significant growth in the coming year. We now have over 100,000 people working in the industry. We expected another 50,000 jobs by 2020. “We will not be able to invest in facilities here in our country because of the tariffs.” The tariffs could eliminate up to 21,000 American jobs, mostly in rural America where these jobs are desperately needed, according to the AWEA. It will also put thousands of domestic manufacturing jobs at risk as the wind industry reduces US manufacturing of wind components in states like Colorado, Texas and Ohio. In addition, the tariffs could devastate already struggling farming and ranching families in states like Kansas, Oklahoma, North Dakota, and South Dakota, who count on turbine land-lease payments as a drought-resistant cash crop. The other issue looming over the future of wind projects is the end of the federal renewable electricity production tax credit. This is an inflation-adjusted tax credit paid per kWh of electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. The duration of the credit is 10 years after the date the facility is placed in service. Currently, wind facilities commencing construction by December 31, 2019 can qualify for the tax credit, according to US Energy Department. Originally enacted in 1992, the PTC has been renewed and expanded numerous times, most recently by the Bipartisan Budget Act of 2018. However, as candidates begin to enter the upcoming presidential race, no one knows what will happen come election day 2020. If a new party comes to power, things could always change for tariffs and tax credit. The post Steel tariffs threaten US wind generation growth as input costs rise appeared first on The Barrel Blog. from https://blogs.platts.com/2019/03/05/steel-tariffs-us-wind-generation/ Historically high US crude exports have given a boost to spot rates for very large crude carriers making long-haul voyages east from the US Gulf Coast, a trend that is expected to continue into March and April, according to shipping sources. The cost of carrying crude on a VLCC loading on the USGC has been on a steady climb upwards since February 12, when rates for the VLCC 270,000 USGC-China route were at their lowest level since September 2018. Freight was last assessed at lump-sum $7 million March 1, up $1.6 million, or 29.6%, from the 2019 low of $5.4 million. Freight rates for the route were heard at the same level March 4. Exports of US crude reached a record for the week of February 15 at 3.607 million b/d, with the most recent week of February 22 maintaining those levels at 3.359 million b/d, US EIA data shows. The jump in US export volumes and high demand for VLCCs is apparent in vessel traffic flow. There have been 48 VLCCs booked for loading out of the USGC so far in 2019 – about five times the amount booked in the first two months of 2018 and a drastic difference to the two VLCCs that were booked during the same period in 2017. Brent-WTI spread attracts buyers Shipping sources expect that this uptick in crude exports will continue, with both March and April crude cargo itineraries looking as busy as February loadings. US crudes have been appealing to foreign buyers in recent weeks as the spread between Brent and WTI widened to over $10/b in mid-February. The 30-day rolling average spread between Brent and WTI swaps was about $8.62/b and the spread spent nine consecutive trading days wider than $9/b in February. While the Brent/WTI spread has narrowed in the past week – a trend that could be bearish for US exports – demand for US crudes could receive a fresh boost if trade talks between the US and China find a resolution. As WTI-based crudes have been priced at such steep discounts to other similar grades on the global market, they have been in strong demand. And in turn, it has created a high demand for tankers to haul US crudes to international destinations. “It’s a general trend, exports are now consistently above 2.5 million b/d and all things held equal I think each month will be bigger than the last month,” one shipowner said. “There are local factors that will affect it from time to time but that is the trend.” Shipping rates stay high Freight for the VLCC 270,000 mt USGC-China route reached a 2019 yearly high of lump-sum $7.4 million on January 16, reaching its peak after rates were steady to higher for seven consecutive days as a flurry of fixtures were reported for second half of February crude cargoes, when export volumes soared. Rates for USGC-loading VLCCs moving east have not fallen below lump sum $5.4 million since September 26 2018, when charterers were fixing for third decade October VLCC cargoes. Rates have seen steady support as US crude exports have remained above 1.9 million b/d since mid-October, according to US EIA data. Although freight for the USGC-origin long-haul routes has seen intermittent weakness in rates, market levels have held above those prior to Q4 2018 and are expected to remain strong, according to shipping sources. Freight rates for the USGC-China VLCC route have averaged lump sum $6.63 million so far in 2019, $2.08 