Category: Nieuws

Almost unnoticed, oil refining margins have once again exploded, and that’s a problem for consumers.

The price of crude matters for Saudi Arabia, Russia and other producers. It also matters for oil refiners. But what matters for consumers is the cost of refined products. And higher refining margins mean gasoline, diesel, jet fuel and other petroleum products are becoming dearer.

Oil refineries are complex machines, capable of processing multiple streams of crude into dozens of different petroleum products.

For simplicity’s sake, the industry measures refining margins using a rough calculation called the “3-2-1 crack spread”: for every three barrels of crude oil the refinery processes, it makes two barrels of gasoline and one barrel of distillates like diesel and jet fuel.

On Tuesday, the WTI 3-2-1 crack spread touched a three-month high of $42 a barrel.

If we aren’t hearing the alarm bells it’s because we’re deaf after refining margins reached eye-watering levels in 2022, when the 3-2-1 crack spread briefly surged above $60. But from a historical perspective, current margins are sky-high, as well.

Central banks need to keep an eye on them since they could be leading indicators of higher gasoline and diesel costs — and hence inflation. Take the cost of jet fuel in the wholesale market, for example.

In New York harbor, it changed hands Monday at the equivalent of about $185 a barrel.

From 1985 to 2021, the WTI 3-2-1 crack spread averaged about $10.50 a barrel. Even between 2004 and 2008, during the so-called golden age of refining, the crack spread never surpassed $30.

In more than three decades of data, the crack spread has only traded above its current level for 72 days — all of them in 2022, barring Monday and Tuesday this week.

Four factors explain why refining margins are rising.

Bloomberg by Javier Blas, January 31, 2023

For several weeks now, wintry temperatures have been causing levels in German gas storage facilities to drop. With currently 83.8 percent, however, they are well filled. On average, less was consumed than in previous years.

The winter weather made it difficult to save gas last week: Overall, gas consumption in the third calendar week was still 9.4 percent below the average consumption of the previous years from 2018 to 2021. In the week before, however, the decline was mainly due to significantly higher temperatures still at 34 percent.

Taken together, the temperature-adjusted consumption in weeks two and three of the current year was around 19.5 percent below the reference value for the years 2018 to 2021, as the Federal Network Agency announced in its daily gas management report.

Levels have been falling since the beginning of the year

“In the third calendar week we save (too) little gas due to the temperature,” wrote the President of the Authority, Klaus Müller, on Twitter. “Despite well-stocked gas storage facilities and important new LNG terminals, we need 20 percent savings for the winter of 23/24,” Müller continued.

The filling levels in Germany have been falling overall since January 9th. Before that, data had been stored for more than two weeks – which is not typical for the time of year. According to the German Weather Service, temperatures are expected to rise slightly from next week.

Today, gas storage levels fell by one percentage point for the second day in a row. This is the result of data from the European gas storage association GIE. On Wednesday morning, the fill level was 83.8 percent. For comparison: on January 24, a year ago, the fill level was 37.8 percent.

Gas storage as a buffer

The storage serves to compensate for fluctuations in gas consumption. They thus form a buffer system for the market. The filling levels usually decrease after the start of the heating period in autumn. On the morning of November 14, a fill level of 100 percent was recorded.

The EU Commission wants the member states to aim for a fill level of 55 percent across the EU on February 1, provided the winter months are not colder than average.

It should be noted that gas continues to flow permanently through pipeline imports to Germany, according to the Federal Network Agency on Tuesday from Norway, the Netherlands and Belgium. Germany now also receives natural gas via LNG terminals on German coasts.

Globe World News Record by David Sadler, January 31, 2023

The Caspian Pipeline Consortium (CPC), which handles the transportation and exports of most of the crude oil pumped in Kazakhstan, is ready to transport more crude to the export terminals on the Black Sea, CPC’s director general Nikolay Gorban said on Friday.

Last year, a total of 58.7 million tons of oil were transported through the Tengiz-Novorossiysk pipeline system, of which about 52.2 million tons were pumped in Kazakhstan, Gorban told Kazakhstan’s Energy Minister Bulat Aqchulaqov during a meeting today.

The 1,500-km CPC pipeline from the giant Kazakh oilfields in the Caspian Sea to Novorossiysk, on the Russian Black Sea coast, moves over two-thirds of all Kazakhstan export oil along with crude from Russian fields, including those in the Caspian region.

