MIDDLE EAST: New large refineries add to bearish pressure on oil prices

(EnergyAsia, December 31 2014, Wednesday) — The Middle East will deal another blow to the world’s crumbling oil markets next year as it starts up giant refineries to boost net exports of products by nearly one million b/d, compared with less than 400,000 b/d last year.

According to the International Energy Agency (IEA), the Middle East will expand its primary refinery capacity from 7.8 million b/d in 2013 to 9.3 million b/d next year. The added capacity of nearly 1.5 million b/d will far exceed the region’s oil products demand growth of 600,000 b/d over the 2013-2015 period, forcing its refiners to sharply raise exports.

“The configuration of the plants, designed to maximise diesel production, seems somewhat at odds with market trends that in recent months have shown stronger demand growth for gasoline and jet fuel than for middle distillates,” said the IEA.

Saudi Arabia’s product exports have surged since the startup of the Saudi Aramco-Total 400,000 b/d Jubail refinery in September 2013, with further increases expected next year, said the IEA. According to the multilateral Joint Organisations Data Initiative (JODI), the kingdom’s diesel exports have more than doubled to 195,000 b/d in the first seven months of this year compared with the same period in 2013.

Aramco’s other 400,000 b/d Yanbu plant, coowned with China’s Sinopec, is undergoing test runs, with full operation expected in early 2015, while the UAE’s new 420,000 b/d Ruwais refinery is expected to start up shortly.

The arrival of three large refineries could not have been timed worse for the global oil markets which have been reeling from a crude supply glut that has caused prices to crash by nearly 50% since June.

“The current economic and oildemand picture is quite different from what was envisaged at the time when they got underway in the mid2000s. Not only was oil demand expected to be higher, but the makeup of the demand barrel has also changed,” said the IEA.

Since the financial crisis of 200809, the economic slowdown has had a more marked impact on the demand for mid-distillates compared with gasoline and other products.

“Diesel demand has also been adversely affected by subsidy reductions in key nonOECD markets, such as India, and concerns over local pollution levels and a slowdown in diesel sales in key markets such as France, have also been stemming growth.”

The three refineries are heavily focused on diesel production. When fully commissioned, they will produce as much as 800,000 b/d of ultra low sulphur diesel (ULSD) and jet fuel.

Citing the companies and market estimates, the IEA said Jubail has the capacity to produce 235,000 b/d of ULSD diesel while Yanbu will produce 260,000 b/d of ULSD and 90,000 b/d of gasoline and Ruwais will produce an additional 175,000 b/d of diesel and 85,000 b/d of jet fuel. Regional distillate demand growth, meanwhile, is forecast to grow by less than 100,000 b/d per annum in 2014 and 2015.

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CHINA: Oil stockpiling programme boosted by unexpected crude price collapse

(EnergyAsia, December 30 2014, Tuesday) — As if China needed any encouragement, the near 50% collapse in oil prices since June has greatly aided its crude stockpiling and import programme with desperate suppliers lining up to unload their cargoes at huge discounts.

Brent, the benchmark crude that prices much of Asia’s oil imports, is trading below US$60 a barrel and could fall further to new six-year lows to Beijing’s delight as it accelerates crude imports for stockpiling and to feed its rising refining capacity.

Analysts expect Chinese state firms to import between 50 and 60 million barrels of crude for three new storage sites in 2015, and by up to 100 million barrels in 2016 to complete the government’s official target to stockpile 500 million barrels of crude by 2020. This does not include storage held by China’s private companies and in tankers berthed in offshore locations.

Chinese refiners are also joining the import frenzy to feed at least 4.3 million b/d of new capacity that they are expected to start up between 2012 and 2018, said the International Energy Agency (IEA). According to BP, China’s refining capacity rose from 10.3 million b/d in 2010 to 12.6 million in 2013.

With the unexpected oil price collapse, China will not only complete its stockpiling programme ahead of schedule, its planners could be encouraged to raise their target as well as expand the country’s tank storage capacity.

According to the IEA, China has completed four stockpiling bases with a combined capacity of 103 million barrels under the first phase of its strategic petroleum reserve (SPR) plan. It is building the project’s second phase and is planning the third phase that will complete the SPR’s target to hold 500 million barrels of crude by 2020.

Despite a widely publicised slowdown, China’s economy is still expected to grow by at least six percent a year over the next few years that will underpin the country’s rising demand for oil, gas and coal. The world’s second largest oil consumer will use 11.34 million b/d in 2015, up by 3.3% from 2014 to follow on a 3.5% rise in 2013, said the US Energy Information Administration (EIA).

As the world’s oil supply glut worsens, China has become the most important major market for producers to lock in their supply contracts.

Tanker owners and brokers said that since mid-2014, there has been a sharp surge in vessel booking and oil traffic headed for China, pushing chartering rates to their highest levels in five years.

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MARKETS: EIA slashed forecasts for oil prices, and global demand and supply for 2015

(EnergyAsia, December 29 2014, Monday) — Along with weaker oil prices, the US Energy Information Administration (EIA) has reduced its forecasts for both global oil demand and supply for 2015 in its December report compared with the previous month.

