Tag: tank terminals

Saudi Arabia Raises Oil Prices to Asia

The world’s largest crude exporter, Saudi Arabia, has raised the price of its flagship grade to Asia by more than expected amid high volatility in international oil prices amid the escalating conflict in the Middle East.

Saudi Aramco in the weekend raised the price of its Arab Light grade loading for Asia in November by $0.90 per barrel to a premium of $2.20 a barrel above the Dubai/Oman benchmark. The Dubai/Oman quotes are the benchmark against which Middle Eastern producers price their supply to Asia.

Refiners and traders in Asia had expected the rise to be more modest, by about $0.65 per barrel.

While it raised the price of its oil to Asia, Saudi Arabia cut the price of all its grades loading for the U.S. and Europe next month.

The cut in prices for markets outside Asia was “possibly in an effort to regain market share in the European market,” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a note on Monday.

“The divergent price views for different regions may also hint at expectations of local imbalances in the oil market,” the strategists added.

Last month, the Kingdom slashed its official selling prices (OSPs) for October to Asia, amid worsening refining margins in China and the wider Asian region and weaker Dubai benchmark prices. Trade sources estimated that Saudi Arabia would increase its crude oil supply to China in October after the price cut.

But the latest pricing, in which Aramco raised its prices to Asia, could reflect expectations of stronger demand in the region.

The price move from Saudi Arabia came days after the OPEC+ group left its current production policy unchanged, expecting to begin adding supply to the market in December.

The new pricing also comes amid rallying oil prices, which gained about 8% last week on the Israel-Iran standoff.

By Oilprice.com,  Charles Kennedy – Oct 07, 2024

Aramco Digital bets on partnerships to build Saudi Arabia’s AI ecosystem

Saudi Arabia’s Aramco Digital, the digital arm of the world’s largest oil producer, Aramco, is making moves to boost the country’s artificial intelligence (AI) ecosystem and help the country play a more significant role in the global AI industry.

Case in point: the business recently teamed with Groq to set up the world’s largest inferencing data center in Saudi Arabia. 

According to a press release, “The facility will process billions of tokens per day by the end of 2024 and be able to onboard hundreds of thousands of developers in the region and then hundreds of billions of tokens per day with millions of developers by 2025, setting a new industry standard and bringing advanced technology from Groq to the Kingdom.”

Aramco Digital has also signed several Memorandums of Understanding (MoU) at the Global AI Summit held in Riyadh recently. It inked a deal with Cerebras Systems and FuriosaAI to explore collaboration in the supercomputing and AI domains and also partnered with South Korea’s Rebellions to deploy Rebellions Neural Processing Unit chips in Aramco’s data centers.

In addition, Aramco Digital has signed an MoU with SambaNova Systems to accelerate AI capabilities, innovation and adoption across the country. It also announced the deployment of an AI supercomputer powered by NVIDIA GPUs, one of the region’s first systems of its kind.

The deals come after Aramco Digital jumpstarted its AI efforts last year by hiring Tareq Amin, one of the industry’s most charismatic and visionary leaders, as its CEO.

The new collaborations and partnerships are all part of the Saudi Arabia’s Vision 2030 initiative to transition from an oil-based to a technology-based economy. This transition is driven by the realization that it is crucial for the country to build capabilities in new and advanced technologies as the global economy is becoming knowledge-based.

“This shift is not just about diversification but about securing the nation’s future in a rapidly evolving global economy,” said Hamza Naqshbandi, IDC’s Country Lead for Saudi Arabia. 

“Strategic investments in AI will not only help diversify revenue streams but also future-proof the economy, creating new industries and job opportunities,” Naqshbandi continued. “Additionally, it will enhance Saudi Arabia’s global competitiveness, enabling it to play a larger role as a knowledge-based economy on the international stage.” 