Kazakhstan’s oil production and exports were lower in most of the second half of 2022, due to a partial outage at the huge Kashagan oilfield due to a gas leak and urgent repairs needed at two of the CPC’s terminals on the Black Sea.

CPC was expected to complete the repairs at one of the mooring points at its Black Sea oil export terminal in November, in what would soon mark an increase in Kazakh oil shipments.

Oil exports from Kazakhstan via the Black Sea terminal faced at least a month of reduced shipments and disrupted loading schedules due to urgent repairs needed at two of the terminal’s three Single Point Moorings, the consortium said at the end of August.

In the third and fourth quarter of 2022, Kazakhstan’s massive oilfield Kashagan was down or pumping at reduced rates after a gas leak was detected on the site in August.

A few days later, the field operator said that the 400,000 barrels per day (bpd) oilfield would partially restart production, and upon completion of repairs and integrity verification, full production would be restored at the facility.

In 2023, Kazakhstan hopes to deliver up to 1.5 million tons of oil through the Baku-Tbilisi-Ceyhan pipeline, as part of growing efforts to find export routes bypassing Russia.

OilPrice.com by Tsvetana Paraskova, January 20, 2023

As part of the BGG Tianjin Nangang LNG terminal, China Huanqiu Contracting & Engineering Co. Ltd (HQCEC) has completed the construction of two Liquefied Natural Gas (LNG) onshore storage tanks, each with a capacity of 220,000 m3.

They are the world’s largest onshore LNG storage tanks incorporating the GST® membrane containment technology.

These very large onshore LNG tanks are part of the agreement signed in November 2019 between GTT and the Chinese state-owned company Beijing Enterprises Group (BEG), relating to the construction of eight onshore tanks[3] using GST® technology, at the BGG Tianjin Nangang LNG terminal.

The construction schedule remained on track, despite the constraints imposed by the COVID-19 pandemic. The two onshore tanks are now entering the commissioning phase and will be operational in the first half of 2023.

The GST® technology developed by GTT offers many advantages compared to a traditional onshore LNG tank: safer storage management through integrated monitoring, greater storage capacity for the same footprint and greater respect for the environment[5].

BGG, HQCEC and GTT organized a delivery ceremony in the presence of Mr. Laurent Bili, Ambassador of France in China, Mr. Jean-Marc Fenet, Minister Counselor, representatives of the governments of Beijing & Tianjin, Mrs. Yalan Li, Chairwoman of BGG, Mr. Shaoguang Song, Chairman of HQCEC, and Mr. Adnan Ezzarhouni, General Manager of GTT China.

Philippe Berterottière, Chairman and CEO of the GTT Group, stated: “The construction of these first two onshore tanks marks an important milestone for BGG’s LNG terminal in Tianjin.

These tanks are the first of eight planned for the site and are already the largest onshore tanks in the world equipped with our GST® technology. We thank BGG and the Chinese government for their trust and wish HQCEC every success of this new terminal.”

Mr. Laurent Bili, Ambassador of France in China, said at this occasion: “These tanks are an industrial success story, a very concrete example of a fruitful Franco-Chinese partnership, a technological innovation and part of the response to the challenges of climate change”

Mrs. Yalan Li, Chairwoman of BGG and President of IGU, declared: “This milestone is the reward of five years of assessment, preparation, engineering and actual construction.

The City of Beijing and Beijing Entreprises Group are proud to have evolved this emerging technology into a promising solution for many projects around the world.

Thanks to this world first, these containment membrane tanks are on their way to becoming the state-of-the-art in LNG storage.

We have been impressed by the dedication and passion of GTT and HQCEC to make this world first a success, and we thank the French and Chinese authorities for supporting such an important technology partnership between our two countries.”

Mr. Shaoguang Song, Chairman of HQCEC, declared: “We are proud to have successfully completed these two world largest onshore membrane tanks with the strong support of GTT, thanks to the precious opportunity provided by BGG.

With the advantages of higher efficiency and lower carbon footprint, membrane system has been proved to be a good choice for upcoming LNG projects, both onshore and offshore.

Committed to continuous technology innovation and process optimization, HQCEC will continue to promote membrane technology to domestic and international markets and bring value to our clients.”