The agency expects the world to consume 92.32 million b/d in 2015, down from its November forecast of 92.50 million b/d, and to produce 92.75 million b/d instead of 92.91 million b/d.

For 2014, it raised its global demand forecast to 91.44 million b/d compared with 91.38 million b/d, while keeping the supply outlook almost unchanged at 91.96 million b/d.

The EIA said it expects global oil inventories to continue to build over the next year, keeping downward pressure on prices.

It expects the Brent crude oil price to average US$68 per barrel in 2015, down US$15 from its November call while WTI will trade at an average US$63 instead of US$78. It sees Brent prices reaching a 2015 monthly average low of US$63 from March through May before recovering through the rest of the year to average US$73 during the fourth quarter.

“The discount of WTI to Brent crude oil is forecast to widen slightly from current levels, averaging US$5 per barrel in 2015,” said the agency.

Despite expectations among analysts that China’s economy is slowing down, the EIA retained its forecasts for the country’s oil demand unchanged at 10.98 million b/d for this year, and 11.34 million b/d in 2015.

Instead, the agency ploughed back its forecasts for North America’s oil demand for 2014 and 2015, although it did raise its expectation for US consumption to rise by 140,000 b/d in 2015 after staying flat in 2014.

Japan and Europe will continue to experience lower oil consumption the next two years. The EIA expects Japan’s consumption, which fell by 160,000 b/d in 2013, to decline by the same amount this year and a further 140,000 b/d in 2015.

“Japan is expected to use less fuel oil in the electricity sector as the country returns some nuclear power plants to service in 2015 and increases the use of natural gas and coal to generate electricity,” it said.

The agency is calling for developed Europe’s consumption, which fell by 150,000 b/d in 2013, to fall by 120,000 b/d this year and a further 140,000 b/d in 2015.

With global supply continuing to outpace consumption, the EIA is forecasting the world stock build to average 400,000 b/d in 2015. Most of that will be concentrated in the first half of the year at an average rate of 700,000 b/d.

The EIA is calling for Saudi Arabia’s production to stay above nine million b/d in 2015, down significantly from this year’s average of 9.6 million b/d. As a result, the US, which is projected to produce 9.3 million b/d, could be supplying as much oil as OPEC’s leader.

Due to ongoing conflicts in Libya, Nigeria, Iran, and Iraq, EIA expects OPEC crude oil production to fall to 29.8 million b/d in 2014 and to 29.6 million b/d in 2015. In 2013, OPEC produced 29.9 million b/d and 30.9 million in 2012.

Dec 2014: EIA’s world liquids demand forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

  1. America 23.44 23.39   -0.21    23.51   0.51

China                          10.61   10.98   3.49     11.34   3.28

Others                                    56.43   57.07   1.13     57.47   0.70

TOTAL                         90.48   91.44   1.06     92.32   0.96


Nov 2014: EIA’s world liquids demand forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

  1. America 23.44 23.34   -0.43    23.48   0.60

China                          10.61   10.98   3.49     11.34   3.28

Others                                    56.43   57.06   1.11     57.68   1.09

TOTAL                         90.48   91.38   0.99     92.50   1.23



Oct 2014: EIA’s world liquids demand forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

  1. America 23.40 23.36   -0.17    23.56   0.86

China                          10.61   10.98   3.49     11.35   3.37

Others                                    56.44   57.13   1.22     57.80   1.17

TOTAL                         90.45   91.47   1.13     92.71   1.36


Sept 2014: EIA’s world liquids demand forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

  1. America 23.38 23.35   -0.13    23.54   0.81

China                          10.61   10.98   3.49     11.41   3.92

Others                                    56.52   57.22   1.24     58.03   1.42

TOTAL                         90.51   91.55   1.15     92.98   1.56



Dec 2014: EIA’s world liquids supply forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

OPEC                           36.03   35.96   -0.19    35.92   -0.11

Non-OPEC                   54.13   56.00   3.45     56.84   1.50

– US                                              12.34     13.90     12.64     14.89     7.12

TOTAL                         90.16   91.96   2.00     92.75   0.86


Nov 2014: EIA’s world liquids supply forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

OPEC                           36.03   35.92   -0.31    35.93   0.02

Non-OPEC                   54.16   56.03   3.45     56.98   1.70

– US                                              12.36     13.86     12.14     14.95     7.86

TOTAL                         90.18   91.95   1.96     92.91   1.04



Oct 2014: EIA’s world liquids supply forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

OPEC                           36.03   35.78   -0.69    35.51   -0.75

Non-OPEC                   54.12   55.98   3.44     57.15   2.09

– US                                              12.34     13.82     11.99     15.05     8.90

TOTAL                         90.15   91.76   1.79     92.67   0.99


Sept 2014: EIA’s world liquids supply forecast, in million b/d

2013    2014 * y/y %   2015 * y/y %

OPEC                           36.02   35.77   -0.69    35.86   0.25

Non-OPEC                   54.08   55.91   3.39     57.16   2.24

– US                                              12.35     13.78     11.58     14.99     8.78

TOTAL                         90.10   91.68   1.75     93.02   1.46



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INDONESIA: Foreign partners to help Pertamina expand, upgrade refinery and storage capacities as part of energy reform programme

(EnergyAsia, December 26 2014, Friday) — Indonesia’s two-month-old government has enlisted international energy firms to help state-owned Pertamina expand and upgrade its refining and oil storage facilities to support the country’s long-term economic growth.