Already, the country has taken several steps to grow its AI capabilities, including creating the Saudi Data and AI Authority (SDAIA), which is responsible for the country’s overall AI strategy. As per media reports, the Saudi Arabia government is also planning to create a fund of around $40 billion to invest in AI.

Roadblocks: Talent and chips

However, Saudi Arabia faces a number of issues in its quest to play a bigger role in the growing AI ecosystem. A key challenge is that it lacks a vibrant tech industry, which means that developing AI talent will be a problem.

“The country remains heavily reliant on technology vendors that hail from abroad. The Kingdom has a long way to becoming a genuine AI enabler and not just an AI deployer. AI sovereignty will be a key focus of policymakers in the Kingdom,” Patel continued. 

In addition, a U.S. ban on Saudi Arabia on sourcing advanced NVIDIA AI chips is a problem that can possibly thwart Saudi Arabia’s growing technology industry. The U.S. has imposed restrictions to prevent China from accessing AI chips. Still, the country is hopeful that it will be able to procure high-performance AI chips in the coming year.

“This is a problem, though it is increasingly becoming a grey area for even the U.S. vendors. The U.S. vendors want their chipsets to be sold to institutions and companies in Saudi Arabia and the wider region, but U.S. legislation is blocking the sale of high-end chipsets. If Saudi Arabia and its institutions and governments do not completely detach themselves from Chinese technology (which is what is happening in the UAE), this dynamic will continue,” Patel concluded. 

By Gagandeep, Kaur  Fierce-network / Oct 7, 2024.

Exclusive: BP abandons goal to cut oil output, resets strategy

BP (BP.L), opens new tab has abandoned a target to cut oil and gas output by 2030 as CEO Murray Auchincloss scales back the firm’s energy transition strategy to regain investor confidence, three sources with knowledge of the matter said.

When unveiled in 2020, BP’s strategy was the sector’s most ambitious with a pledge to cut output by 40% while rapidly growing renewables by 2030. BP scaled back the target in February last year to a 25% reduction, which would leave it producing 2 million barrels per day at the end of the decade, as investors focused on near-term returns rather than the energy transition.

The London-listed company is now targeting several new investments in the Middle East and the Gulf of Mexico to boost its oil and gas output, the sources said.

Auchincloss took the helm in January but has struggled to stem the drop in BP’s share price, which has underperformed its rivals so far this year as investors question the company’s ability to generate profits under its current strategy.

The 54-year-old Canadian, previously BP’s finance head, has sought to distance himself from the approach of his predecessor Bernard Looney, who was sacked for lying about relationships with colleagues, vowing instead to focus on returns and investing in the most profitable businesses, first and foremost in oil and gas.

The company continues to target net zero emissions by 2050.

“As Murray said at the start of year… the direction is the same – but we are going to deliver as a simpler, more focused, and higher value company,” a BP spokesperson said.

BP shares were up 0.8% by 0912 GMT.

Auchincloss will present his updated strategy, including the removal of the 2030 production target, at an investor day in February, though in practice BP has already abandoned it, the sources said. It is unclear if BP will provide new production guidance.

Rival Shell has also slowed down its energy transition strategy since CEO Wael Sawan took office in January, selling power and renewable businesses and scaling back projects including offshore wind, biofuels and hydrogen.

The shift at both companies has come in the wake of a renewed focus on European energy security following the price shock sparked by Russia’s invasion of Ukraine in early 2022.

BP has invested billions in new low-carbon businesses and sharply reduced its oil and gas exploration team since 2020.

But supply chain issues and sharp increases in costs and interest rates have put further pressure on the profitability of many renewables businesses.

A company source said that while rivals had invested in oil and gas, BP had neglected exploration for a few years.

BACK TO THE MIDDLE EAST

BP is currently in talks to invest in three new projects in Iraq, including one in the Majnoon field, the sources said. BP holds a 50% stake in a joint venture operating the giant Rumaila oilfield in the south of the country, where it has been operating for a century.

