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Saudi Arabia’s refining capacity rose 13.7% in 2021, one of the biggest increases among its peers, as the world’s largest exporter for crude continues to expand its downstream capabilities, according to the latest OPEC Annual Statistical Bulletin.

The OPEC+ kingpin added 400,000 b/d of refining capacity in 2021, raising its overall capacity to refine crude to 3.327 million b/d. The increase was largely due to the addition of the 400,000 b/d Jizan refinery in the country’s Red Sea-facing western coast.

Jizan is currently operating at a “little over 200,000 b/d”, Saudi Aramco CEO Amin Nasser said earlier this year.

The company plans to incrementally raise operating capacity by adding gasifiers to the facility this year.

Saudi Aramco is developing the facility to be a major exporter of power by 2023.

Saudi Arabia’s refining capacity is likely to rise over the coming decade in one of the rare additions globally as its main oil exporting company Saudi Aramco looks for downstream joint ventures in China and India – the major centers for growth.

Aramco has an interest in China’s downstream sector as it looks to lock in demand for its crude in Asia’s largest economy.

Saudi Aramco decided to move forward with a 300,000 b/d oil refinery and petrochemical project in northeast China on March 10.

Aramco said it had taken the final investment decision to develop a liquids-to-chemicals complex under a joint venture with North Huajin Chemical Industries Group Corp. and Panjin Xincheng Industrial Group.

The company also plans to develop a $44 billion integrated refining complex at Ratnagiri on India’s western coast with Abu Dhabi National Oil Company. The project has faced delays due to the complexity of land acquisition in India and the opposition from local villagers. OPEC’s second-largest producer Iraq also saw a marked jump in refinery capacity additions. Refining capacity rose 34.7% to 1.116 million b/d in 2021 from 828,000 b/d in 2020.

The increase was largely due to the upgrades in Baiji and Basrah refineries. The Baiji refinery, which suffered damages during its takeover by the Islamic State added 87,000 b/d, raising its capacity to 140,000 b/d. The Basrah refinery added 70,000 b/d, raising its capacity to 350,000 b/d.

Product growth

Saudi Arabia also marked the highest growth in production of petroleum products, which rose 17% to 2.548 million b/d in 2021 from 2.177 million b/d in 2020, according to OPEC Statistical Bulletin. The growth in product comes amid accelerating efforts to capture the growing market for product and feedstock in Asia.

Saudi Aramco has plans to convert up to 4 million b/d of crude into chemical products by 2030, from 1 million b/d presently.

Upstream data

Saudi Arabia’s proven crude reserves remained largely flat at 267.192 million barrels in 2021. The country added six additional rigs, taking the overall count of active rigs in 2021 to 65. Saudi Arabia’s cumulative production rose 11.7% in 2021 to 9.125 million b/d from 8.166 million in 2010.

The kingdom is producing significantly higher with output in April averaging 10.45 million b/d, according to Platts’ survey of OPEC+ producers in June. The country has increased output in line with OPEC+ directives to expand supply. However, the expanded volume is still below its quota of 10.549 million b/d.

OPEC+ ministers are set to meet on June 30 ahead of a trip by US President Biden to pressure Saudi Arabia and its allies to bring more supply to the market.

S&P Global by Jennifer Gnana, July 5, 2022

The Netherlands is planning a €1.5 billion ($1.6 billion) green hydrogen network that will consist of 85% recycled natural gas pipes. It is expected to go online in 2027.

Gasunie, a state-owned natural gas infrastructure specialist in the Netherlands, has announced plans to build a national network that will link up “carbon-free” hydrogen supply and demand.

It said the network will have an initial capacity of 10 GW and its construction will require an investment of approximately €1.5 billion.

“The national hydrogen network must be ready in 2027 and will consist of 85% recycled natural gas pipes, supplemented by new pipes,” it said. “A major advantage of this is that the costs will be a factor of four lower than if entirely new pipelines were laid.”

The development of the first pipelines will likely start after the summer and regions with strong hydrogen development, such as Rotterdam and Groningen, will be prioritized.