million, or 45.7%, higher than the average annual rate prior to the strength seen in mid-September 2018. Additionally, charterers have started looking towards VLCCs to take large crude cargoes across the Atlantic to Europe, a route typically seen made on smaller Suezmaxes and Aframaxes, on a combination of more favorable economics and a need to take larger volumes to European refiners. The post In the LOOP: Record US crude exports boost VLCC tanker demand, rates appeared first on The Barrel Blog. from https://blogs.platts.com/2019/03/05/loop-us-crude-exports-boost-vlcc-tanker/ The shipping industry faces a hike in costs and operational headaches as a result of IMO 2020 regulations that will cap the sulfur content of marine fuels. At the same time, new streams of product demand will be created, potentially benefiting some shipowners. The International Maritime Organization’s agreed limit of 0.5% sulfur content for marine fuel will come into effect next January 1 and its ramifications will span the shipping, bunkering, petroleum products and petrochemicals markets. While bunker costs are expected to go up and prices to increase in volatility, higher demand for low sulfur fuel oil (LSFO) and Marine Gasoil (MGO) will impact demand and supply of products ranging from gasoline to naphtha as well as gasoil and diesel. Go deeper – Read S&P Global Platts’ special report on the future of fuel oil after IMO 2020 The new regulations could present an opportunity for the clean tanker market, as demand to move middle distillates and light ends into and between bunkering ports and refineries is expected to positively impact demand. This would in turn lead to higher freight rates for clean tankers, and higher revenue for shipowners, counteracting increased fuel costs. But in order to profit from the changes a fine balance will have to be achieved between the tonnage capacity of clean tankers and expected demand for clean petroleum products. Troubled by over-tonnage In shipping economics, supply is defined as the available capacity to transport cargo in terms of tonnage. In 1990, a capacity of 659 million deadweight tons was navigating the seas according to data from the United Nations Conference on Trade and Development (UNCTAD) and Lloyd’s register. That capacity increased by 191% in 2018 to 1,924 million tons. Ever since freight rates plunged following the global recession in 2008, over-tonnage has been a constant concern to the industry, fuelled by the emergence of shipbuilding yards in Asia. In 2017, ships built in China, the Republic of Korea and Japan accounted for 90.5% of global deliveries according to UNCTAD. In January 2019, the clean tanker fleet size amounted to a total of 2,984 units, equivalent to 166.9 million deadweight tons. This is less than the previous five-year high reached in October 2016 of 2,948 units equivalent to 168.8 million deadweight tons but still represents a steady increase over the last two years, according to data obtained from Banchero Costa. The same research shows 140 clean tanker units are expected to be delivered in 2019, after accounting for delivery slippages. This represents a 44% increase compared to the amount of total deliveries in 2018, or an estimated 6.2 million of additional tonnage on the supply side of the market. That raises the specter of an oversupplied market, which would lead to lower freight rates and a challenging environment for shipowners if not matched by an increase in demand for clean petroleum products. Clean tankers for clean products The market seems to think the demand will be there. According to the Marine Fuel Market Outlook from Alphatanker published in 2018, the extra volumes of clean low sulfur products that will be required following the start of the regulation in January 2020 far outstrip what is currently available, both in terms of quantities but also locations, accelerating clean tanker demand. Many bunkering ports and refueling facilities will have to switch from their current stocks to greater supplies of MGO, LSFO and low sulphur blends. The regulation is expected to boost demand for clean tankers carrying MGO specifically, as it is a tried and tested low sulfur fuel blend, and owners are keen not to risk wrecking their engines as new blends come onto the market. In addition the quantity of middle distillates shipped globally will increase, as import requirements are expected to rise over the coming years, especially in the Atlantic. It will become economically viable to transport ever-larger cargoes, potentially rivaling the cargo sizes seen in the crude market but difficult to obtain in the clean petroleum product market, such as Suezmax stems, representing close to a 1 million barrel capacity. Recent trans-Atlantic time charter rates show the significance of the looming IMO 2020 regulation for the market. Time charter rates for a Medium Range tanker carrying a 37,000 mt cargo of clean petroleum products from the UK Continent to the US Atlantic Coast fell briefly to $2,000/day in July, 2018 before skyrocketing to $17,500/day in December, of the