By Marine Insight, January 20, 2023

OPEC+ is facing “volatile prospects” in oil markets both in supply and demand, UAE energy minister Suhail al-Mazrouei told Asharq TV on Saturday.

He said this was due to European sanctions on Russian crude taking effect in addition to China lifting its “zero-COVID” policy.

OPEC+ production capacity was down 3.7 mln bpd due to fewer investments in the oil sector, Al-Mazrouei said.

He also said UAE is taking preemptive steps to compensate for the reduced oil production capacity in some countries by bringing forward its five million barrel per day oil production capacity expansion to 2027 from a previous target of 2030.

Regarding gas, Al-Mazrouei told the Atlantic Council Global Energy Summit earlier that the world would need natural gas for a long time and more investment was required to ensure supply security and affordable prices during the global energy transition.

Reuters by Ahmed Tolba, January 20, 2023

Established by the U.S. government nearly fifty years ago, the Strategic Petroleum Reserve (SPR) is intended to protect the economy and strengthen national security during major oil supply disruptions. Presidents have tapped the reserve, which is one of several U.S. strategic stockpiles, in response to various crises, including natural disasters, military conflicts, and ship-channel closings.

Supporters say that the reserve safeguards the independence of U.S. foreign policy and remains a critical energy security tool. Others level various criticisms, including that the SPR is ineffective, unnecessary, and prone to exploitation for political gain.

The Joe Biden administration’s massive withdrawals from the SPR in response to the war in Ukraine and oil price inflation in 2022 have rekindled debate over the reserve. 

Where is the Strategic Petroleum Reserve?

The SPR is the world’s largest stockpile of emergency crude oil, owned and operated by the U.S. federal government to alleviate significant oil supply disruptions or price inflation.

The oil is kept across a network of underground salt caverns in Texas and Louisiana, which can hold a total of more than seven hundred million barrels of oil. Up to 4.4 million barrels can be withdrawn per day—about a quarter of daily U.S. consumption—and the oil takes about two weeks to reach the market. 

When was the Strategic Petroleum Reserve created?

The SPR was conceived in response to the 1973 oil embargo by the Organization of Petroleum Exporting Countries (OPEC), imposed in retaliation for the United States’ support of Israel during the Fourth Arab-Israeli War.

The Energy Policy and Conservation Act (EPCA), signed into law by President Gerald R. Ford in 1975, authorized the creation of a strategic oil reserve to shield the U.S. economy from future supply shocks, including those engineered by oil-producing countries attempting to coerce U.S. leaders or gain foreign policy concessions. 

Ford signed the EPCA, a compromise with the then Democrat-controlled Congress, after having originally proposed energy independence legislation that would have created an even larger reserve and expanded his powers to impose tariffs on underpriced imported oil.

The slimmer EPCA created a smaller reserve and introduced fuel economy standards for vehicles, but it did not include the oil price controls and energy efficiency standards for appliances that Ford had sought. 

Who controls the Strategic Petroleum Reserve?

The president and Congress each exert degrees of control over the SPR, with the executive taking the lead on withdrawals and legislators having approval power over restocking.

The president can independently authorize an emergency drawdown from the reserve in response to a “severe energy supply interruption,” or if the United States has been obligated to by the International Energy Program [PDF], a framework for cooperation among members of the International Energy Agency (IEA). For instance, in 2011, member countries of the IEA collectively released sixty million barrels in response to shortages resulting from the conflict in Libya.

To respond to more modest disruptions, the president can order a limited withdrawal of up to thirty million barrels without declaring an emergency drawdown. In both cases, the Department of Energy auctions the oil to the highest bidder among companies registered with the SPR.

The secretary of energy is responsible for oil purchases to refill the SPR, but Congress must approve any new spending required to do so. For instance, President Donald Trump ordered that the reserve be filled to maximum capacity to help struggling U.S. producers at the start of the COVID-19 pandemic, but Congress did not approve the purchase.

The Department of Energy also leads exchange agreements, or short-term loans of oil that are repaid with interest, thereby increasing the size of the SPR. Since the 1990s, the president and Congress have occasionally mandated the sale of oil from the reserve to raise revenue.

When has it been tapped?

There have been three dozen releases from the SPR since its inception, including twenty-two sales and fourteen exchanges (loans). Five of the sales have been emergency drawdowns: in 1991, during the Gulf War; in 2005, in response to Hurricane Katrina; in 2011, during the conflict in Libya; and twice in 2022, both in response to Russia’s invasion of Ukraine. 