“The interconnected national infrastructure will not only link our ports and industrial clusters with each other and with hydrogen storage locations, but also with our neighbouring countries,” said Gasunie CEO Han Fennema.

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The first parts of the network will be built in the northern Netherlands. They will eventually be linked with assets in northern Germany, with initial operations scheduled for 2025.

“In the field of hydrogen, we have gained experience with the underground pipeline that we converted to hydrogen three years ago in Zeeuws-Vlaanderen,” said Fennema, in reference to a 12-kilometer hydrogen pipeline that Gasuine built on existing gas infrastructure in 2018.

In April, Gasunie, Rotterdam-based bulk products supplier HES International (HES) and Dutch storage specialist Vopak signed a deal to jointly develop an import terminal for green ammonia as a hydrogen carrier.

“The terminal will operate on the Maasvlakte under the name ACE Terminal and will be operational from 2026,” the company said at the time.

Dutch transmission system operator Enexis, Gasunie, and Nederlandse Aardolie Maatschappij BV (NAM) began considering the use of excess solar power generation capacity in the northeastern Netherlands for hydrogen production in late 2019.

FocusTechnica by Peter Moore, July 5, 2022

As of May 2022, refining capacity stands at 17.9 million barrels per day. With utilization at near-record highs, the refinery margins are also at a record high.

In a prior note, we look at the energy industry from a production and capital expenditure perspective. U.S. President Joe Biden has called upon the industry to increase both oil production and refining capacity.

In this note, we focus on the latter as refineries play a key role in the lifecycle of a barrel of oil by converting it into refined products including gasoline, diesel, and jet fuel.

Exhibit 1 highlights the U.S. refining system at an aggregate level. As of May 2022, refining capacity stands at 17.9 million barrels per day (bpd). In other words, the U.S. can push through a maximum of 17.9 million bpd through its system (it can fluctuate week-to-week).

We note that refinery capacity has declined by approximately 1 million barrels per day since the 2020 pandemic.

Looking at gross inputs (i.e., how many barrels are currently being pushed through the refining system), the latest reading stands at approximately 16.6 million bpd.

Exhibit 1 – U.S. Refining Capacity

Refining utilization at near-peak levels

Comparing gross inputs relative to maximum operating capacity, we arrive at a ‘utilization rate’ for the refining system as shown in exhibit 2. The latest utilization rate stands at 94.2% – in other words, the typical refining unit is running at 94% of maximum capacity.

Exhibit 2: U.S. Refining Capacity Utilization

We also look at refining utilization on a seasonality basis in exhibit 3 which shows that the current utilization rate is seasonally above the last three years which is important ahead of the summer driving season. For reference refinery utilization dropped to a pandemic low of 56% in March 2021.

Exhibit 3: U.S. Refining Capacity Utilization

With utilization at near-record highs, the refinery margins are also at a record high.

To measure margins, we look at crack spreads, which measure the difference between the purchase price of crude oil and the selling price of finished products such as gasoline and diesel. The spread excludes individual refinery operating costs but can be used as a measure of general profitability amongst refineries.

As shown in Exhibit 4, the crude oil crack spread is near a record high of $57.8 despite higher oil input prices. A contributing factor to the high spread is the average selling price of finished products including gasoline and diesel which are both at a record high.

Exhibit 4: Crack Spread

Refiners scoring high from a StarMine Perspective

Using Refinitiv Workspace, we head to the Aggregates app and look at large and mid-cap companies in North America. Exhibit 5 highlights the top-ranked sub-industries using various StarMine models.

The Oil & Gas Refining & Marketing sub-industry has 13 constituents which are ranked among the highest in North America. The sub-industry has an aggregate ranking of 89 out of 100 for both the StarMine Combined Alpha Model and Analyst Revision Model.

The mean EPS estimate for 2022 has increased by 98.44% over the last 90 days (+25.24% for Revenue) which means analysts have been busy raising estimates for companies in this industry. Refiners also score well on our Relative Valuation Model (78^th percentile) which ranks companies on a ‘cheap’ or ‘expensive’ basis using various valuation metrics.