same year according to data from EA Gibson Shipbrokers’ Research. Diesel and gasoline demand is currently high, in turn creating demand for clean tankers. The trend for strong consumption of clean products is expected to continue into 2020. Shipowners and operators are continuing to consider and adopt various strategies according to the UNCDA review of maritime transport published in 2018, such as installing scrubbers and switching to liquefied natural gas and other low sulphur fuels in order to ensure the correct following of the regulation and tackle future increased bunker costs and volatility. Nothing guarantees a corresponding increase in the revenues from charterers. But clean, coated tankers stand a better chance of riding along the same wave of increased product demand that IMO 2020 will generate. A shipping hall-of-famer once said: “My grand The post IMO 2020 could hold silver lining for clean tanker market appeared first on The Barrel Blog. from https://blogs.platts.com/2019/03/04/imo-2020-silver-lining-clean-tanker/ In a week dominated by geopolitical headlines, oil diplomacy was also high on the agenda. Despite a schedule that included a high-profile summit in Hanoi, US President Donald Trump found time to tweet his view of crude prices to OPEC, ahead of a meeting between US and Saudi officials. OPEC’s next regular biannual meeting will take place June 25-26 in Vienna. Meanwhile the so-called NOPEC bill is starting its path through the US legislative process, even as the country’s energy secretary Rick Perry warned it threatened an oil price spike. IMO 2020 A shift to low sulfur marine fuel is imminent under new rules starting on January 1, 2020. S&P Global Platts editors discuss the implications across the shipping sector. GRAPHIC OF THE WEEK LNG trade flows in 2018 shifted from demand pull into Asia to supply push into Europe. In 2019 surging US supply is likely to accentuate that shift into Europe, due to a weaker JKM outlook, according to S&P Global Platts Analytics. These visualizations were presented by S&P Global Platts during an LNG panel at the London Oil and Energy Forum 2019 TRADE WARS US extends China trade tariff deadline The US is pushing back its deadline to raise tariffs on $200 billion of Chinese imports, a move likely to boost crude oil and LNG trade flows, especially if trade tensions ease in the longer term. US wants to drop metals tariffs on Canada, Mexico but resolution unclear: Lighthizer The US “very much” wants to come to an agreement with Canada and Mexico regarding alternate arrangements to the US Section 232 tariffs on steel and aluminum, however, whether such an agreement will be reached remains unclear, US Trade Representative Robert Lighthizer said. METALS Chile’s SQM to hold back lithium production as global supply grows As EV growth propels demand for battery metals, Chilean SQM, the self-described largest lithium producer in the world, shed light on its view of the lithium market in 2019. OIL PRODUCTS Analysis: New PDH plants to drive China’s LPG demand, trade war a concern New propane dehydrogenation, or PDH plants, will drive China’s appetite for LPG in 2019, but the rate of demand growth will be slower than previous years because of the US-China trade war and the rising use of natural gas by the residential sector. THE LAST WORD “There is a need today for us to supply the energy the world needs. There are different needs for different people and that’s what we need to explain as an industry,” said Amin Nasser, Saudi Aramco CEO, at the IP Week conference in London. Nasser said the industry faced a “crisis of perception” and urged his audience to “push back on exaggerated theories like peak oil demand,” referring to the view that oil consumption could peak as soon as the next decade. The post Energy and commodities highlights: Oil diplomacy, global LNG flows, trade wars appeared first on The Barrel Blog. from https://blogs.platts.com/2019/03/01/oil-lng-trade-wars-highlights/ As oil majors and investors grapple with the upheaval of the energy transition, some traditional metrics for producers’ long-term growth potential are up for debate. Climate change, the renewable energy boom and electrification are throwing demand scenarios for oil and gas wide open and casting a shadow over future returns in the sector. Where a company’s production-to-reserve ratio, or reserves life, was once a proxy for business sustainability, many now see exposure to stranded assets in reserves either too expensive or polluting to extract. Shell, which has only replaced its annual production with new reserves twice since 2011, faced analyst scrutiny this month after reporting its reserves slumped to fresh lows due to divestments and the writedown of a troubled Dutch gas field. The Anglo-Dutch supermajor is now able to maintain just 8.4 years of current production with its proved reserves, the lowest reserves life ratio of its oil major peers. Fielding questions over its upstream growth potential, Shell said it is pursuing a “value before volume” rationale, happy to ditch reserves in lower