The most recent releases before the war were due to the COVID-19 pandemic and the subsequent rebound in oil demand, as rising gasoline prices contributed to record inflation in the United States.

In November 2021, President Biden announced a release of thirty-two million barrels in exchange agreements and eighteen million barrels in sales, seen as an effort to pressure OPEC to increase production; some experts said it was a novel use of the SPR, given there was no supply disruption. 

In March 2022, as Russia’s war in Ukraine caused turmoil in global energy markets, Biden authorized an emergency release of thirty million barrels, as part of a coordinated action led by the IEA.

Later that month, he approved the emergency release of up to one million barrels per day for six months, or a total of about 180 million barrels—the largest release in the reserve’s history. Biden said the move was a “wartime bridge” that would allow domestic oil production time to ramp up.

By October of that year, the Department of Energy had completed its emergency sale from the stockpile, bringing the reserve down to fewer than four hundred million barrels, a four-decade low. The administration said it will use the revenue to replenish the reserve by purchasing oil when the price of West Texas Intermediate (a U.S. benchmark) is $72 per barrel or less.

What is the debate over the Strategic Petroleum Reserve?

The war in Ukraine and the consequent SPR drawdowns have renewed debate over the reserve’s purpose and operation. Some analysts say that Biden ordered the emergency drawdowns to lower gas prices and win votes for Democratic candidates in the 2022 midterm elections. They argue that these political gains come at the cost of harming SPR infrastructure and increasing U.S. dependency on large oil producers.

For instance, they argue that the Biden administration has made some unsavory concessions to Venezuela and Saudi Arabia. Meanwhile, some critics have called for an end to the SPR entirely, contending that market forces and private stockpiles are sufficient to shield the United States from a negative supply shock. 

However, many analysts agree that the SPR serves an integral purpose in mitigating short-term supply shocks.

“As long as there’s a potential for war, hurricanes, and other disruptions, you have to have the SPR,” says Sarah Emerson, president of consulting firm ESAI Energy. Without the SPR, Emerson says, the government would likely have to ask companies to hold more reserves, which would increase their costs and thus prove unpopular.

Furthermore, private stockpiles would likely have to be kept in above-ground tanks, where the oil would have a shorter shelf life than in the salt caverns of the SPR, and thus a shorter window within which it could be sold. Oil companies generally prefer to hold only the number of barrels they are confident that they can sell. 

“Companies run pretty lean, as lean as they can,” says Bruce Beaubouef, an energy journalist and author of a reference book on the SPR. “History has shown that private stockpiles are not sufficient to respond to an emergency.”

Additionally, there are concerns about the state of the country’s oil infrastructure and the implications for the SPR.

A 2016 review by the Department of Energy warned that aging surface infrastructure, including storage tanks and pumps, will begin to compromise the SPR’s capabilities.

Also, record U.S. energy production in each of the past eight years, and the resulting congestion in pipelines, could leave the SPR unable to effectively deliver oil without shutting off domestic suppliers, the department said. In November 2022, Biden asked Congress for $500 million to modernize the SPR, though Congress is yet to approve the funding.

Council on Foreign Relations by Noah Berman, January 20, 2023

Europe is set to ban imports of Russian oil products on Feb. 5 in a move that is already causing massive shifts in global diesel trading.

Buyers are rushing to fill European oil storage tanks with Russian diesel, with flows this month on track to hit a one-year high.

The European Union banned seaborne Russian crude imports from Dec. 5 and will ban Russian oil products from Feb. 5, in a move aimed at depriving Moscow of revenue.

The Group of Seven nations (G7), Australia and the 27 European Union countries also implemented on Dec. 5 a price cap on Russian crude.

This allowed non-EU countries to continue importing seaborne Russian crude oil, but it will prohibit shipping, insurance and re-insurance companies from handling cargoes of Russian crude around the globe, unless it is sold for less than $60.

Russian Urals crude prices fell in December. Russian crude was sold to countries such as India well below the $60 per barrel price cap, according to trading sources, despite Russia saying it would not abide by the cap even if it has to cut production.

Vessels carrying Russian crude loaded before Dec. 5 and unloaded at their destination before Jan. 19 will not be subject to the price cap, according to the U.S. Treasury Department.