Early this month, Pertamina signed separate memoranda of understanding with Saudi Aramco, China’s Sinopec and Japan’s JX Nippon Oil & Energy worth a total of US$25 billion to upgrade and double the total capacity of five Indonesian refineries over the next four years. Saudi Aramco will focus on the refineries in Dumai on Sumatra Island, Cilacap in Central Java and Balongan in West Java, while Sinopec will help with upgrade of the Plaju refinery in South Sumatra and JX Nippon will work on the Balikpapan refinery in East Kalimantan.

Over the next six months, the three companies will study the feasibility of their respective projects before deciding whether to proceed, said Pertamina CEO Dwi Soetjipto. Their combined investments could more than double the refineries’ capacity to 1.68 million b/d from more than 800,000 b/d today, and help the government slash Indonesia’s costly oil product imports.

With the plant expansions and upgrades, Pertamina expects to boost domestic gasoline output from 190,000 b/d in 2012 to 630,000 b/d by 2025, and more than double diesel supply from 320,000 b/d to 770,000 b/d over the same period.

Law firm Latham & Watkins said it advised Pertamina on the signing of the memoranda for the upgrade and expansion of the refineries.

Elected as President in July, Joko Widodo, or Jokowi as he’s popularly known by, is targeting the country’s inefficient energy sector as key to reforming Indonesia’s underachieving economy.

One of Asia’s largest crude oil producers, Indonesia has seen its spending on imported fuels surge sharply over the past two decades as it lacks the refining capacity to meet its rising domestic consumption. Except for a brief period in the early 1990s, attempts by previous administrations to attract investors to build, expand and upgrade refineries in Indonesia have largely failed.

Shortly after taking office in October, Mr Jokowi fulfilled an election promise to eliminate the country’s costly fuel subsidies by immediately raising domestic gasoline and diesel prices by 31% and 36% respectively. According to the finance ministry, the reduced subsidies will enable the government to save 120 trillion rupiah in 2015 that it can spend on infrastructure development.

Jakarta’s refusal to raise domestic fuel prices, among the lowest in Asia, has long deterred oil companies from investing in costly refinery projects in Indonesia.

Mr Jokowi followed that up by sacking the Pertamina board and ordering a comprehensive audit of its trading subsidiary, Pertamina Energy Trading Limited (Petral), which has a major role in handling fuel imports into the country.

The moves are aimed also at weeding out corrupt practices that have long plagued Indonesia’s system of importing and distributing oil.

The Jokowi administration has also set a target to expand the country’s fuel storage capacity by 40% to 9.4 million barrels over the next five years.

With the near 50% collapse in global oil prices the past six months, Indonesia’s resource-dependent economy will need these reforms to be implemented as quickly and smoothly as possible to ward of a financial and economic crisis in coming years. Despite the efforts of previous governments to diversify the country’s economic base, Indonesia remains dependent on oil, gas and coal exports for much of its export earnings.

In the near term, however, there’s a small silver lining to the recent weakness in oil prices, according to Ken Koyama, chief economist and managing director at the Institute of Energy Economics, Japan (IEEJ).

“In FY2013, Indonesia logged a trade deficit of some 45 trillion rupiah, net oil and gas imports worth some 152 trillion rupiah and a budget deficit of about 45 trillion rupiah, indicating that oil price drops would make contributions to cutting them. After cutting oil subsidies recently, Indonesia could reduce costs further thanks to the oil price falls,” he wrote in an IEEJ report.

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PAPUA NEW GUINEA: Economy faces downside risks despite new LNG export earnings, says IMF

(EnergyAsia, December 24 2014, Wednesday) — Papua New Guinea (PNG)’s economy faces downside risks despite the launch of a new income stream from liquefied natural gas exports (LNG) from last May, said the International Monetary Fund (IMF).

PNG’s impoverished economy received a massive boost when an ExxonMobil-led consortium completed the country’s US$19 billion integrated natural gas project ahead of schedule by several months to export LNG to Asia. As a result, PNG’s economy could expand by an explosive rate of 19.6% in 2015, said the IMF.

ExxonMobil PNG Limited, a subsidiary of the US major, leads the PNG LNG venture whose shareholders include Oil Search Limited, PNG’s National Petroleum Company, Santos Ltd, JX Nippon Oil & Gas Exploration Corp, Mineral Resources Development Company (representing local landowners) and Petromin PNG Holdings Limited.

