Category: Nieuws

Fitch Ratings-Shanghai/Hong Kong-08 March 2023: Chinese oil refineries’ margins are likely to recover in 2023 on a smoother cost pass-through, higher exports and a domestic demand rebound, Fitch Ratings says.

National oil companies’ (NOCs) gas import losses may also narrow as import costs decline.

Domestic fuel consumption is set to recover in 2023, especially in gasoline and jet fuel due to a low base and increase in road and air travel, partially offset by rising electric-vehicle penetration.

Diesel demand growth will taper from 2022’s high base and hinges on the industrial demand recovery, which we expect to be more modest than the consumption recovery.

Fitch also expects higher exports to support NOCs’ refining margins. A generous first batch of China’s 2023 export quota will allow refineries to earn higher export margins after year-on-year crack spreads widened to a record high despite extreme volatility.

Russian refined oil products’ export ban, China’s reopening and global refinery shutdowns should support crack spreads in 2023, though export demand could be dampened by global recessionary risks.

NOCs incurred gas import losses in 2022 as higher costs could not be fully passed through. However, we expect gas import losses to narrow in 2023 on potential import cost declines as crude prices fall and the gas shortage eases in Europe.

Fitch expects downstream-focused China Petroleum & Chemical Corporation’s (Sinopec, A+/Stable, Standalone Credit Profile (SCP): a-) financial profile to strengthen in 2023. Steady upstream performance mitigated weak downstream performance in 2022.

We expect further improvement in EBITDA net leverage for upstream-focused PetroChina Company Limited (A+/Stable, SCP: aa-) and its parent, China National Petroleum Corporation (A+/Stable, SCP: aa-), and CNOOC Limited (A+/Stable, SCP: a).

By FitchRatings, March 15, 2023

US crude exports have reached a record high as trade flows have shifted following the Russian invasion of Ukraine, but more midstream infrastructure will be needed to push exports higher, panelists at CERAWeek by S&P Global said March 7.

A year removed from the Russian invasion, Europe continues to look for replacement barrels for Russian supply with a significant portion traveling from North America.

As a result, oil flows across the globe have reshuffled.

“Traditional alliances are shifting,” said Sean Strawbridge, CEO of the Port of Corpus Christi. Energy is going to play a major role in the reconfiguration of relations with Russia, China and even Saudi Arabia as they moved away from Western alliances, he added.

US exports of crude climbed to a record high of 5.629 million b/d for the week ended Feb. 24, up nearly 2 million b/d from the same time last year, according to the most recent weekly data from the US Energy Information Administration.

Cory Prologo, head of North American trading at Trafigura, said export capacity would depend on international demand and energy transition.

However, he warned that export capacity could be stunted by a lack of investment in supporting infrastructure and by lengthy regulatory requirements.

For instance, Strawbridge noted, it currently takes 240 days on average for to permit an offshore loading terminal capable of handling VLCCs.

“Most 404 permits average about 240 days in this country,” he said, in reference to Section 404 of the Clean Water Act that requires permitting for any work, including construction and dredging in navigable waters.

“That is also endemic of why we need more regulatory reform and more accountability from these federal agencies who are responsible for issuing these permits,” he said.

Frederick Forthuber, president of Oxy Energy Services, said the industry might need to expand pipelines to the US Gulf Coast in order to feed an increase in crude exports, with the company’s current exports at 4 million b/d.

Since March 2, six VLCC’s have been booked from the USGC to Asia and two to Europe, S&P Global Commodity Insights data shows. As foreign demand for US crude grows, there haven’t been enough VLCCs available to curtail higher freight levels.

Shipowners have gotten ahead of the demand, with each deal being settled higher than the previous one. Additionally, firmer levels at the US Gulf Coast have caused ballasting as ships prefer the region over others to take advantage of higher rates.

VLCC rates on the USGC to China route were last assessed by Platts at $37.04/mt on March 6. While that was down from a recent peak of $54.63/mt on Nov. 18, it was up from around $18/mt at the beginning of 2022. Platts is a unit of S&P Global.

Enbridge said on March 1 it will move ahead with the construction of an Enbridge Houston Oil Terminal in Texas.

The terminal will provide export opportunities through the Seaway docks at Freeport and Texas City, as well as future access to Enterprise Products Partner Sea Port Oil Terminal.

The larger aim is to bring their reliable production of crude to global markets and meeting growing demand, Executive Vice President Colin Gruending said on the sidelines. “Canadian heavy crude is needed to fill the equation,” he said.