In August, BP signed an agreement with the Iraqi government to develop and explore the Kirkuk oilfield in the north of the country, which will also include building power plants and solar capacity. Unlike historic contracts which offered foreign companies razor-thin margins, the new agreements are expected to include a more generous profit-sharing model, sources have told Reuters.

BP is also considering investing in the re-development of fields in Kuwait, the sources added.

In the Gulf of Mexico, BP has announced it will go ahead with the development of Kaskida, a large and complex reservoir, and the company also plans to green light the development of the Tiber field.

It will also weigh acquiring assets in the prolific Permian shale basin to expand its existing U.S. onshore business, which has expanded its reserves by over 2 billion barrels since acquiring the business in 2019, the sources said.

Auchincloss, who in May announced a $2 billion cost saving drive by the end of 2026, has in recent months paused investment in new offshore wind and biofuel projects and cut the number of low-carbon hydrogen projects down to 10 from 30.

BP has nevertheless acquired the remaining 50% in its solar power joint venture Lightsource BP as well as a 50% stake in its Brazilian biofuel business Bunge.

By: Reuters, Ron Bousso / October 7, 2024

LNG market faces supply strains

The IEA’s Q3 2024 report highlights supply constraints, Asian demand growth and rising freight rates reshaping global LNG trade and shipping dynamics

The latest IEA Gas Market Report for Q3 2024 presents a mixed picture of the global LNG market, characterised by supply constraints, volatile prices and growing demand centred around Asia.

The report outlines that LNG production underperformed in Q2 2024, while Asian demand surged, reshaping global LNG trade flows. These shifts, in turn, are having a profound impact on LNG shipping and freight rates.

In the first half of 2024, LNG supply growth slowed considerably, increasing by a mere 2% year-on-year. This marked the first contraction in LNG production since the global Covid-19 lockdowns in 2020.

According to the IEA, “LNG output fell by 0.5% in Q2 2024, driven by a combination of feed gas supply issues and unexpected outages.”

This shortfall was particularly evident in the United States, where production challenges at key liquefaction plants such as Freeport LNG hampered growth.

Similarly, African LNG supply contracted due to declining production in Egypt, where exports plummeted by 75% during the first half of the year.

Despite these supply challenges, the LNG market saw a surge in demand from Asia.

The IEA notes, “Asia accounted for around 60% of the increase in global gas demand in the first half of 2024,” with China and India leading the growth.

China’s LNG imports increased by 18%, setting the country on a trajectory to surpass its previous record for annual LNG imports. India followed closely, with a 31% rise in LNG imports, driven by lower spot prices.

These increases in demand have resulted in a reallocation of global LNG cargoes, redirecting flows away from Europe and towards Asian markets, leading to longer shipping routes and increased pressure on LNG freight rates.

The sharp rise in Asian demand comes at a time when European LNG imports have notably declined. Europe’s LNG intake fell by nearly 20% in the first half of 2024, a trend driven by lower demand, high storage levels, and an increase in piped gas deliveries.

As the report highlights, “The share of LNG in Europe’s total primary gas supply fell from 39% in H1 2023 to 33% in H1 2024.”

This reduction has been further exacerbated by geopolitical uncertainties surrounding Russian piped gas supplies, which continue to add volatility to the market. The redirection of LNG cargoes from Europe to Asia is shifting trade patterns and impacting shipping logistics, with carriers needing to optimise for longer voyages to meet the surging Asian demand.

Price volatility has also become a hallmark of the LNG market in 2024. While gas prices fell to precrisis levels during the first quarter of the year, they rebounded sharply in the second quarter due to tighter supply-demand fundamentals.

“Natural gas prices increased across all key markets in Q2 2024,” according to the IEA report.

This resurgence in prices has impacted LNG freight rates, with the demand for shipping services rising in tandem with increased Asian demand and extended shipping routes.