IMF: PNG’s past and projected economic growth rates

2010    2011    2012    2013    2014    2015

Real GDP growth      7.7       10.7     8.1       5.5       5.8       19.6

Nominal GDP (2013):         US$15.4 billion

Population (2013):               7.3 million

GDP per capita (2013):       US$2,098

But, there are also potential drawbacks attached to the LNG project that could weigh negatively on the resource-dependent economy for years to come.

The IMF said that since mid-2013, lower commodity prices, weaker mining output, and a reduction in LNG project-related capital inflows have been exterting downward pressure on the local currency, the kina, as well as causing government debt to rise.

As the project approached completion, the government of Prime Minister Peter O’Neill began a large debt-funded fiscal expansion in an attempt to offset the impact of construction slowdown.

The government’s policy shift to develop the services sector “has significantly reduced the country’s fiscal space and led to an increase in government debt, likely to exceed legislated targets by end-2014,” said the IMF.

Along with the transition, PNG faces the risk of not realising its projected LNG export revenues given the sharp decline in global oil and gas prices, and the continued growth in competing LNG and shale gas projects in other parts of the world, namely the US.

The industry’s diminished outlook might reduce PNG’s ability to attract foreign direct investment and dampen the long-term outlook for the economy, said the IMF.

On the positive side, PNG’s inflation has moderated from its peaks during the construction boom and is likely to remain reasonably low given the global outlook for commodity prices. The country’s external current account deficit has fallen significantly since 2013 as a result declining imports related to LNG construction spending.

With the start-up of LNG, the IMF said it expects PNG’s current account deficit to fall this year before reversing into surplus in 2015 to help strengthen the country’s external position and macroeconomic fundamentals.

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CHINA: Wison Engineering takes 10.33% stake in contract to upgrade Venezuela’s Puerto La Cruz refinery

(EnergyAsia, December 23 2014, Tuesday) — China’s Wison Engineering Services Co Ltd said a subsidiary has agreed to take a 10.33% stake in a US$4.837-billion contract to upgrade and expand the ageing 190,000 b/d Puerto La Cruz refinery on the east coast of Venezuela. State energy firm PDVSA had earlier awarded the contract to the…

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MALAYSIA: Petronas, Vopak and Dialog Group to jointly develop oil storage terminal for Pengerang complex

(EnergyAsia, December 22 2014, Monday) — Dutch oil and logistics firm Royal Vopak and two Malaysian firms, state-owned Petronas and listed Dialog Group, have signed a shareholders agreement to jointly develop an oil storage terminal for the planned Pengerang Integrated Complex (PIC) in Malaysia’s Johor state. The terminal, to be developed on a 63.5-hectare plot…

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MARKETS: Oil expenditure totaling more than US$900 billion at risk amid forecasts for low prices to continue

(EnergyAsia, December 19 2014, Friday) — As oil prices collapsed to their lowest levels since July 2009, analysts say the industry may have to defer more than US$900 billion in upstream investments, with some US$150 to US$170 billion at risk next year that will threaten the survival of many players around the world.

In an analysis of 400 of the largest new oil and gas fields outside the US shale basins, investment bank Goldman Sachs said the industry could defer or cancel a total of US$930 billion worth of upstream projects if Brent crude averages US$70 a barrel as they will not be profitable. Since December 17, Brent has fallen below US$60.

If prices remain at current levels, the industry could freeze more than US$150 billion in exploration projects alone for 2015, according to Norwegian consultancy Rystad Energy.

Throwing in the towel, the oil ministers of Iran and the UAE have joined the chorus of market bears in warning that crude prices could fall to as low as US$40 in 2015 on oversupply and slowing global demand growth. After touching a high of US$115 a barrel in June, Brent crude plunged below US$60 on December 17, implying total budget cuts could exceed US$1 trillion if these low prices remain over the coming year.

Consultant Wood Mackenzie is forecasting capital expenditure to fall by 37% or US$170 billion in 2015 if Brent averages US$60 a barrel for the industry to maintain current debt levels.

Western majors like ExxonMobil, Chevron, ConocoPhillips and BP have announced large budget cuts in anticipation of the market’s prolonged weakness. In the UK, North Sea operators are preparing to slash budgets and jobs that will lead to lower oil production.

Operators in advanced and intensive development phases of their projects have the least room to manoeuvre, said Fraser McKay, Wood Mackenzie’s principal corporate analyst.

“Most international oil companies (IOCs) have flexibility to rein in spend to keep finances on an even keel. But shareholder dividends and distributions are likely to be a significant part of the spend cuts for some companies,” he said.

With US$60 Brent, he said only three of the top 40 IOCs will generate sufficient free cash flow to cover expenditure including distributions. Some independents have already cut 2015 discretionary expenditure with crude at US$70-75 per barrel.

The consulting firm also predicts merger and acquisition activities to come to a standstill as companies shelve plans for deal-making and buyers pull out until a new ‘consensus’ emerges typically at least three from the point that prices start to stabilise.