US crude production is expected to grow, even if at a slower pace. S&P Global expects US crude output to grow by 931,000 b/d in 2023. Growth will come primarily from the Permian Basin.

Forecasts by S&P Global show a steady build in domestic crude production in the US and Canada, with this year projected to surpass pre-pandemic production levels in the US. From 2023, the US is expected to see a 794,000 b/d growth in production by 2030.

Canadian production exceeded pre-pandemic levels in 2022 and is projected to grow 469,000 b/d in the same timeframe.

S&P Global by Binish Azhar, March 14, 2023

A year on from Russia’s initial invasion of Ukraine, Russian fossil fuel exports are still flowing to various nations around the world.

As Visual Capitalist’s Niccolo Conte details below, according to estimates from the Centre for Research on Energy and Clean Air (CREA), since the invasion started about a year ago, Russia has made more than $315 billion in revenue from fossil fuel exports around the world, with nearly half ($149 billion) coming from EU nations.

This graphic uses data from the CREA to visualize the countries that have bought the most Russian fossil fuels since the invasion, showcasing the billions in revenue Russia has made from these exports.

As one might expect, China has been the top buyer of Russian fossil fuels since the start of the invasion. Russia’s neighbor and informal ally has primarily imported crude oil, which has made up more than 80% of its imports totaling more than $55 billion since the start of the invasion.

The EU’s largest economy, Germany, is the second-largest importer of Russian fossil fuels, largely due to its natural gas imports worth more than $12 billion alone.

Turkey, a member of NATO but not of the EU, closely follows Germany as the third-largest importer of Russian fossil fuels since the invasion.

The country is likely to overtake Germany soon, as not being part of the EU means it isn’t affected by the bloc’s Russian import bans put in place over the last year.

Although more than half of the top 20 fossil fuel importing nations are from the EU, nations from the bloc and the rest of Europe have been curtailing their imports as bans and price caps on Russian coal imports, crude oil seaborne shipments, and petroleum product imports have come into effect.

Russia’s Declining Fossil Fuel Revenues

The EU’s bans and price caps have resulted in a decline of daily fossil fuel revenues from the bloc of nearly 85%, falling from their March 2022 peak of $774 million per day to $119 million as of February 22nd, 2023.

Although India has stepped up its fossil fuel imports in the meantime, from $3 million daily on the day of the invasion to $81 million per day as of February 22nd of this year, this increase doesn’t come close to making up the $655 million hole left by EU nations’ reduction in imports.

Similarly, even if African nations have doubled their Russian fuel imports since December of last year, Russian seaborne oil product exports have still declined by 21% overall since January according to S&P Global.

Other Factors Impacting Revenues

Overall, from their peak on March 24th of around $1.17 billion in daily revenue, Russian fossil fuel revenues have declined by more than 50% to just $560 million daily.

Along with the EU’s reductions in purchases, a key contributing factor has been the decline in Russian crude oil’s price, which has also declined by nearly 50% since the invasion, from $99 a barrel to $50 a barrel today.

Whether these declines will continue is yet to be determined. That said, the EU’s 10th set of sanctions, announced on February 25th, ban the import of bitumen, related materials like asphalt, synthetic rubbers, and carbon blacks and are estimated to reduce overall Russian export revenues by almost $1.4 billion.

By OilPrice.com, March 14, 2023

OPEC is once again the most influential force in global oil supply – and will be so for the foreseeable future – now that U.S. shale production growth is slowing, American industry executives say.

The days of exponential growth in U.S. oil supply from before the pandemic are over, as capital discipline, returns to shareholders, supply-chain bottlenecks, cost inflation, and lower well production combine to hold back production increases.    

During the 2010s, the shale industry boomed as companies drilled all they could – often beyond their means – to boost production. U.S. oil supply was growing so quickly that America was often referred to as the new swing producer on the market, capable of ramping up output quickly when global oil prices and demand were rising.  

The post-Covid reality is quite different—U.S. shale production is recovering, but at a slow pace, and output hasn’t reached the record levels from late 2019 and early 2020.

“The plateau is on the horizon”

The U.S. Energy Information Administration estimates in its latest Short-Term Energy Outlook (STEO) from this week that U.S. crude oil production would rise from 11.88 million barrels per day (bpd) in 2022 to 12.44 million bpd this year. 

The expected growth of 560,000 bpd year over year is half the pre-pandemic growth pace. For several years, U.S. oil production rose by more than 1 million bpd every year to 2019. 

U.S. oil executives also expect just 500,000 bpd growth this year, some said at the CERAWeek energy conference in Houston this week. 