value projects in favor of higher margin developments such as North America and Brazil. “I do want to stress that not all barrels are created equally, and that we will not chase production volumes on reserves, but we will continue to focus on cash generation and returns,” CFO Jessica Uhl told analysts on an earnings call. One challenge is the reliance on US Securities and Exchange Commission’s proved reserves reporting to analyze true exploration performance. Shell claims it is being penalized by the US SEC reporting rules which don’t allow reserves from LNG projects to be booked without a third-party sales contract. As the world’s biggest integrated gas player, Shell markets a lot of its own gas, which keeps some proven reserves off its books. Booking US shale reserves is also problematic. SEC rules allow proved status for shale that can be profitably tapped in the next five years. With economic recoverability tied to short-term well costs, efficiency gains and prices, shale bookings can be more fickle than conventional projects. Different strokes Shell ‘s approach to reserves is by no means unique. Quality, not quantity, of proved reserves has become the new mantra for oil company executives, particularly as higher-cost projects such as Canadian oil sands and remote, deepwater fields were shelved in the wake of the 2014 oil price slump. The cost curve for resource development is now the battleground being fought over, with oil majors promising ever tougher discipline and efficiency to approve projects that can turn a profit at below $40/b. Total’s CEO Patrick Pouyanne told analysts this month he is confident that the company’s 20 years of proven and probable reserves life — a much wider measure than just proved — is more than enough to feed its longer-term growth as they can all be developed profitably at $50/b. Like most of its peers, the French major has seen its proven reserves slip in recent years. At the start of 2018, however, its proved reserves could still meet over 12 years of production, broadly the historic benchmark for most oil majors. Others take a more traditional view of growing their reserves. In the US, ExxonMobil prides itself on consistently growing its reserves, which were able to cover 14 years of production at the start of 2018. The oil giant is not slowing down either. Last year it made the biggest haul in the industry, discovering close to 2 billion barrels in gross resources off Guyana. Italy’s Eni also takes a more traditional view of reserves as a marker of business sustainability, but only because it sees organic growth as a more reliable source of low-cost resources to future proof its reserve base. Fresh pastures? Keeping upstream costs in check by passing over harder-to-pump, lower-margin reserves, known as “portfolio high-grading”, is also being fueled by the growing clamor for energy companies to walk in step with the Paris climate goals. The potential for a much faster than expected, policy-driven shift to low-carbon energy also makes guessing the future market for oil and gas more tricky. But oil majors believe concerns over peak oil demand, at least, are premature given the ample resources in the ground and the difficulty of displacing oil in key sectors such as aviation and plastics. BP’s chief economist Spencer Dale, for example, is sanguine about the impact on IOCs of even the most pessimistic scenarios for oil demand in the coming decades. Under a “Rapid Transition” scenario of radical switching to cleaner fuels compatible with meeting the Paris climate goals, oil demand would be slashed by around 28 million b/d in 2040 to 80 million b/d, BP estimates. Even under this scenario, however, oil and gas would still provide half of the world’s energy needs in 2040, Dale points out, providing plenty of growth room for hydrocarbon producers. “If we can produce amongst the cheapest oil of the 80 million b/d demand in 2040, then we can carry on producing that oil,” he said, presenting BP’s latest long-term energy outlook. For that reason, Dale believes simple market forces will generate the returns for the “trillions of dollars” needed to develop existing and future oil and gas resources in the years ahead. With the world’s five top oil supermajors producing less than 10% of the world’s oil, Dale notes, a company like BP would only need to take a “tiny fraction” of market share to carry on growing its oil production for decades. But that’s still a big “if”. Barring major economic and political reforms, access to the world’s cheapest oil and gas is largely off-limits to IOCs in places like Saudi Arabia, Iran, Kuwait, Russia, and Iraq. Still, if BP’s optimism over future demand proves correct, success through the drill bit may remain a key sector performance marker for the foreseeable future. The post Oil majors wrestle with reserves as industry health measure appeared first on The Barrel Blog. from https://blogs.platts.com/2019/02/28/oil-majors-reserves-health-measure/ US-China trade tensions were in the spotlight last year across commodity markets, and the petrochemicals sector