“Weak oil prices through 2015 will ratchet up the pressure on the most financially stretched in the sector. Expect to see falling deal valuations and the emergence of a true buyers’ market,” said Luke Parker, the firm’s principal analyst for M&A.

He predicts “large-scale corporate consolidation” on the scale not seen since the late 1990s as cash-rich buyers prey on distressed sellers.

Oil prices are likely to remain weak as US shale operators are able to extract oil and gas “far more efficiently than before with drilling costs declining and productivity per well increasing,” said consulting firm Douglas Westwood (DW).

US production is expected to grow in 2015 as most unconventional plays will remain supported at the crude price of US$50, with the Bakken’s breakeven point estimated at US$42 a barrel, said DW.

In addition, it said lifting costs have been reduced by some US$30 per barrel since 2012.

“However, shale plays require constant investment in drilling to maintain momentum, as wells decline at up to 60% a year compared to the 7-10% of conventional wells,” said DW.

“Therefore the impact of a continuous oil price decline may only become apparent in 2015/16 after companies’ hedged positions have unwound and external finance becomes to increasingly difficult to attract.”

Despite the gloom, crude oil still sells for nearly double the price of December 2008 when it last crashed to just above US$30 a barrel.



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AUSTRALIA: Woodside delays US$40 billion Browse LNG decision as it pursues opportunities in Canada

(EnergyAsia, December 18 2014, Thursday) — Woodside Petroleum Limited has delayed its investment decision in the proposed massive US$40 billion Browse liquefied natural gas (LNG) project off the coast of western Australia in favour of new opportunities in Canada.

Australia’s second largest oil and gas producer said it is buying a 50% stake in a joint venture with Chevron to build a US$40 billion LNG project in the coastal town of Kitimat in Canada’s British Columbia (BC) province. Woodside is acquiring the stake in Kitimat LNG along with shares in the A$29 billion Wheatstone LNG plant, offshore gas fields and an oil-producing field in Australia from US upstream firm Apache in a package deal worth a total of US$2.75 billion. (US$1=A$1.20).

In a statement, the Perth-based firm said it has delayed its final investment decision on the Browse project, which has been plagued by rising cost in recent years, by nearly a year to mid-2016 in view of falling oil and gas prices. The other shareholders of Browse LNG are Shell Development (Australia) Pty Ltd, BP Developments Australia Pty Ltd, Japan Australia LNG (MIMI Browse) Pty Ltd and PetroChina International Investment (Australia) Pty Ltd.

Woodside’s CEO Peter Coleman said “challenging marker conditions” have enabled it to purchase “very high quality assets” including the 50% stake in Kitimat and oil and gas reserves in BC’s Horn River and Liard basins. The package of deals is subject to approvals from regulators and the shareholders of the different assets and projects.

The transaction will help the shareholders of both Woodside and Apache realise the stated realignment of their respective investment portfolios.

Woodside has been looking to invest outside of Australia while Apache is under pressure from hedge fund shareholder Jana Partners LLC to reduce its international exposure in favour of domestic operations in the US.

In a separate deal, Woodside has agreed with BP to take a 20% stake in the UK major’s project to explore and develop hydrocarbon resources in the Scotian Basin located off the coast of Nova Scotia in eastern Canada.

The licences cover 14,000 sq km in water depths ranging from 500 to 3,600 m, with drilling of exploration wells expected to start 2017.a

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ASIA: Cheap oil is an opportunity for region’s developing economies to implement reforms, says ADB

(EnergyAsia, December 17 2014, Wednesday) — The weaker outlook for Asia’s developing economies is being offset by a “golden opportunity” to implelemt reforms presented by declining oil prices, said the Asian Development Bank (ADB).

In its latest update, the bank said it expects the gross domestic product (GDP) of the region’s 45 economies to grow by a combined 6.1% in 2014 and 6.2% next year. In September, the bank had forecast those economies to grow by a collective rate of 6.2% for both years, up from 6.1% in 2013.

The bank downgraded growth projections for Central Asia, East Asia, and Southeast Asia and left unchanged its outlook for South Asia. It raised the outlook for the region’s Pacific economies.

“While growth in the first three quarters of this year were somewhat softer than we had expected, declining oil prices may mean an upside surprise in 2015 as most economies are oil importers,” said ADB chief economist Shang-Jin Wei.

The bank lowered its forecasts for collective growth in the US, the eurozone and Japan for 2014 from 1.5% previously to 1.4%. It expects their combined growth to reach 2.1% in 2015.

The forecast growth for China’s economy has been revised downward to 7.4% in 2014 from 7.5%, and to 7.2% from 7.4% for 2015.

The India economy is seen growing by 5.5% in for FY2014, ending March 31 2015.

“By eliminating diesel fuel subsidies, the government has demonstrated its willingness to tackle contentious reforms, but it must extend its efforts to reach the forecast 6.3% growth in FY2015,” said the ADB.

For Southeast Asia, it said growth in the larger economies has been lower than anticipated in the first nine months of 2014, with slight reductions to the projections for Indonesia, Philippines, Singapore, and Thailand.