Growth is set to further slow in 2024, with production seen to average 12.63 million bpd next year, per EIA estimates. That’s less than 200,000-bpd growth from the estimated average level for 2023. 

“The plateau is on the horizon,” ConocoPhillips’ CEO Ryan Lance said at CERAWeek, as carried by the Financial Times.

The U.S. oil industry is now prioritizing shareholder returns, despite criticism from the White House. Faster depletion rates at many wells combine with labor and supply chain hurdles to hold back growth.

Chevron, for example, flagged at its investor day last week that it fell short of its performance targets in the Delaware basin in the Permian “primarily due to higher-than-expected depletion after completing long-sitting DUCs.”

OPEC Market Share To Surge

As U.S. production growth stalls, OPEC’s market share and clout over global oil supply will only rise. The cartel, led by its biggest Arab Gulf producers, is in control of the markets now, shale executives say.

“The world is going back to what we had in the ‘70s and the ‘80s unless we do something to change that trajectory,” ConocoPhillips’ Lance told delegates at CERAWeek. 

According to the executive, OPEC’s market share will jump from around 30% now to close to 50% in the future, in which additional supply comes from OPEC and U.S. shale growth plateaus.  

Scott Sheffield, CEO at the largest pure-play shale producer, Pioneer Natural Resources, told FT on the sidelines of CERAWeek, “I think the people that are in charge now are three countries — and they’ll be in charge the next 25 years.” “Saudi first, UAE second, Kuwait third.”

Saudi Arabia, the United Arab Emirates, and Kuwait all plan to raise their oil production capacity this decade. And they are set to meet a growing share of global oil demand now that U.S. shale cannot and does not want to respond with higher production. 

“The shale model definitely is no longer a swing producer,” Sheffield told FT earlier this year.

The market is now back in the hands of OPEC, but the cartel alone cannot meet all the expected growth in demand.

OPEC Warns Underinvestment Will Lead To Supply Crunch

Sure, the biggest OPEC producers in the Middle East are investing to boost capacity, but production elsewhere is either shrinking or stalled, while investment in supply has been underwhelming for years, OPEC officials say.

Increasing capacity and supply is “a global responsibility that OPEC cannot shoulder on [its] own,” OPEC Secretary General Haitham Al Ghais said in Houston. 

The oil industry needs a lot more investments just to keep supply at current levels. OPEC may be doing its part, also in view of raising its market share and influence over the oil market. But few other producers are doing anything, as firms other than the national oil companies (NOCs) of OPEC are put off by continued mixed messages from policymakers about the future of the oil industry in a world chasing net-zero emissions. 

Investment in oil and gas needs to rise significantly if the world wants to avoid sleepwalking into a supply crisis, OPEC officials have been warning for years. 

Unless investments rise, “I am afraid we will have issues for energy security and affordability,” OPEC’s Secretary General Al Ghais said this week.  

Al Ghais also met in Houston with top U.S. shale executives to discuss global oil supply and the tight global spare capacity. Suhail Al Mazrouei, the UAE’s Energy Minister, told Bloomberg TV last month, “I’m not worried about demand — what worries us is whether we are going to have enough supplies in the future.”

OilPrice.com by Tsvetana Paraskova, March 14, 2023

Meeting the world’s growing energy needs while transitioning to a low-carbon future is a massive challenge.

ILTA member companies know this work will demand our efforts for decades. The recent Sustainable Development Scenario released by the International Energy Agency projects that nearly 50% of the world’s energy needs will be supplied by oil and natural gas in 2050, even if every nation meets its commitments under the Paris Climate Agreement.

Terminal companies will remain essential to supply chains for petroleum-based fuels, while also playing a vital role in enabling the growing demand for biofuels, hydrogen, ammonia and other alternative fuels and energy carriers.

As the world undergoes the energy transition to low- and no-carbon fuels, liquid terminals will play an essential role in the storage, logistics and transport of these products.

Terminal companies are uniquely positioned to apply their expertise and physical assets to the supply chains of tomorrow’s fuels, just as they do for the fuels of today. One major hurdle in the energy transition is the lack of adequate infrastructure to distribute energy to the right location at the right price.

The enormous assets of our current energy infrastructure — including pipelines and liquid terminal facilities — have tremendous potential for repurposing for alternative fuels. But even more importantly, the terminal industry offers the knowledge and specialized skills of a highly trained workforce. These are the people who can help us succeed by implementing new technologies and innovations, while also ensuring compliance with evolving safety and environmental standards.