was by no means untouched. Antidumping duties introduced by China on the imports of some origins of styrene – used to make packaging and other plastic and synthetic rubber products – altered trade flows significantly. One result has been an increase in trading activity within Europe. Growing plastics and fibres demand was behind supply tightness in paraxylene and its entire supply chain in another trend that is poised to continue. Meanwhile other products may have to grapple with continued oversupply – including the gasoline additive MTBE and key feedstock benzene. In a recent webinar, S&P Global Platts analysed the prospects for the European aromatics sector in the first half of 2019, while market participants were polled on the biggest price and fundamentals questions of the moment. Antidumping measures In the styrene market, China implemented antidumping duties on the US, Taiwan and South Korea, ranging from 3.8%-55.7%, with the US attracting duties on the higher end of the range. The US is a major producer and exporter to China, and the higher cost of imports from the US led to a surge in costs to the Chinese end user. This caused US styrene demand to plunge and prices fell to be the lowest globally. With limited purchasing options, China prices rose to be the highest globally, with European prices between the US and China. Asia’s increasing importance as a destination for European styrene means the region’s demand will be watched carefully by producers in 2019. The majority of participants polled during our webinar expected the European styrene market to feel the effect of increased Asian consumption in Q2 this year. Styrene demand from China waned in the lead up to the Lunar New Year holidays. However, this is set to pick up now that the market has returned from holidays. Although Chinese inventory levels were last reported over 200,000mt, supply is still outstripping consumption. Go deeper: Request a copy of S&P Global Platts aromatics outlook presentation Fibres and plastics spur growth Supply tightness was more clearly in evidence in the xylenes chain, due to strong demand for paraxylene (PX) – a key feedstock for polyester fibre and plastic bottles. This strong demand and tightness of supply can most readily be seen by the margin over PX feedstock, naphtha, in the graph below. The strength seen in the market is particularly apparent from August 2018, where there was a sharp fall in spot prices, driven by sharp falls in crude oil. However, the margin over feedstock naphtha remained, and still remains, at very attractive levels, the likes of which have not been seen for around 6 years. For the rest of 2019, market participants are expecting margins to remain at these attractive levels for three reasons. First, many believe there will be delays to new capacities due to open in China this year. Secondly, even if these plants do open, there are plans in Asia for significant growth in production of purified terephthalic acid (PTA) – an intermediary between PX and polyester and plastic bottles. Finally, demand for polyester is expected to grow at substantial rates over the next few years, placing even more demand on PX. Back in Europe, the new Artlant PTA plant in Sines, Portugal, will need to secure feedstock. Webinar participants thought the most likely source would be the Middle East. The region is a logical supplier given that the transport route is well trodden. Thai petchem producer Indorama sends material from the Artlant plant to Egypt – and transport costs are relatively low. More capacity is also coming online in the Middle East, including in Turkey near Socar’s STAR refinery. MTBE market awaits seasonal shift In MTBE – a petrochemical product mainly used as a gasoline blendstock – the expectation is that 2019 will bring some “normality” back to a market where seasonal variations typically drive demand and supply. Gasoline blending is expected to again be the main driver for MTBE demand. The market has been in a quiet season, as blenders expect to sell off their stocks of winter grade gasoline during January and February, to start blending summer grade product. On the supply side, Europe is typically structurally long because of its production capacity, and likely to remain so. Should Europe need volumes, flows could potentially come from Latin America and Arab Gulf. Typically, export destinations are West Africa and Mexico. The MTBE price trend usually moves according to seasonality requirements. As the graph above shows, MTBE prices dived in September due to declining demand in line with the gasoline specification change from summer to winter grade, and this is expected to be the case in 2019 again. Between February and March refineries and blenders typically start blending summer grade gasoline, which is higher-octane. MTBE is a preferred component because of its high octane stock and suitable volatility. Unusually, the MTBE factor, which reflects the relationship between MTBE and gasoline prices, also moved up towards the end of the year 2018. A higher factor typically reflects stronger demand