SOCAR is planning to spend up to $5 billion on an oil refinery in the west of TurkeyViewThe State Oil Company of Azerbaijan (SOCAR) is planning to spend up to $5 billion on an oil refinery in the west of Turkey on the Aegean Sea, with $3 billion of that looking to be financed by Turkish and international lenders. SOCAR will build the refinery in a joint venture with Turcas Energy, with some of the refined products to be supplied to Petkim, the SOCAR-owned Turkish petrochemical company. The refinery will be Turkey’s fifth and will process around 10 million tonnes of crude per year, producing roughly 1.3 million tonnes of naphtha, 4.9 million tonnes of diesel and 1.63 million tonnes of jet fuel per year. Production is estimated to begin around mid 2017. The other four refineries have a combined capacity of around 28 million tonnes per year, meaning Turkey currently imports the majority of its growing product needs.
Mozambique coal mining activities ViewIn an announcement that should come as no major surprise, Vale have made a significant reduction in their forecast for this year’s coal exports from Mozambique. The Brazilian multinational miner slashed its last estimated figures by 30% - from 4.9m t to 3.4m t. Mozambique’s issues with weak transportation infrastructure remain an ongoing factor of hindrance in unlocking their proven coal reserves. Sena Railway, the country’s only link between coal mining regions and the coast, has been disrupted twice this month and was closed for a fortnight earlier this year due to flooding. Mozambique’s rail and port constraints have previously lead Vale to a declaration of force majeure on coal shipment obligations. Concurrent to Vale’s rather dismal announcement, in what seems to be a growing trend of Chinese investment in Africa, China Kingho Group have made plans to build port and rail facilities in Mozambique. Development of proper economic institutions and the nation’s logistics infrastructure is thought to be key to Mozambique moving to higher convergence clubs. The African nation will need to attract further private foreign direct investment if it is to propel its coal mining industry to the same exporting capacity as neighbouring South Africa.
Essar Oil, China Development Bank and PetroChina sign 'debt for fuel' dealViewEssar Oil, India’s second largest private refiner with a 405,000 bpd refinery at Vadinar in western India, is to sign an agreement with China Development Bank (CDB), the world’s largest policy bank, and PetroChina in a $1 billion ‘debt for fuel’ deal. Essar Oil’s owners have been replacing its rupee debt with lower cost overseas loans and is said to have re-financed close to $500 million so far. In return for CDB raising $1 billion for Essar, PetroChina will sign a 7-10 year ‘off take’ agreement with Essar for a fixed amount of products over the period to cover the loan plus interest. The deal is thought to also tie-up the two oil companies in a long term deal on crude supplies, with Essar looking to import ultra heavy Latin American crude from PetroChina, where the Chinese major is heavily invested.
Weekly oil price reviewViewAfter international crude prices ended last week with little change, Brent and WTI took a hammering on Monday on the back of poor oil demand in China as well as US gasoline sales data. China’s April refinery throughput dropped to 9.36m bpd, the lowest in eight months, whilst US April gasoline sales fell 4.7%, the biggest drop in more than four years. Monday’s Brent prices settled $1.09/bbl lower at $102.82/bbl with WTI down $0.87/bbl to $95.17/bbl. The fall continued the next day, with WTI losing nearly $1/bbl as the latest IEA Medium-Term Oil Market Report reported future world oil demand can be met by rapid production growth in the non-OPEC region. However Wednesday saw crude prices reverse from the downward trend on the back of news of tight supply for North Sea June loading, combined with technical adjustment after two days of losses. Despite poor US jobs data, Thursday saw Brent June futures expire $0.12/bbl higher at $103.8/bbl with WTI settling $0.86/bbl higher at $95.16/bbl due to the weaker dollar.
Chinese refinery throughput dropped to 9.36m bpd in AprilViewAccording to China’s National Bureau of Statistics, the country’s refinery throughput dropped to 9.36m bpd in April, the lowest since August 2012, down from 9.65m bpd in March. The weak refining data was primarily due to the country’s refining sector entering its first month of maintenance, however weak refining margins, sluggish fuel demand and high fuel stockpiles were also contributing factors. The country’s apparent oil demand in April slipped to 9.66m bpd, also the weakest since August last year. Sinopec, the nation’s biggest refiner, saw margins fall to $0.80/bbl in Q113 from $1.50/bbl in the previous quarter, according to Bernstein Research. China has been a net exporter of diesel since Q412 on the back of high diesel stocks and weak domestic demand, with diesel exports reaching record levels in Q113 of 1.05 million tonnes, up 368% versus Q112.