This is an exciting time in the energy sector and many terminal companies are exploring opportunities within potential pathways to our energy future. One important area is hydrogen. Hydrogen can be transported as a gas, possibly by converting natural gas pipelines or constructing new pipelines.

However, pipeline construction can be an extremely expensive and time-consuming process. An interesting approach that is getting a great deal of attention is liquefied hydrogen, which is comparable to LNG in its ability to be shipped and stored. However, as in the case of LNG, liquefaction is a capital-intensive process.

Moreover, the supply chain must be extremely cold, which imposes significant financial and energy costs.

A second solution pathway is the use of ammonia as an energy carrier. Liquid ammonia has a higher energy density (11.5 MJ/liter) than liquid hydrogen (8.5 MJ/ liter).

As a liquid at ambient pressures and temperatures, ammonia is also easier and cheaper to store and transport than liquid hydrogen and can utilize a greater range of existing infrastructure and equipment.

Ammonia is attracting attention among many in the energy industry. Japan, for instance, is planning to import millions of tons of ammonia by 2030.

The largest port in Europe, the Port of Rotterdam, is leading an initiative of 18 companies exploring the establishment

of a large-scale ammonia cracker, which could enable imports of 1 million tons of hydrogen per year. However, bulk storage of ammonia requires specialized safety and security measures and may not be suitable for all markets.

A third pathway is the use of liquid organic hydrogen carriers (LOHC), which are organic compounds that can absorb and release hydrogen through chemical reactions.

Existing tanks and pipelines are compatible with storage and transportation of LOHCs. However, disadvantages include high hydrogen pressure requirements and high reaction temperatures for both hydrogenation and dehydrogenation steps, which require different catalysts and high costs.

Reducing global emissions will require well-coordinated efforts by governments, businesses, supply chains, consumers and other stakeholders. As essential partners in the energy transition, the liquid terminal sector is committed to the innovation and evolution that will be necessary to succeed.

BIC Magazine by Kathryn Clay, March 7, 2023

Oil and gas prices are in another mini-slump, nearly three years after they were hit by the first wave of the COVID-19 pandemic in North America and Western Europe.

But the latest downturn is part of a cycle in manufacturing activity and energy prices that has repeated with an average duration of three to four years since the early 1990s.

After adjusting for core consumer prices, the price of Brent crude has fallen by 34% from the peak in May 2022 and U.S. Henry Hub natural gas is down by 73% from the peak in August 2022.

In real terms, oil prices are in the 67th percentile for all months since 1990, down from the 86th percentile in May, while U.S. gas prices have slumped to only the 3rd percentile, down from the 86th percentile in August.

Prices have fallen in response to a combination of factors, including the impact of sanctions on Russian exports, a milder-than-normal winter, the explosion at Freeport LNG, and a slowdown in manufacturing and freight transport.

CYCLICAL RESEARCH

In the late nineteenth and early twentieth centuries, researchers identified several cycles in business activity, prices and interest rates:

• Kitchin cycles lasting 3 to 4 four years, attributed to the accumulation and liquidation of excess inventories (“Cycles and trends in economic factors”, Kitchin, 1923).
• Juglar cycles lasting 7 to 11 years, attributed to investment in longer-lived fixed assets such as machinery (“Commercial crises and their return in France, United Kingdom and United States”, Juglar, 1862).
• Kuznets cycles with a duration of 15-25 years, attributed to construction, demographics and migration (“Secular movements in production and prices”, Kuznets, 1930).
• Kondratieff waves lasting 45-60 years, attributed to the diffusion of major new technologies such as the internal combustion engine and electricity (“Long waves in economic life”, Kondratieff, 1926).

Researchers hypothesised cycles of differing durations could be nested, for example each 7-11 Juglar cycle could be decomposed into two or three separate 3-4 year Kitchin cycles.

In practice, both the magnitude and duration of short and long-term cycles proved too variable to be much use in forecasting (“Approaches to the business cycle, Zarnowitz, 1988).

And the expansion of the service sector, which is more stable than manufacturing, contributed to the marginalisation of business cycle research.

As a result, research on business cycles moved in other directions, and policymakers increasingly aimed to eliminate cyclical instability altogether.

REGULAR VARIATIONS

Notwithstanding problems identifying, classifying and explaining cycles in output, employment, prices and interest rates, the time series for manufacturing activity continues to show a strong cyclical component.

Since 1995, there have been eight cycles in U.S. manufacturing activity, based on the Institute for Supply Management’s purchasing managers’ index, averaged over 12 months to smooth some of the short-term volatility.

Troughs around October 1995, September 1998, May 2001, February 2007, January 2009, November 2012, December 2015, November 2019 and tentatively January 2023 have occurred on average every 41 months, with a range from 23 to 69 months.