The need for more LNG carriers to meet these shifting market dynamics is likely to push up spot charter rates, adding further complexity to the global LNG shipping sector.

Looking ahead, LNG supply is expected to improve in the second half of 2024, with new liquefaction projects coming online in the United States and West Africa.

The IEA forecasts “Year-on-year growth in LNG supply is expected to accelerate during the second half of 2024.”

Notable capacity expansions include the Freeport LNG expansion and the start-up of the Tortue FLNG facility off the coast of West Africa. According to the latest IEA report, the LNG facility developments are anticipated to ease some of the supply pressures that have constrained the market and the anticipated rise in exports from new projects will be welcome news for LNG shipping companies.

The interplay between supply constraints and demand growth in Asia presents both opportunities and challenges for LNG shipping. While new liquefaction capacity will help address some of the supply issues, the market remains tight, and freight rates are expected to remain elevated due to the longer voyages required to serve the booming Asian markets.

The IEA’s outlook underscores the need for flexibility within the LNG shipping sector, as carriers must adapt to evolving trade routes and fluctuating market conditions.

As the IEA notes, “The limited increase in global LNG supply will restrain growth in import markets,” particularly in Europe, which continues to see declining demand.

By Rivieramm , Craig Jallal / 07 Oct 2024.

Oil’s Security Premium Could Rise, But Is Unlikely To Persist

In summary, the worst case (for the oil market) would be an Israeli attack that reduced Iranian oil exports, and then the issue becomes whether the Saudis raise production to compensate or seek to draw down global inventories in support of prices, which would mean Brent stays over $80. Absent such an attack, the security premium will be only temporary and weakness in the fundamentals will reassert themselves; Brent would sink below $75 again.

At this point, it appears that the conflict in the Middle East is morphing into a ‘forever war,’ with Israel attempting to destroy Hamas and Hezbollah, something which is almost certainly impossible, and to cow Iran into reducing its support for members of the ‘axis of resistance.’ To date, the damage done in both Iran and Israel from ongoing missile attacks has been minimal, but concerns that the situation might escalate has been keeping oil prices elevated, our old friend the security premium making a reappearance. Prices that had been under pressure from fundamentals have instead risen by $5 to $8 a barrel in recent days. Given the possible direction of the conflict, what do the different paths mean for oil prices?

First, it’s important to keep in mind that while fundamentals tend to move slowly, geopolitical events can change abruptly and drastically. Although oil supply sometimes drops sharply, demand evolves only gradually: next month, next quarter, will not be substantially different from current levels. In effect, geopolitics are fast, fundamentals slow but more persistent.

That said, consider the different political/military decisions going forward. It should be taken for granted that Israel will continue to prosecute the war against Hamas and Hezbollah, but their response to the latest Iranian missile attack remains unclear. There are four likely choices: a minimal attack, such as after the April barrage from Iran, would ease tensions and see oil prices pull back quickly. Israeli rhetoric at this point implies this is unlikely.

Next, a larger attack from Israel that targets Iranian military bases and infrastructure, such as weapons depots or factories, is possible. Given recent developments, Israel clearly has good intelligence on its adversaries, so such an attack is doable, although the long-term effects would be minimal. However, Iran would almost certainly respond with another missile attack which would mean that the tit-for-tat exchanges would continue the security premium on oil prices would remain elevated.

A third choice would be for Israel to go after Iranian nuclear facilities, something that Israel has supposedly long wanted to do but been restrained from attempting by the U.S. However, with U.S. influence clearly at a low point, Netanyahu might be tempted to undertake this, seeing a successful attack as a crowning achievement to his long political career. There is uncertainty about Israel’s ability to launch such an attack without U.S. help and many caution that Iranian facilities are not vulnerable to air strikes. Even so, Israel might feel that inflicting minor damage on those sites would provide a demonstration effect and serve as a deterrent to further Iranian retaliation. Again, this would translate into continuing violence, keeping the oil price’s security premium high.