Because refiners exhibit strong fundamentals and earnings revision, the industry is likely to pass the screens of institutional investors with a Smart Holdings rank of 78. Finally, the industry has a high Earnings Quality rank of 90 (top decile).

Exhibit 5: Aggregate StarMine Scores for North America

In conclusion, as the refining system is running at near-peak levels, it appears that the energy sector will be limited in its ability to increase refining capacity.

Furthermore, the decline in refining capacity was exacerbated during the 2020 pandemic as a collapse in oil prices forced unprofitable refineries to shut down. The energy industry is also moving to a net-zero carbon strategy which means less investment will be put into refineries which use carbons as its primary source. For example, the transition to energy vehicles will reduce demand for gasoline.

It appears that any price pressure at the pump will require either a) new facilities to be brought online and/or b) a reduction in consumer demand for gasoline to give the industry a chance to rebuild supply levels.

Alpha Insight by Lipper, July 5, 2022

Swiss-based commodity trading giant Gunvor has signed a joint development agreement with US hydrogen producer Air Products to set up a green hydrogen import terminal in Rotterdam port by 2026. 

The Gunvor site in Europoort has been earmarked to receive green ammonia, produced from renewable energy sources, for large-scale green hydrogen production, which will be distributed to markets within Europe, including the Netherlands, Germany, and Belgium.

The companies said the signing of the agreement is an important step towards an investment decision that will be taken as they gain confidence in the regulatory framework, permitting process, and funding support that the project would seek as an “Important Project of Common European Interest” (IPCEI). 

Allard Castelein, CEO, Port of Rotterdam, said: “We are very supportive of Air Products’ and Gunvor’s plans, which are a great example of using a brownfield location to set up a new import terminal for green ammonia in the port of Rotterdam.

Both companies have been active in the energy sector for a long time and are responding to society’s demand to reduce greenhouse gas emissions as well as to increase Europe’s energy independence. Green ammonia is not only a hydrogen carrier and a feedstock for the chemical industry, but it’s also an important renewable fuel for the shipping sector. First-mover projects like this will make Rotterdam Europe’s foremost hydrogen hub.”

Others have also moved to develop green ammonia import terminals for hydrogen production in Rotterdam port. Dutch state-owned energy network operator Gasunie, bulk handling firm HES International and tank storage specialist Vopak joined forces in April this year for a terminal that will operate on the Maasvlakte also by 2026.

Splash247.com by Adis Ajdin, July 5, 2022

A long-term partnership with Saudi Aramco could help China meet its energy security, economic development, and climate change mitigation goals, according to an official from the firm.

Aramco senior vice president Mohammed Al Qahtani made the claim while speaking at the third Qingdao Multinationals Summit in the Shandong Province, saying his firm’s support will allow China to create a modern, efficient downstream sector in Shandong, with lower emissions.

“This includes our special interest in large, integrated downstream projects with high conversion into chemicals. In fact, with SABIC joining the Aramco family, and with nearly 3,000 chemical enterprises already in Shandong Province, we could jointly create a chemicals sector to rival any in the world,” he added.

Shandong is China’s third-largest province in terms of gross domestic product and accounts for 26 percent of the nation’s refining capacity.

Al Qahtani said: “Saudi Vision 2030 offers major new supply chain opportunities for Shandong companies in the Kingdom. The impact of an Aramco ‘one-stop shop’ on Shandong would be profound. And it would solidify Shandong’s crucial role in making some of China’s most important goals a reality.”

By ARAB NEWS, June 28, 2022

(Montel) Germany should reach its goal to quickly bring LNG import capacity online but will struggle to get the volumes it needs from the global market, Uniper CEO Klaus-Dieter Maubach said on Monday.

“We’re facing the bigger challenge here because […] the world didn’t wait for Germany to become an LNG importer,” Maubach said at the E-world conference in Essen.

The EU’s biggest economy is looking to boost LNG imports in the near term as an alternative to natural gas piped in from Russia, although LNG exporters usually want long-term delivery contracts, he said.