Since 1995, there have also been eight cycles in oil and gas prices, based on the change in real prices compared with the prior year and averaged over 12 months.

Oil and gas cycles have been closely correlated with each other and with U.S. manufacturing activity.

On average, troughs in oil prices occur within ±3 months of a turning point in U.S. manufacturing activity, while troughs in gas prices occur within ±4 months.

LOSING MOMENTUM

U.S. manufacturing activity appears to be forming a trough at present, with the ISM index falling below the 50-point threshold dividing expansion from a contraction every month between November 2022 and January 2023.

The current manufacturing cycle is 34 months or 39 months long (depending on whether the trough is dated to April 2020 or November 2019), approaching the average duration of 41 months for cycles since 1995.

Some softness in manufacturing activity as well as oil and gas prices should therefore be expected at this point.

Not every cyclical slowdown in manufacturing turns into a full-blown recession; there have been eight manufacturing cycles since 1995 but only three were declared recessions by the U.S. National Bureau of Economic Research.

The others were mid-cycle slowdowns, often termed a “soft patch” by policymakers, followed by a re-acceleration of activity and an extension of the business cycle.

There is no way to determine in advance whether the current manufacturing slowdown will turn out to be a mid-cycle one or a cycle-ending recession. But the type matters enormously.

WHAT NEXT?

If the current slowdown proves to be a mid-cycle soft patch, gas and especially oil prices are likely to rise strongly later in 2023.

Global inventories of petroleum, especially the most cyclically sensitive components such as distillates, are still below the long-term average.

In the event the economy re-accelerates, inventories will deplete quickly, and there is little spare capacity to rebuild them in the short term.

Gas inventories are currently more comfortable after a mild winter in 2022/23 but could also deplete quickly if the economy accelerates and winter 2023/24 reverts to more average weather.

By contrast, if the current slowdown turns into a cycle-ending recession, both gas and oil stocks will accumulate and prices will come under more pressure in the near term.

The resulting accumulation of inventories and spare production capacity would create some cyclical slack and defer the onset of the next upswing in prices until 2024.

In reality, the trough identified in November 2019 occurred around April 2022 during the first wave of the pandemic, but the rebound was so strong it has moved the calculated trough in the 12-month average earlier.

Reuters by John Kemp, March 7, 2023

he European Union’s ban on Russian fuel imports that begins next week is expected to keep profit margins high this year at U.S. oil refiners, executives said on Tuesday, as global fuel trade shifts.

A Feb. 5 ban on Russian fuel product imports could keep margins high this year and strain inventories of distillate fuels and vacuum gasoil (VGO), a key Russian intermediate, refiners said on first quarter earnings calls.

Exxon Mobil (XOM.N), Marathon Petroleum (MPC.N) and Phillips 66 (MPC.N) on Tuesday posted strong 2022 refining results, citing high demand for diesel and jet fuel and elevated operating rates.

Tight fuel supplies this year will hold margins high, said Exxon Chief Executive Darren Woods, adding the tailwind could last into 2024.

Marathon’s refining margins last year surged 81.5% from a year ago to $28.82 per barrel, while rival Phillips 66’s jumped 65% to $19.73 per barrel. Valero’s margins more than doubled to $6.3 billion from a year earlier.

“Most people in the trade today think that the sanctions will actually result in a reduction in Russian refinery utilization, and you’ll see lower exports of VGO and diesel coming out of Russia when the sanctions take place,” Gary Simmons, chief commercial officer at Valero, said last week.

Lower diesel inventories with VGO and the EU ban’s potential impact on Russian exports will further bolster refining margins, Rick Hessling, a Marathon senior vice president, said Tuesday.

Marathon exports up to 350,000 barrels per day to Latin America, but is seeing “an incremental pull into Europe,” according to Brian Partee, senior vice president of global clean products. The full impact of the EU ban likely won’t be felt until the second quarter, he added.

If Russia discounts its fuel exports, they may set the “minimum price” in those marketplaces where U.S. refiners also compete, said Richard Harbison, senior vice president of refining at Phillips 66.

Russian exports into Northwest Europe accelerated ahead of the ban, which could impact U.S. exports, refiners said.

“We’re entering the sanction period of time at really historically high levels of inventory,” said Marathon’s Partee.

Still, Russian fuel has product specification that could make it difficult to place in markets unaccustomed to the fuel, he said.

“The supply assurance component is really a big unknown,” he added.

Reuters by Laura Sanicola, February 28, 2023