“GDP in the subregion is expected to expand by 4.4% in 2014, down from 4.6% forecast in the Update, and 5.1% in 2015, down from 5.3%,” it said.

The outlook for Kazakhstan and other Central Asian economies is being dampened by events in Russia, leading to the ADB lowering its forecasts for the region’s growth to 5.1% from 5.6% for 2014 and to 5.4% from 5.9% for 2015. The bank cited reduced remittance flows and muted external demand as undermining growth in Armenia, the Kyrgyz Republic, and Uzbekistan.

Declining oil and commodity prices are helping to mute cost pressures in most developing Asian economies, enabling the bank to slash the region’s inflationary rate to 3.2% in 2014 and 3.5% in 2015, compared with 3.4% and 3.7% previously.

“Falling global oil prices present a golden opportunity for importers like Indonesia and India to reform their costly fuel subsidy programs,” said the bank’s Mr Wei.

“On the other hand, oil exporters can seize the opportunity to develop their manufacturing sectors as low commodity prices tend to make their real exchange rates more competitive.”


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MARKETS: Brent close to falling below US$60 as EIA forecasts average price of US$68 for 2015

(EnergyAsia, December 16 2014, Tuesday) — Brent crude oil is expected to fall below US$60 a barrel for the first time since May 2009 as the UAE and Iran warn it could slump to US$40. The North Sea benchmark crude was trading just above US$60 a barrel during the New York trading day Monday while…

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SAUDI ARABIA: Aramco, ExxonMobil completes clean fuels project at Yanbu refinery

(EnergyAsia, December 16 2014, Tuesday) — Saudi Aramco Mobil Refinery Company Limited (SAMREF), an equal joint venture of state-owned Saudi Aramco and ExxonMobil, has completed construction of major desulphurisation facilities including a new hydrotreater at their 400,000 b/d Yanbu oil refinery to drastically cut sulphur levels in gasoline and diesel.SAMREF, which was established in 1984,…

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ANGOLA: Chinese, Korean and French boost to support national goal to produce two million b/d by 2016

(EnergyAsia, December 15 2014, Monday) — With the extra combined push from Chinese financing, French upstream expertise and South Korean shipbuilding, Angola is on course to becoming Africa’s largest oil producer with a two million b/d output target by 2017.

State-owned Angolan Oil Company or Sonangol last week secured a US$2 billion credit from the China Development Bank to build on the previous week’s launch of a modern US$9 billion floating production storage and offloading (FPSO) unit by France’s Total. Sonangol also signed an agreement for South Korean shipbuilder DSME to build two oil tankers to deliver crude to customers around the world.

Leading a delegation to Beijing, chairman and CEO Francisco de Lemos Jose Maria signed the 10-year credit facility with Zheng Zhijie, president of China’s largest financial institution, to support the West African’s development of its oil and gas reserves and an oil refinery. According to the US Energy Information Administration, Angola has been China’s second largest oil supplier since 2005.

Earlier in the month, Total officially launched its floating unit to produce crude oil from 34 underwater wells in Angola’s offshore Cravo, Lirio, Orquidea and Violeta (CLOV) fields which have combined reserves of over 500 million barrels of oil. Expected to operate for 20 years, the FPSO unit has the capacity to produce 160,000 b/d.

Apart from Mr Jose Maria, the ceremony was attended by Angolan Oil Minister José Maria Botelho de Vasconcelos, Total’s CEO Patrick Pouyanné and Total’s upstream president, Arnaud Breuillac, and other officials from both companies.

Despite the collapse in oil prices over the past six months, Angolan officials insist the country will push ahead with its plan to boost production from an estimated 1.8 million b/d last year to two million b/d by 2017, enabling it to overtake Nigeria as the continent’s largest producer.

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MALAYSIA: Petronas on course to start-up 1.2 GW coal-fired power plant in Pengerang by 2017

(EnergyAsia, December 11 2014, Thursday) — Malaysia’s state-owned energy firm, Petronas, expects to start up a 1.22-gigawatt coal-fired power plant by 2017 to supply electricity to a proposed oil refinery-petrochemical complex under construction in Johor state.

Work is well underway on the combined heat and power plant among six projects being planned for the Pengerang Integrated Complex (PIC) that will turn Johor state to rival Singapore as Southeast Asia’s regional energy hub.

A consortium comprising Siemens, Siemens Malaysia and MMC Engineering Services is building the Pengerang co-generation plant for Petronas subsidiary Pengerang Power Sdn Bhd which awarded the engineering, procurement, construction and commissioning contract last May.

The plant comprises four co-generation units, each equipped with an H class gas turbine, a waste-heat recovery steam generator, a steam turbine, associated mechanical and electrical systems and the instrumentation and control system. The plant’s first co-generation unit is expected to start up by mid-2017 to supply electricity to the national grid while the other three will be dedicated to the PIC.