Finally, some have been suggesting Israel might attack Iranian oil infrastructure, including refineries or export facilities. Reducing Iran’s oil income would seem desirable from Israel’s point of view, and while the U.S. would presumably discourage such a move, especially the Biden Administration which doesn’t want an October surprise of higher oil prices, U.S. political clout appears at a low point.

Expectations of an Israeli attack on the Iranian oil industry explains much of the recent elevation in prices, since that is the only likely development that would have a direct impact on world oil markets. However, even the destruction of the Abadan and Bandar Abbas refineries, with 700 tb/d of capacity, while no doubt generating impressive videos of spectacular fires and explosions, would not have a major effect on world oil markets.

In 1951, the Iranian nationalization of BP’s holdings and the shutdown of Abadan raised Asian oil prices by approximately 30%, because at that time, Abadan was providing a large fraction of Asian product demand. Now, those two refineries together provide less than 1% of world capacity and could easily be replaced. The figure below shows global refinery capacity and throughput with an implied 20 mb/d of surplus but overstates the available capacity. A more realistic estimate would be about 3-5 mb/d of surplus capacity, at any rate, more than enough to replace any disruption to Iranian operations. There would be some rebalancing and Iran would lose money, but aside from that the impact would be minor.

An attack on Iranian oil fields would also look impressive, generating massive blazes but having only a limited effect on supplies given the dispersed nature of production. Destroying the tanker loading facilities at Kharg Island would be more serious and could reduce Iranian oil exports by perhaps 1 mb/d in the worst case scenario. Then, the question becomes whether or not the Saudis replace the lost supply. They have ample spare capacity, but might prefer to let markets tighten, inventories drop, and prices firm. In that case, Brent would remain at or above $80.

In essence, there are three paths forward: the level of violence remains roughly constant or declines, in which case the security premium would fade as traders get crisis fatigue, Brent sliding back towards $70-75. Alternatively, an escalation with continuing missile attacks and/or assassinations would mean traders remain fearful of an oil supply disruption and the price would remain elevated, as it is now (Brent about $78). Finally, any attack on Iranian oil facilities would boost Brent above $80, if and only if Iranian exports dip significantly and the Saudis refuse to raise production.

Overall, then, the prospect is for prices to return to the levels of September, sooner rather than later, and the chances for Brent to remain above $80 for any period appears slim. Even so, wagering on peace in the Middle East is never for the faint-hearted.

By: Forbes, Michael Lynch- Oct 6, 2024

Warren Buffett Is Selling Apple Stock and Buying This Magnificent Oil Stock Instead

Warren Buffett finally did it. After making a monster investment in Apple (NASDAQ: AAPL) many years ago and watching it appreciate by multiples of his cost basis, the legendary investor is trimming Berkshire Hathaway’s (NYSE: BRK.B) stake. According to filings with the SEC, Buffett has sold approximately half of Berkshire’s stake in Apple, raising around $80 billion in cash. Yes, that’s how big a winner Apple was for the company.

What is he doing with all this cash? The largest stock purchase for Berkshire Hathaway in the second quarter was Occidental Petroleum (NYSE: OXY). Here’s why he is selling Apple and buying this oil stock instead.

Expanding Apple valuation

Apple has made its investors a fortune over the last few decades. After releasing the revolutionary iPhone — perhaps the most successful single product in history — its stock has generated huge returns for shareholders. Total return in the last 10 years alone is close to 1,000%.

While that is all fine and dandy, today the company is seeing stagnating revenue growth amid market saturation for smartphones. Revenue has essentially been flat over the last few years as fewer people have upgraded to new iPhones, which is the only true needle mover for the company. It has struggled to innovate and convince people to buy new phones while battling a consumer recession in China. Recent products such as the Apple Vision Pro look like flops so far, and the company has fallen behind in artificial intelligence to competitor Alphabet.