The G7 including the United States, Australia and the EU, are designing a similar price cap mechanism for Russia’s refined fuels such as diesel, kerosene and fuel oil, from Feb. 5.

There will be on products trading at a premium to crude oil as well as those trading at a discount, according to a G7 official.

But experts have struggled to see how the price cap will work for refined fuels. Capping oil product prices is more complicated than setting a price limit on crude, because there are many oil products and their price often depends on where they are bought, rather than where they are produced.

DIESEL PRICES

Since Europe is heavily reliant on Russian diesel imports, the Feb. 5 ban is expected to support profit margins for the fuel, analysts say.

WoodMac expects European diesel margins, the profit that a refiner theoretically makes from refining crude into diesel, to average $38 a barrel in the first half of the year, more than double the 2018-22 average based on Reuters calculations.

DIESEL FLOWS

European diesel imports have averaged 700,000 barrels per day (bpd) so far this year, their highest since March 2021, according to oil analytics firm Vortexa, as traders rush to fill tanks ahead of the ban.

At the same time, Europe has been raising its diesel imports from Asia and the Middle East, the two regions expected to shoulder most of its exports after the ban comes into place.

The longer voyages, however, and higher demand for tankers shipping the fuel into Europe, has meant that freight rates are rising, adding to the cost for consumers.

NEW REFINERIES

New refinery projects are expected to raise global diesel production, boosting flows to Europe later in the year and helping to ease the crunch, analysts say.

New additions include expansion of the 400,000 bpd Jizan refinery in Saudi Arabia, Dangote’s 650,000 bpd oil refinery in Nigeria which is expected to come on stream in the first quarter, the new 615,000 bpd al-Zour refinery in Kuwait and a number of sites in China.

Reuters by Ahmad Ghaddar, January 20, 2023

Minister of Energy Csaba Lantos called the strengthening of energy sovereignty a priority task in a program on Radio Kossuth, where he also said that the mild winter had resulted in low gas consumption, which is why the levels of gas storage facilities in Europe and Hungary are very high.

Csaba Lantos said that although Russian gas is still arriving in Europe, it cannot be ruled out that the war will last for a long time, nor that gas prices will rise.

Asked about Ursula von der Leyen, the President of the European Commission’s prediction in December, when she said that there could be a shortage of up to 30 billion cubic meters of gas on the market, the minister said that there are about 25 major LNG terminals under construction in the EU, which could ease the energy crisis and replace natural gas from Russia.

He added that: when the terminals are completed, it will be possible to say that Europe is truly independent from Russian gas. Construction of the terminals has started, but 2023-2024 will be a tough year for Europe.

The minister pointed out that Hungary’s situation is a little different, as it has a relatively large number of gas storage facilities.

As long as the Serbian pipeline is in operation, these storage facilities will be filled, he noted. He also spoke of strengthening Hungary’s energy sovereignty, saying that “we are very dependent on foreign countries for energy, and we need to decrease this dependence.”

As an example, he said that: In 2021, Hungary consumed around 10 billion cubic meters of natural, while 1.5 billion cubic meters could be extracted from Hungarian soil.

The government’s ambition is to reach two billion cubic meters per year. In addition, they will continue to exploit weather-dependent renewable energy sources, such as solar energy and, as a complement, wind energy.

Lantos added that financial resources will be available to achieve these goals. He pointed out that the Hungarian recovery plan was considered one of the best by the European Union, so they hope that “this EU money will come in.”

If for some reason it does not, then other sources will have to be found to implement the program to strengthen energy sovereignty.

Meanwhile, despite the energy crisis, Hungarian households’ energy bills are still among the lowest in Europe.

According to the Hungarian Energy and Public Utility Regulatory Authority, Hungarian households paid the second cheapest price (9.02 euro cents per kilowatt-hour) for electricity in the last month of the year for average consumption in the protected price category (2,523 kilowatt-hours per year) among European capitals.

Households consuming 20 percent more than the average annual consumption were able to access electricity at 10.40 euro cents, also the second cheapest price in Europe, they said.

Regarding natural gas, it was the cheapest in Hungary in December at a reduced price of 2.48 euro cents per kilowatt hour (up to 63,645 megajoules per year). Hungarian households had access to gas at 5.04 euro cents per kilowatt-hour, the second cheapest price in Europe when consumption was 20 percent above the capped amount.

By Hungary Today, January 19, 2023