The PIC will include the US$16-billion Refinery and Petrochemicals Integrated Development (Rapid) project as well as a liquefied natural gas (LNG) regasification terminal, crude oil and products storage tanks, an air separation unit, and centralised and shared utility facilities.


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AUSTRALIA: BG Group to sell pipeline subsidiary to APA Group for US$5 billion

(EnergyAsia, December 10 2014, Wednesday) — BG Group plc, a world leading UK-based upstream and liquefied natural gas (LNG) company, said it has agreed to sell its wholly-owned Australian subsidiary QCLNG Pipeline Pty Ltd for US$5 billion as part of its divestment of non-core assets. The buyer, APA Group, owns and operates Australia’s largest gas…

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CHINA: World’s first FLNG facility undocked at Nantong shipyard, say partners

(EnergyAsia, December 9 2014, Tuesday) — The world’s first floating liquefied natural gas (FLNG) plant has undocked at a Chinese shipyard, said China’s Wison Offshore & Marine and US Black & Veatch which collaborated to build the project for their client EXMAR, a Belgium-based shipping firm. The companies celebrated the undocking of the Caribbean FLNG…

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INDIA: GAIL signs up WGL to supply natural gas for liquefaction at Maryland LNG terminal in the US

EnergyAsia, December 8 2014, Monday) — US-based WGL Midstream Inc has agreed to supply natural gas to the local subsidiary of state-owned GAIL India Limited for the production of 2.5 million tonnes/year of liquefied natural gas (LNG) from the export-oriented Cove Point terminal now under construction in Maryland state. WGL Holdings, a Washington DC clean…

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COMPANY: Oiltanking appoints Verniers and Vos as managing directors

(EnergyAsia, December 5 2014, Friday) — German oil, chemicals and gas storage company Oiltanking GmbH has named Koen Verniers to lead the company’s eastern operations while Daan Vos will have responsibility for the western half from January 1. Koen Verniers, currently acting as President of Oiltanking Asia Pacific Pte Ltd, will be managing director for…

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MALAYSIA: Petronas under pressure to cancel Canadian LNG project

(EnergyAsia, December 4 2014, Thursday) — With oil prices at a five-year low and falling, Malaysia’s state energy firm Petronas is under financial and domestic political pressure to delay either the final investment decision (FID) or the project start-up date, or both, of its proposed liquefied natural gas (LNG) plant in Canada’s British Columbia (BC) province. Petronas had earlier set a mid-December deadline to announce its decision for the construction of a C$9-to-$11 billion LNG export terminal on Lelu Island near Prince Rupert. (US$1=C$1.13).

The Canadian authorities have largely ceded to the company’s needs for the project’s environmental approval, tax clarity and the support of a key aboriginal group in the construction of a major pipeline to deliver natural gas to the terminal, all located in a pristine wildlife-rich part of the country. Talks between the two parties have reached crunch stage with the burden of expectations now firmly on the shoulders of the Malaysians who only recently had threatened to cancel the project if their demands were not met.

Right after announcing a deflating set of third-quarter results on November 28, Petronas CEO and president Shamsul Azhar Abbas flew to Vancouver to meet with BC Premier Christy Clark and natural gas minister Rich Coleman with the stated intention to make progress on the proposed project. Mr Coleman was in Kuala Lumpur weeks earlier to meet Petronas for the same reason.

While Mr Shamsul told reporters that the company was “75%” ready to make the investment, the odds are lengthening against it making a quick decision that would allow it to start work next year in time for the LNG plant to begin operating in late 2018.

The 40-year company veteran faces growing pressure to delay the project’s FID right after he had told the Malaysian government to expect an unprecedented 37% cut in the company’s dividend pay-out next year if Brent crude oil price averaged US$75 a barrel.

After announcing a 12.4% drop in third-quarter net profit on the back of falling oil and LNG prices, he warned that Petronas, which contributes more than half the Malaysian government’s revenue, profits would continue to face financial pressure next year. (US$1=RM3.43).

The company said it may have to slash up to 20% of its capital expenditure next year, with proposed projects in Malaysia that have yet to receive final investment decision (FID) approval likely to be delayed or cancelled. The announcement, along with the collapse in oil prices, caused oil and gas share prices on the local stock exchange to crash.

Amid the global economic slowdown, local businesses are wondering if Petronas should focus more of its investments at home.

The Malaysian government announced last year that it expects Petronas and its 38% minority consortium partners to invest a total of C$36 billion to develop an integrated project in Canada comprising an LNG plant, natural gas fields and pipelines. (US$1=C$1.13). China’s Sinopec, Indian Oil Corp, Petroleum Brunei and Japan’s Japex are Petronas’s partners in the PacificNorthWest LNG project.

The company’s third quarter results briefing coincided with the general assembly of Malaysia’s powerful UMNO ruling party and OPEC’s meeting in Vienna. Both events held financial implications for Petronas, dubbed the unofficial national bank of Malaysia for its role in keeping the country’s economy afloat.