Stagnating sales are coupled with an expanded earnings multiple. Apple’s price-to-earnings ratio (P/E) is now closing in on 35, which is wildly expensive for a low-growth business. Given Buffett’s intense focus on valuation in his investment process, it is no surprise to see him unloading his shares in the iPhone maker. The upside doesn’t look too appetizing at these levels.

A cheap oil stock?

Buffett’s biggest purchase last quarter was in Occidental Petroleum. Berkshire Hathaway owns a whopping 27.25% of Occidental’s outstanding shares, making it the largest shareholder by far in the company.

Why is Buffett attracted to the stock? First and foremost is the valuation. Oil and gas companies have been neglected by investors for years as they focus on exciting technology companies. Occidental Petroleum trades at a P/E of 12.6, which is around one-third that of Apple. The company is one of the largest oil producers in the United States, with over 82% of its production coming from domestic sources. This makes it less risky than other oil companies that have to deal with adversarial foreign governments.

Occidental can also play as a hedge for oil prices. Rising oil prices can be inflationary and affect other parts of the economy and the Berkshire Hathaway portfolio. If oil prices rise, Occidental Petroleum will benefit, but likely hurt the earnings power of Berkshire’s railroad subsidiary by increasing input costs. This way, Berkshire Hathaway is playing both sides of the situation. No matter what happens, it comes out on top.

Even better for Buffett, Occidental trades at a cheap P/E when oil prices are falling. The current level for crude oil is $68 a barrel, which is well off the highs of around $100 a barrel or higher in 2022. If the price of oil starts to rise again, Occidental’s earnings power will rise too.

A lesson in the risk-free rate

With his selling of Apple and buying of Occidental Petroleum, Buffett is giving investors an important lesson in the risk-free rate and how it can affect your investing decisions.

Today, Berkshire Hathaway has a cash pile approaching $300 billion sitting in short-term U.S. Treasury bills. These bills earn around 5% in yield every year and can be considered the risk-free rate for investors. Why? Because you can compare them to the earnings yield of other stocks in your portfolio.

An earnings yield is the inverse of the P/E and tells you how much in earnings you are yielding each year from a company, based on the current stock price. Apple’s earnings are not growing, and it has a P/E of close to 35. Invert that P/E, and you have an earnings yield of 2.9%. Buffett is saying he would rather own Treasury bills than get a 2.9% yield owning Apple stock.

But what if we look at Occidental Petroleum’s earnings yield? Take one divided by 12.6, and its earnings yield is 7.9%. That is much higher than the current Treasury yield. While it’s not the entire story for any stock, comparing the earnings yield to the risk-free rate is a good way to gauge whether you should buy the stock. This likely came into consideration when Buffett was selling Apple and buying shares of Occidental Petroleum.

By: Brett Schafer for The Motley Fool / October 03, 2024.

Enbridge, Shell to build pipelines to service BP’s Kaskida oil hub

Canada’s Enbridge , opens new tab said on Thursday it would build and operate crude oil and natural gas pipelines in the U.S. Gulf of Mexico for the recently sanctioned Kaskida oil hub, operated by British oil major BP (BP.L), opens new tab.

Separately, Shell  announced the final investment decision for its Rome Pipeline, which would export the oil produced from the Kaskida project.

BP’s sixth operating hub, Kaskida, has oil production slated to start in 2029 and features a new floating production platform with a capacity to produce 80,000 barrels per day from six wells in the first phase.

The company’s U.S. Gulf of Mexico output averaged 300,000 barrels of oil and gas per day in 2023, with the company targeting 400,000 bpd by 2030.

Enbridge’s crude oil pipeline would be called the Canyon Oil Pipeline System, with a capacity of 200,000 bpd.

Its natural gas pipeline would be named Canyon Gathering System with a capacity of 125 million cubic feet per day and would connect subsea to Enbridge’s offshore existing Magnolia Gas Gathering Pipeline.