“First, there is the long-term contract and then comes the investment [into LNG export capacity],” he said, adding that LNG exporters from Qatar, the US or Australia prefer 20-year contracts.

This, however, would clash with Germany’s 2045 climate neutrality goal with a planned 88% emissions cut by 2040 compared to 1990. But buying spot LNG would come at a dear price, given increased competition from Asia.

The German government has chartered four LNG import terminal ships – so-called floating storage and regasification units – together with Uniper and RWE with a combined capacity of 33bcm/year.

“I’m confident that the capacities will gradually come online,” said Maubach regarding the plans to bring two of the ships online next winter and the other two by mid-2023.

Uniper is currently receiving less than 50% of its nominated Russian gas volumes, Maubach said earlier.

Alert level
Russian Gazprom has reduced deliveries via the Nord Stream 1 pipeline to the EU by more than half over the past week, raising concerns Germany would not meet its winter storage obligations.

“If the gas flows fell so much that we see storages getting emptier over the summer then, I believe, we’re at a point where we needed to think of the next steps,” Germany’s energy state secretary Oliver Krischer told the same conference.

He referred to the EU’s three-step gas emergency plan with Germany being in the early warning level currently. The next step would be the alert level.

Russia has been Germany’s dominant gas supplier but the country – currently without any LNG import capacity – is aiming to gradually wean off its dependance from Russia due to its invasion of Ukraine.

Germany’s gas storage levels were last seen at 57.6%, up 0.6 percentage points on the day, according to Gas Infrastructure Europe.

MONTEL by Andreas Lochner, June 27, 2022

Mexico’s president said Saturday he hopes for construction of the Jaltipán-Salina Cruz natural gas pipeline to be complete within a year at the most.

The proposed 500 MMcf/d pipeline would span the Tehuantepec Isthmus, from Chinameca, Veracruz, to Salina Cruz, Oaxaca, where the government is planning a 3 million metric tons/year floating liquefied natural gas (LNG) export terminal.

State power company Comisión Federal de Electricidad (CFE), which is overseeing both projects, still must obtain the necessary rights-of-way for the pipeline to go forward, said President Andrés Manuel López Obrador during a speech in Salina Cruz.

Once the pipeline is in place, the government plans to conduct a tender for construction of the floating storage and production unit (FSRU), said the president, who is known by his initials AMLO.

“There is an agreement to put a liquefaction plant in Salina Cruz,”he said, though he did not name the parties involved.

CFE last year sought formal expressions of interest from firms in building and operating the pipeline and terminal. No announcement has been made as to which firm might undertake the project.

By developing an LNG export terminal on the Pacific Coast, CFE is aiming to export gas sourced via its extensive pipeline network to consumers in Asia. “We have a gas contract that allows us to have sufficient volumes to export to Asia, but we have it in the Gulf [of Mexico] and we need a pipeline so that here in Salina Cruz, we can build a liquefaction plant,” the president said.

The FSRU would require investment of 60 billion pesos, or about $2.93 billion, said López Obrador. 

The Salina Cruz terminal is one of several LNG export projects under development or proposed on Mexico’s Pacific Coast meant to capitalize on demand in Asia for North American LNG.

Imports account for 84% of Mexico’s gas consumption as of February, excluding the gas that state oil company Petróleos Mexicanos (Pemex) produces and consumes itself. 

Experts, however, remain skeptical about the logistics and economics behind re-exporting U.S. gas from Salina Cruz specifically.

“I absolutely do not see it is feasible because there is no way to bring gas all the way down there,” independent energy analyst Rosanety Barrios told NGI. “It requires substantial improvement in the current gas infrastructure and compressor stations. Nobody is doing anything in this sense.”

Barrios said that Sempra’s proposed Vista Pacífico terminal in Topolobampo, Sinaloa, or Mexico Pacific Ltd.’s project planned for Puerto Libertad, Sonora, would make more economic sense.