for MTBE, however, the uptick was instead a result of heavy logistical constrains caused by the historically low Rhine water level, and is not expected to persist in 2019. Most market participants polled about European MTBE said they thought the current length would only partially be corrected between March and April 2019, when gasoline specifications switch from winter to summer grade. That view was based on expectations of rising demand but a lack of export opportunities. Benzene prices depressed Unlike in MTBE, benzene prices are expected to remain weak in 2019, continuing from steep falls in the last quarter of 2018. Benzene is used to make a wide range of industrial and consumer products from plastics and resins to drugs and pesticides. Benzene is suffering from oversupply that has depressed markets globally. In Europe, the situation is more likely to see short-term swings, but the first half of 2019 is likely to see little change the global supply side. Market players are looking to upstream steam cracker turnarounds beginning in earnest in April that could limit the amount of new material hitting the market. Benzene typically comes out of steam crackers, and while steam cracker maintenances may reduce production output of benzene in Europe, imports are expected to increase and will limit change to the oversupply equation. In 2018, total imports increased by 7-8% to approximately 900,000 mt. A key factor in this increase was higher levels of exports from Indian producers. These volumes are expected to continue growing in 2019, targeting both Asia and Europe. Indian producers have also said that changes in the pricing balance between Europe and Asia are unlikely to cause swings in export focus. The majority of participants in our webinar believed the benzene oversupply is here to stay in 2019, a clear cut response in line with indications in the wider market. Lessened supply from steam cracker maintenances will be offset downstream, as several styrene production plants have outlined turnaround plans for the year. A continuing low crude environment is encouraging greater cracking, while weak naphtha demand from the gasoline blend pool has seen more light naphtha grades heading into the petrochemical market. Supply pressure will also continue to be felt globally from benzene production through toluene disproportionation. This process converts toluene to paraxylene, with benzene emerging as a by-product. Downstream demand globally is booming, particularly in Asia, driving strong interest in PX that seems unlikely to fade in the near term. Reporting by Baoying Ng, Ben Brooks, Simon Price, Stergios Zacharakis and Olu Shaw The post Mixed outlook for European petrochemicals in 2019 as market digests new trade flows appeared first on The Barrel Blog. from https://blogs.platts.com/2019/02/27/mixed-outlook-european-petrochemicals-2019/ OPEC’s reduced oil production and US sanctions on Venezuela and Iran have translated into a considerable fall in crude imports into the Louisiana Offshore Oil Port so far this year. January to date, 8 million barrels of crude have been delivered at LOOP’s delivery point in Morgan City, Louisiana, down 66% from the 24 million barrels recorded in the same period of last year, according to the latest S&P Global Platts Analytics and US Customs Bureau data. In early January, OPEC members committed to cut production levels in line with 1.2 million b/d in the first six months of 2019. As a result, volumes exported by some of its members to the US have diminished to historic levels. In January and February, for example, there have been no imports of Saudi crude to LOOP. The last Saudi cargo it received, some 1.6 million barrels of Arab Light, was unloaded December 19. However, LOOP has gone longer stretches without receiving Saudi crude in the past: none was received from that country for the first five months of 2018. The lack of Saudi crude coming into LOOP – and the US Gulf Coast more broadly – is a stark contrast to previous years, when Saudi Arabia was a major supplier. Some 7 million barrels of Saudi crude was imported at LOOP in 2018, a steep fall compared with 42 million barrels imported in 2017 and 81 million barrels in 2016, the US Customs data showed. Saudi Arabia typically exports Arab Extra Light, Arab Light, Arab Medium and Arab Heavy at LOOP, with ExxonMobil and Marathon Petroleum on the buying side, according to the same data. For the US Gulf Coast region in general, some 146 million barrels of Saudi Arabian crude was imported in 2018. That is compared with the nearly 200 million barrels that were imported into the region in 2017. Middle East alternatives Since fewer Saudi barrels are arriving in the US, Iraqi and Kuwaiti grades have been imported to replace some of them. Iraq was the main exporter of crude delivered at the port of Morgan City with 60 million barrels in 2018, which is 6 million barrels higher from 2017. Andeavor, which was later bought by Marathon, was the buyer of most of those Iraqi barrels. However, so far in 2019, the volume imported at LOOP from Iraq