The pipelines are expected to be operational by 2029 and would cost $700 million, the Canadian firm said.

Shell’s Rome Pipeline, projected to begin operations in 2028, would increase access between the company’s Green Canyon Block 19 pipeline hub and the Fourchon Junction facility on the Louisiana Gulf Coast.

By Reuters / October 3, 2024

Adnoc-Backed VTTI Looks to Buy Into LNG Terminals in Asia

Energy storage company VTTI BV, backed by Abu Dhabi’s main oil company and Vitol Group, is looking to invest in LNG import terminals in Asia as demand for the fuel increases in the region.

“There is a lot of potential in India, Bangladesh, Pakistan and the Philippines,” Chief Executive Officer Guy Moeyens said in an interview on Tuesday in Fujairah in the United Arab Emirates. “There will be a disproportionate need for regasification facilities in that region. More than, I would say, in Europe or the Americas.”  

The Rotterdam-headquartered company acquired a 50% stake in Dragon LNG, one of the UK’s three LNG import terminals, in August and agreed to buy a majority stake in Italy’s Adriatic LNG earlier this year. It also has an agreement with Hoegh LNG to jointly develop an energy terminal in the Dutch province of Zeeland. 

It’s now keen to expand in similar facilities in Asia by investing alongside a partner, Moeyens said.

LNG is taking on an increasingly important role in the world’s energy supply as countries look to use more of the cleaner-burning fuel amid concerns over climate change, while they also build more renewable energy projects. The US and countries in the Middle East are among regions expanding their LNG export capacities in order to meet the rising demand.           

VTTI counts Abu Dhabi National Oil Co. and Vitol as shareholders. Adnoc this year approved the construction of a new LNG export terminal, and bought stakes in projects in the US and Africa.

By Verity Ratcliffe, Bloomberg / October 02, 2024

China’s cracker expansion to drive LPG storage growth

China’s LPG storage capacity is expected to expand again in 2025 after it continued to grow in 2024, the latest Global LPG Storage Survey finds. But whereas the expansion of the past five years has been driven by the country’s investment in propane dehydrogenation (PDH) projects, next year’s increase is supported by facilities built to serve new ethylene steam crackers.

China’s PDH capacity reached 22.6mn t/yr by the end of September, up 237pc from 6.7mn t/yr at the end of 2019. This has necessitated a significant increase in propane imports as well as domestic refrigerated LPG storage capacity for VLGC deliveries, which rose 159pc to 5.7mn t from 2.2mn t. The number of import terminals that can be served by VLGCs has grown to 41 from 23 since 2019.

China’s PDH expansion is expected to slow next year owing to sustained negative production margins. Yet the country’s LPG storage capacity is yet again on course to rise, by 330,000t to 6.1mn t, backed by projects tied to new crackers. Domestic petrochemical producers believe LPG will be more competitive than naphtha in terms of cost over the long term, and are consequently building crackers designed to use the feedstock, including ExxonMobil’s 1.6mn t/yr cracker in Huizhou, and BASF’s 1mn t/yr cracker in Zhanjiang.

Ethane imported from the US is likely to be even more competitive than LPG or naphtha, resulting in a crop of new ethane-fed cracker projects as well as conversions of existing units, supporting the development of ethane import terminals and storage capacity. Huatai Shengfu’s 600,000 t/yr cracker in Ningbo will switch one of its propane furnaces to ethane use by the end of this year, converting its VLGC terminal into an ethane dedicated one. The 320,000 b/d Shenghong Petrochemical and 800,000 b/d Zhejiang Petroleum and Chemical integrated refineries also plan to develop new ethane terminals in the medium term. China’s ethane storage capacity is forecast to rise by 320,000t to 760,000t by the end of 2025 as a result.