Even with sufficient infrastructure in place, the transport costs required to move gas from the United States to Salina Cruz would make it difficult for the terminal to be competitive, Barrios explained.

Mexico City-based analyst Gonzalo Monroy expressed a similar view, noting that the idea of an LNG export terminal in Salina Cruz has been under discussion for years.

The original idea was to source the gas from Pemex production in southeastern Mexico. The problem is that Pemex now consumes most of the gas it produces to stimulate oil production and for other internal processes.

“And in that regard…López Obrador is reviving an old idea which still lacks all the infrastructure, all the economic logic,” Monroy told NGI.

The government also plans to invest 60 billion pesos, via Pemex, in a coker unit at the Salina Cruz refinery. The coker unit, FSRU and gas pipeline are all part of López Obrador’s larger Tehuantepec Isthmus Interoceanic Corridor project. 

NATURAL GAS INTELLIGENCE by Andrew Baker, June 27, 2022

Gazprom cuts supplies of gas as Europe races to fill its storage tanks. These crossed the halfway mark on June 7 and are now 51.12% full, as the EU seeks to replenish its supplies ahead of the coming winter. That race became even more poignant after Russia’s state-owned gas behemoth Gazprom cut supplies to Europe, claiming Siemen’s failure to return compressor units on time has forced the Russian company to reduce supplies by 60%.

The pumping of gas into European underground gas storage facilities in May not only reached a record level for this month, but hit the highest level since records started in 2011, according to Gas Infrastructure Europe (GIE). LNG imports to Europe also reached a record level last month.

Some 15.6bn cubic metres of gas were pumped into European storage facilities in May, up by 52% compared with last year’s pumping in the same period and by 11.5% compared with the previous record of May 2018.

Europe went into last year’s heating season, which starts on October 1, with the lowest levels of gas in storage in many years. Tanks were only 74% full on October 1, 2021 against the 80%-95% that was usual in previous years.

However, extra supplies of LNG from the US and Qatar combined with a relatively mild winter meant that the EU scraped through the season, which ended on March 31. European tanks were still 26.3% full on that day, well ahead of the 10%-12% that analysts feared might be left.

The distribution of gas storage in Europe is not even. The Polish gas tanks, for example, are already 96% full and a new pipeline bringing gas from Norway to Poland is due to come online at the start of October, making Poland the first European country to entirely break its dependence on Russian gas. Portugal’s tanks were also over 90% full by June, although Portugal relies heavily on LNG imports and is not an integral part of the European gas pipeline network.

The UK, Czechia and Denmark gas tanks are also just over 70% full, putting them in comfortable positions. However, many other EU countries have far less, with Sweden at the bottom of the list with only 10% and Croatia and Bulgaria both with less than 30%.

However, the key countries of German and Italy have 55.95% and 53.9% respectively and are by far the biggest consumers of gas. As Germany is home to the largest gas tanks in Europe it acts as a EU distribution hub for gas. It already has enough to meet its domestic needs in this coming winter and the excess can be distributed to other EU countries as demand requires. Between them German and Italy already account for more than 40% of all the gas in storage in Europe.

Ukraine has even bigger storage facilities and is a major source of gas during the winter, but its tanks are only 18.6% full as of June 16. Still, even at low levels the gas in storage in Ukraine is already equal to more than 10% of all gas stored in Europe.

Gazprom cut off

Gazprom reported on June 14 it was reducing gas supply via Nord Stream 1 to 100mn cubic metres per day, down from a previous plan of 167 mcm per day. Russia said that the technical watchdog Rostekhnadzor had ordered a temporary halt as parts to repair some Siemens equipment were unavailable due to Western sanctions. As a result, only three gas-pumping units remain in operation, it said.

Gazprom’s “technical problems” come after it halted deliveries to some European countries after companies in Bulgaria, Denmark, Finland, the Netherlands, and Poland refused to pay for natural gas in rubles, as demanded by the Russian government.