amounted over 5 million barrels, which is below the 16 million imported in the same period of 2018. A similar situation can be seen with Kuwait, the second-largest exporter to LOOP in 2018, after delivering 11 million barrels in 2018. However, in the first two months of 2019, only one cargo with 963,443 barrels of Kuwait crude has been reported, below 6 million imported in the same period of 2018, the US Customs data showed. Latin American volumes fall In addition to the fewer Saudi barrels available in the US, there have also been dwindling crude imports from Venezuela and Mexico as production has stagnated. Imports of Mexican Maya crude into LOOP amounted to about 6 million barrels in 2018, flat from 2017. However, only 1 million barrels have been recorded in 2019 at the Morgan City area, according to the US Customs data. Mexico is the top crude exporter to the USGC in general. Separately, US refiners in the LOOP region imported nearly 3 million barrels of Venezuelan crude in 2018, down sharply from 8 million barrels recorded in 2017. The last cargo of a Venezuelan grade delivered at the LOOP was October 12, 2018, with Marathon Petroleum as the buyer. On January 28, the Trump administration imposed sanctions on Venezuela’s state PDVSA, amid political tensions between US and Venezuela. The decision has been anticipated to cut nearly 500,000 b/d of Venezuelan crude exports to the USGC. As a result of the short supply, sour crude prices along the USGC have skyrocketed in recent months. Front-month Gulf Coast medium sour crude Mars reached its strongest differential in recent history on February 14, when it was assessed at an $8.10/b premium to WTI cash. The differential has not been higher since January 22, 2014, when it was at WTI plus $9.30/b. The post In the LOOP: Geopolitical disruptions slash US Gulf crude imports appeared first on The Barrel Blog. from https://blogs.platts.com/2019/02/26/loop-geopolitical-slash-us-crude-imports/ Premium quality crude oil barrels are currently at some of their cheapest ever levels in the global market, with supply imbalances causing quality spreads to narrow significantly and for sustained lengths of time. Derivatives of light, sweet Brent crude have fallen to record lows versus Dubai derivatives traded on the Intercontinental Exchange in recent weeks. All things being equal, a sour crude grade (with higher sulfur content), or one with a yield of more bottom-of-the barrel products such as fuel oil, would be worth less than a sweeter (lower sulfur), lighter crude that yields more premium product. However, a sharp downturn in global supplies of heavier, sourer crude barrels over the last few months has resulted in demand for these grades climbing, along with prices. The spread between March Brent and Dubai swaps, for instance, has been consistently assessed below $1/b since 18 January this year, according to Platts assessments as of 0830 GMT at the Asian close of trading. The swap spread also flipped into negative territory for one day during this period, coming in at minus 21 cents/b as of 14 February, but corrected back the next day. The same spread between front month Brent and Dubai swaps averaged $2.44/b over 2018. Similarly, the spread between April Brent futures and April Dubai swaps, or the Brent/Dubai EFS, dropped below $1/b on 23 January, and has remained under since. Although Brent/Dubai derivative spreads such as these have narrowed a handful of times in recent years, such phenomena are considered atypical and tend to snap back within relatively short periods of time. Narrowing quality spreads offer arbitrage opportunities, both on derivatives markets as well as for physical crude oil flows, and traders are quick to take advantage of them. The resulting activity usually rebalances the quality spreads, especially those on paper, within a matter of days. The front month Brent/Dubai swap spread, for instance, was last below $1/b on only two other occasions, once in 2018 and once in 2015. Both times, it snapped back within 5 days. The current streak has gone on for nearly two months. In mid-February, Dubai crude’s discount to Brent narrowed to its lowest on record amid tightening medium sour crude supplies from OPEC nations, including sanctioned Iran and Venezuela. The April Brent/Dubai EFS shrank to 21 cents/b at the close of Asian trading at 0830 GMT on February 14, a record low for the spread since S&P Global Platts started publishing it in August 2011. The EFS slid from a multi-year high of $4.42/b on April 30, 2018, to begin the year at $1.05/b as the momentum of shrinking supplies started to amplify. Meanwhile, production of lighter, sweeter crude grades, including from the US, is on the rise, adding to an oversupply of such grades globally. Venezuelan crude off limits Market watchers in Asia had initially expected Venezuelan crude to be diverted readily from the US to Asian markets due to quality and arbitrage opportunities. But the sanctioned Venezuelan crude oil has been unable to make its way to Asia despite favorable arbitrage economics, largely due to