By: Market: LPG, 02/10/24

The Global Refining Slump: Here’s What Investors Should Know

The global refining industry is grappling with a notable downturn in profitability, with refineries in Asia, Europe and the United States facing pressure from weakened demand and increased supply. Refiners have seen exceptional profits in recent years due to pandemic recovery and geopolitical disruptions, but the current dynamics paint a different picture. New refining capacities, alongside tepid industrial demand, especially from China, have combined to push margins to multi-year lows.

The weak outlook for refining profitability translates into a significant headwind for companies like TotalEnergies TTE, Eni SpA E and PBF Energy PBF. On the other hand, diversified operators like Marathon Petroleum MPC and Phillips 66 PSX are better placed to weather the downturn.

Demand & Supply Woes Plaguing Refiners

Sluggish Demand Growth and EV Impact: One of the key reasons behind the fall in profits is sluggish fuel demand. This is particularly evident in China, the world’s largest oil importer, where the economic slowdown has hampered industrial output. In August, China’s oil refinery output declined for the fifth consecutive month, reflecting soft demand and weak export margins. Additionally, the rise of electric vehicles has started to dampen demand for traditional fuels, further straining the refining sector.

The impact of slow demand isn’t limited to Asia. In the United States, the 3-2-1 crack spread, a key profitability measure, has slumped below $15 a barrel, a level not seen since 2021. This indicates that U.S. refiners, too, are feeling the pinch, with gasoline and diesel margins declining sharply. Diesel, in particular, faces a global oversupply issue, which is expected to keep margins under pressure for the foreseeable future.

An Oversupplied Market: While demand weakens, supply continues to grow, thanks to several new refinery projects that have come online. Africa, the Middle East and Asia have all seen the start-up of large refineries, including Nigeria’s 650,000 bpd Dangote plant and Kuwait’s 615,000 bpd Al Zour facility. These additions have significantly increased global refining capacity, worsening the oversupply situation.

Older refineries, particularly in Europe, are feeling the brunt of this oversupply. For example, Scotland’s Grangemouth refinery is set to close in 2025 due to unsustainable margins. In response to the ongoing challenges, some refiners are cutting back on production, though this may not be enough to balance the market in the near term.

Some Refiners Feel the Pinch While a Few Stands Out

The oversupply issue is reflected clearly in profit margins. Diesel margins in Europe have tumbled to around $13 a barrel, the lowest since late 2021, while gasoline margins are under pressure despite relatively stable demand. This situation is further exacerbated by the fact that some U.S. refiners are entering one of the lightest fall maintenance seasons in three years, meaning that more capacity remains operational, adding to the supply glut.

European downstream operators like TotalEnergies and Eni, which benefited from soaring margins in 2022 and early 2023, are now facing headwinds. While some, like Italy-based Eni, have begun implementing measures to mitigate the drop in margins, others are still assessing their strategies. Among the U.S. companies most impacted by the current environment are PBF Energy and Delek US, which are already making difficult decisions regarding shareholder returns, with the potential for cuts in buyback programs. Valero Energy, another significant player, has seen downgrades as it faces near-term issues over refining income.

Meanwhile, Zacks Rank #3 (Hold) refiners with diversified operations, like Marathon Petroleum and Phillips 66, are better equipped to navigate the downturn. Their exposure to non-refining cash flows, combined with strong balance sheets, offers resilience in challenging market conditions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Way Ahead for Refiners

The short-term outlook for the refining industry remains muted. The International Energy Agency forecasts diesel and gasoil demand to contract 0.9% this year, with limited signs of recovery. However, there could be some support from higher seasonal demand for diesel during the winter months, particularly in Europe. Gasoline demand, though slightly more robust, is not strong enough to offset the overall downturn in the sector.

Despite the current challenges, some analysts maintain a cautiously optimistic view of the future. A light maintenance season could help soak up some of the excess crude supply, providing a slight lift to oil prices and potentially stabilizing refining margins.

By; Nilanjan Choudhury/ Sep 24, 2024