Global oil demand for 2013 remains unchanged at 90.6m bpdViewAccording to the latest IEA monthly report, global oil demand for 2013 remains unchanged at 90.6m bpd, up 795,000 bpd year-on-year. Non-OECD demand is projected to overtake OECD demand during the second quarter of this year with the trend continuing throughout the forecast period. In its bi-annual Medium Term Oil Market Report, the IEA said “the supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15”. Surging global oil production, led by tight oil, will boost OPEC spare capacity, peaking at 6.98m bpd in 2015 before declining to 6.13m bpd in 2018 as tight oil production peaks. In term of the refining sector, the report said surging refining capacity led by China and the Middle East will exert downward pressure on refining margins and utilisation rates, leaving OECD refineries at risk of closure, notably in Europe.
Kuwaiti refining capacity to rise to 1.4m bpd by 2018ViewAccording to Kuwait National Petroleum Co. (KNPC), the company is set to start reconfiguring its Mina Abdullah refinery and Mina al-Ahmadi refinery at an estimated cost of $16bn. The reconfiguration project will see the Mina Abdullah refinery capacity increase from 270,000 bpd to 454,000 bpd and the Mina al-Ahmadi refinery capacity reduced to 346,000 bpd from 466,000 bpd, re-focusing both on high-value lighter products. The combined capacity of the two will increase from 736,000 bpd to 800,000 bpd, but the completion will see the 200,000 bpd Shuaiba refinery closed. The net reduction in refinery capacity should be more than offset by the re-opening of plans for a $14bn 615,000 bpd refinery at al-Zour, a project which has been delayed for nearly a decade, lifting refining capacity to 1.4m bpd from 936,000 bpd at present.
The construction of the Myanmar-China pipeline will be completed by the end of MayViewAccording to Li Zilin, vice chairman of South East Asia Gas Pipeline Company, a conglomerate of companies from China and Myanmar, the construction of the 793 km Myanmar-China pipeline will be completed by the end of May. However, the operation of the double pipeline for its first shipment of gas and oil from the coast of Myanmar to China will be delayed due to security concerns, following recent clashes between government forces and ethnic militia fighters in Shan state, as well as “fierce fighting” with the Kachin Independence Army in Kachin. According to a senior Energy Ministry official it has been stated that “technically the gas pipeline is ready, but I’m not sure when the situation along its route will allow it to operate”. Once the pipeline becomes fully operational it will reduce Chinese oil imports through the Strait of Malacca by 440,000 bpd.
Australian wheat productionViewEarlier in the week, wheat farmers based in Western Australia were holding out for a significant amount of rainfall to facilitate the planting process. Ask and you shall receive – showers indeed fell across the region providing the required moisture for seed germination. According to West Australia’s second largest producer, CBH Group, the rain will serve as a catalyst for the planting of the winter-wheat crop. It is hoped that the wet weather conditions will also push into the south and hit New South Wales – Australia’s other major wheat-producing region. Output of the grain dropped in W. Aus from 11m tonnes to 6.9m tonnes due to unfavourable weather conditions but this was offset by a boost in production from NSW. Australia has experienced five consecutive years of positive growth in wheat exports having exported 8.27m tonnes in 2008 compared to 23.53m tonnes last year.
Weekly oil price reviewViewBrent crude gained on Monday rising above $105/bbl as worries about Middle East supplies escalated following air strikes on Syria, outweighing the uncertainties over the global economy and demand. Prices fell slightly going into Tuesday but then spiked, nearly hitting a four week high as strong economic data came out of Germany and the continued tensions in the Middle East saw prices rise to just below $106/bbl. The overbuying seen earlier in the day and the EIA cutting their forecast for consumption saw prices drop back to sub-$104/bbl at the start of Wednesday. The rest of the day was extremely choppy with prices fluctuating between $104.50/bbl and $103.60/bbl with more of the same turbulence going into Thursday before eventually closing on Thursday at just under $104.50/bbl. At the time of writing on Friday, Brent had slipped back to below $104/bbl as China’s economy showed little sign of picking back up after their factory prices fell for a 14th straight month and consumer inflation rose.