Gas transit to Europe via Ukraine has also been caught up in the war and deliveries via Sokhranivka in Ukraine that normally account for a third of the total were taken offline in May as the war affected Ukraine’s gas transit business for the first time. The Gas Transmission System Operator of Ukraine (GTSOU) said it had taken the station offline as it was now in Russian occupied territory.

Deliveries to Europe via Ukraine slumped to 9 bcm from 14 bcm between January and April this year compared with the same period a year earlier.

Gazprom was transiting the maximum allowed volumes of about 109 mcm per day for two months after the war in Ukraine started in February, and used the reserved capacity in full until the end of March 2022.

Europe has been replenishing its storage tanks at the fastest rate in many years. At the end of winter Brussels ordered that the tanks be 90% full by the start of the heating season, just as the debate on shutting off Russian gas deliveries to Europe completely was gathering steam. That goal was later revised down to 80%, but the pace has been relentless.

The fast pace has been fed by record deliveries of LNG to Europe. The US made 15 bcm available and has diverted some of its deliveries from Asia to ensure that its allies in Europe have enough gas before the winter.

LNG supplies from terminals to Europe’s gas transport system in May hit a record high for the month, reaching 10.8 bcm, which exceeds the previous record of 10.27 bcm of May 2020. LNG reserves in EU states are 13% higher now than in 2021, and 12% higher than a five-year average.

The Grain LNG terminal in the UK, the largest in Europe and eight-largest in the world, posted record gas send-out levels in April, as high demand for gas from Europe pushed utilisation rates up, with LNG tankers arriving from eight new countries since January. The terminal saw its highest ever utilisation rate in April, sending out an average of 431 GWh per day, more than the previous high of 412.2 GWh in April 2021, reports bne IntelliNews’ sister publication Newsbase.com.

Total LNG deliveries to Europe’s gas transport system have reached around 52.45 bcm year-to-date. To compare, Gazprom exported 61 bcm of gas to non-CIS states (including China) in the same period.

And Europe’s LNG capacity will only grow. In the wake of Russia’s invasion of Ukraine, a raft of new LNG import projects have been proposed across Europe, while a number of pre-invasion projects that once were considered to have a questionable economic case are now moving forward swiftly.

The flood of gas entering Europe has also taken the pressure off prices which soared 20-fold during the worst of the European gas crisis that started last summer.

However, LNG deliveries to Europe from the US will likely slow following an explosion at the US Freeport terminal in Texas this month. Freeport LNG, one of the largest sources of US LNG exports, is due to remain shut for three weeks, and the downtime could be longer given that the extent of the damage is yet to be determined, Rystad Energy said in a note. The plant had been running at close to its capacity in recent months, helping Europe offset recent disruptions in Russian supply.

The bulk of Freeport LNG’s output had been heading to Europe before the incident – rising from 40% in March to close to 60% in May. The plant has been able to quickly divert extra supply to Europe amid soaring prices and Moscow’s invasion thanks to the fact that most of its capacity is uncontracted.

Who dunnit?

Gazprom was accused of squeezing gas supplies to Europe last year and exacerbating the gas crisis to put pressure on the EU to sign off on new long-term gas contracts the Kremlin needs to develop its vast Yamal gas deposits.

Gazprom made a point of sticking scrupulously to the terms of its supply contracts at a time when shortage and panic had sent gas spot prices through the roof.

Now some observers say that Gazprom is again using gas as a political weapon in Russia’s confrontation with the West with the goal of making sure that Europe does not have enough gas in storage before the heating season starts in October.

However, with Europe’s tanks, and especially those in Germany and Italy, half full by June it seems that Europe is on course to have enough gas ready to use in five months’ time.

Gazprom’s slowdown in delivery – and the Nord Stream 1 pipeline is due for its annual maintenance break in July – also can be seen as a threat of the Kremlin deciding to unilaterally cutting Europe off from gas as part of its clash with the West. This scenario is considered highly unlikely by analysts as although it would cause a gas crisis in Europe, the deliveries would not be restarted and the Kremlin would have to forego significant amounts of revenue it currently badly needs to finance its war.

bne INTELLINEWS, by Ben Aris, June 24, 2022