UMNO, which represents 3.2 million of the country’s estimated 18 million Malays in a multi-ethnic 30-million population, has led the ruling coalition since Malaysia’s independence in 1957. The party’s right-wing is demanding the government to step up aid and welfare spending on the nation’s Malay-Muslim population. Set up in 1974, Petronas has a long history of being tapped for funds to finance corporate bail-outs, large projects and social programmes championed by UMNO’s politicians.



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MARKETS: Saudi’s ‘nuclear’ solution to wipe out competition could set stage for much higher oil prices

(EnergyAsia, December 3 2014, Wednesday) — As panic grips oil and gas producers spooked by crude prices plunging to five-year lows, traders are  focused on how much lower the markets can go. US$100 is suddenly a distant memory while talk of US$150 oil has been consigned to unfounded fears associated with the Islamic State’s (ISIS) emergence back in June 2014.

After months of rumours, the Organisation of Petroleum Exporting Countries (OPEC), more specifically, Saudi Arabia, last month confirmed that the cartel will retain its three-year-old production quota of 30 million b/d despite evidence of a weakening global economy and surging global oil supplies.

With North America firing up its fracking operations and US production surging to a four-decade high of over nine million b/d, the world’s oil market will remain glutted in the near term.

But, the Saudis will not blink. Having allowed the US shale revolution to take root and deepwater production to expand over the past decade, the kingdom is ready to meet the competition head on.

With its economy in good shape and well prepared to stomach a price war, Saudi Arabia and its Arab allies have signalled they will accept a collapse in the oil price for several quarters if this will wipe out some of America’s marginal shale-based producers, Russia’s budding Arctic and Siberia upstream ventures with China, and deepwater activities in Asia, Africa and Latin America. In the extreme, the “nuclear solution” will have long-term consequences, potentially wiping out a lot of capacity now being developed to find and produce hydrocarbon in difficult terrains.

This was what happened during the 1998 crash when US$10 oil resulted in mass layoffs and budget cuts that set the stage for both Brent and WTI to surge to the record-high price of US$145 10 years later. Years of cheap oil encouraged rapid consumption growth throughout the world as governments relaxed conservation efforts.

The latest plunge will prove far more damaging than the previous two declines in 1998 and late 2008 as global demand grew for years even in the face of US$100 oil. If oil hits US$50-$60, demand will most certainly accelerate.

Prices could stay down for months after OPEC’s decision to retain current quota

Oil prices could slide further after hitting five-year lows in the wake of OPEC’s announcement last month that it will retain its production ceiling of 30 million b/d until its next meeting in 2015.

Following the end of the cartel’s bi-annual meeting in Vienna, US WTI crude futures settled at US$66.15 a barrel on November 28 for its lowest close since September 2009 while North Sea Brent briefly went below US$70 before settling at US$70.45, its lowest since July 2010. Oil prices have fallen by more 35% since mid-2014 as a result of the weakening demand outlook in China and Europe combined with growing supplies from the US and Saudi Arabia’s protection of its market share in Asia.

In a statement, OPEC said it expects non-OPEC supply alone to rise by 1.36 million b/d next year to more than cover any growth in global demand.

“The increase in oil and product stock levels in OECD countries, where days of forward cover are comfortably above the five-year average, coupled with the on-going rise in non-OECD inventories, are indications of an extremely well-supplied market,” the cartel said.

UK consulting firm Wood Mackenzie concurred: its own analysis found that global oil supply will grow at a faster pace than demand in 2015, continuing the trend from this year.

“The retention of current OPEC production levels clearly puts the outlook for oil demand growth as the continued focus of crude oil pricing and, in its absence, tight oil breakeven economics,” said Ann-Louise Hittle, Head of Macro Oils research for Wood Mackenzie

World oil demand growth has slowed markedly over the past year, making it more difficult non-OPEC production growth to be absorbed.

“There has been considerable speculation as to the motives of Saudi Arabia over recent months, as it has not cut its production significantly in spite of the drop in crude oil prices,” said Wood Mackenzie.

“With the agreement on November 24 to extend the talks with Iran to July 2015, one key near term supply concern for OPEC was removed prior to its meeting as Iran’s oil exports will not be stepping up in the first half of 2015. This price supportive factor has been lost in the OPEC meeting reaction.”

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INDONESIA: Adaro Energy and Shenhua to develop coal-fired power plant in East Kalimantan

(EnergyAsia, December 2 2014, Tuesday) — Indonesia’s Adaro Energy said it and China’s Shenhua have signed a memorandum of understanding (MOU) to develop a 2x300MW coal-fired power plant in East Kalimantan. The project represents the Indonesian coal miner’s first venture into the power industry. Through their subsidiaries, the two companies will establish a joint venture…

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MARKETS: Prices seen falling further after OPEC decides to retain current production

(EnergAsia, December 1 2014, Monday) — Oil prices are hovering at a five-year low after OPEC announced the retention of its current production ceiling of 30 million b/d through to its next meeting in 2015. Following the end of the cartel’s bi-annual meeting in Vienna last week, US WTI crude futures settled at US$66.15 a…

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