financial issues arising from the nature of the import ban. The new sanctions require any payment for crude from PDVSA to be deposited into blocked accounts within the US, effectively turning the US-centric ban into financial sanctions applicable globally, as one Singapore based crude trader put it. Go deeper: Factbox on PDVSA sanctions, Venezuelan oil output and trade flows The lack of Venezuelan barrels erases the possibility of easing supply tightness for Asian buyers, who are currently paying higher premiums for lower quality crude. Price differentials and valuations for higher sulfur, heavier crude barrels exported from the Middle East have risen faster than lighter, sweeter crude grades as a result of production losses of such crude from OPEC cuts, Iran sanctions and the Venezuelan ban. An offer for March loading Basrah Light crude with an API of 29.9 and 2.93% sulfur was sold at a 75 cents/b premium to its official selling price (OSP) earlier this month, while a similar offer for Basrah Heavy crude with an API of 24 and 3.83% sulfur was sold at a $1.15/b premium. The lower the API gravity, the higher the density of the crude grade. Later in the month, a second such cargo of Basrah Heavy crude was sold at a premium of $1.45/b to the OSP. All three purchases are likely to head to Asia, said trading sources. Meanwhile, price differentials for lighter, relatively lower sulfur grades such as Murban have traded in discounts. Murban cargoes for March loading traded at discounts of around 30 cents/b last month, while April loading cargoes trading this month have been sold for as low as minus 20 cents/b. The cargoes trade as price differentials against OSPs set for the month of loading. The post Crude supply imbalances slash Brent premium in wake of Venezuela sanctions appeared first on The Barrel Blog. from https://blogs.platts.com/2019/02/25/crude-supply-imbalances-slash-brent-premium-in-wake-of-venezuela-sanctions/ The global energy transition is well underway, but it was a week of mixed signals in the drive for decarbonization. In Europe, additions of wind power capacity in 2018 fell to their lowest level since 2011 and the outlook for investment is uncertain, sector association WindEurope said. Meanwhile, the EU struck an informal deal to enforce lower emissions from heavy goods vehicles. The rules would see new HGVs emit an average of 15% less CO2 by 2025 and 30% less by 2030 compared with 2019. Glencore was the latest commodities company to pitch its environmental commitments, as investor pressure on corporates mounts. The mining giant announced its intention to cap coal output by 2020 and focus on “commodities essential to the energy and mobility transition,” such as copper, cobalt and nickel. Despite widespread bullish views on EVs and commodities that are expected to power the transport revolution, S&P Global Ratings sounded a cautious note. In a report Friday, the company stressed that government policies and battery technologies will be major factors in the rate of growth. IP WEEK As the industry flocks to London for IP Week 2019, Platts editors discuss the big oil topics that will be in the spotlight at the event. GRAPHIC OF THE WEEK US marks one year of VLCC oil exports from LOOP as new ports line up OIL Saudi Arabia seeks stronger commitment from Nigeria on OPEC oil cuts Saudi Arabia has demanded greater adherence to oil production cuts by Nigeria in a bid to balance global oil markets and shore up prices, a Nigerian government statement said Wednesday. GAS EU envoys endorse draft rules for Russia’s Nord Stream 2 gas link: source EU ambassadors have endorsed an informal accord on new rules for operating offshore natural gas links like Russia’s planned 55 Bcm/year Nord Stream 2 link to Germany, an EU diplomatic source said Thursday. SHIPPING Interview: About 8% of bunkers consumed in 2020 likely to be scrubbed: MECL MD Despite recent announcements by some ports on banning wash water discharge from open-loop scrubbers in their waters, about 8% of total bunkers consumed in 2020 will be scrubbed to meet compliance with the International Maritime Organization’s global sulfur limit rule for marine fuels, according to Robin Meech, MD at Marine and Energy Consulting Limited. THE LAST WORD “The importation of motor vehicle parts is not a risk to our national security, and not a single company in the domestic auto industry requested this investigation,” said the US Motor & Equipment Manufacturers Association. The group, along with European car manufacturers, was warning against potential new US tariffs on foreign-made vehicles and parts. The post Global energy transition, IP Week preview, IMO 2020: The week in energy and commodities appeared first on The Barrel Blog. from https://blogs.platts.com/2019/02/22/global-energy-transition-ip-week-preview-imo-2020-the-week-in-energy-and-commodities/ |
About MeHi I am Robert Keasler 35 years old, I am mine Engineer currently attached with local petroleum exploration company. In free time mostly search for some better opportunity online. ArchivesNo Archives Categories |