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In Canada, a battle brews over pipelines, power lines: Fuel for Thought

With the current assumption that a crude export pipeline from Alberta to the US Gulf Coast is unlikely to ever be built, never has there been a better opportunity for Canada’s provinces to join hands and hasten efforts to open up oil export outlets along the country’s Pacific and Atlantic coasts.

Be it the recent rejection by the US government of the Keystone XL Pipeline — described by Alberta Premier Rachel Notley as a “kick in the teeth” — or the low-level east-west rivalry between the provinces to get a trans-Canadian oil export pipeline built, consensus building and not antagonism is a discerning aspect of the confederation.

A new issue is, however, brewing between Alberta and British Columbia that, instead of pulling the provinces together to optimize the value of the nation’s crude oil resources, is putting them at loggerheads.

In early March, Alberta’s energy minister Margaret McCuaig-Boyd said that the province would not buy additional electricity from neighbor British Columbia unless the latter lends its support for an oil export pipeline through that province.

The next day Notley said: “We’ve just got to get our product to other markets. We’re not necessarily going to have that much demand for electricity if we can’t find someone to sell our products to.”

Neighbors wanting to talk about new power lines crossing provincial borders need to understand that the issue is tied to inter-jurisdictional product distribution infrastructure, like pipelines to carry bitumen to tidewater.

These were not separate issues, Notley said.

British Columbia has opposed Enbridge’s 525,000 b/d Northern Gateway and the Kinder Morgan-backed 890,000 b/d Trans Mountain pipeline expansions, primarily for environmental reasons.

Now British Columbia has a project at risk: the fate of its recent final investment decision to build the 1,100 MW Site-C hydroelectric power project near Fort St John on the Peace River at a whopping cost of C$8.8 billion ($6.7 billion) and the laying of a new transmission line to supply power to northeast Alberta, which is home to oil sands producers.

HITTING WHERE IT HURTS MOST

For British Columbia, the signing of power purchase agreements with its neighbor is just as significant, as is Alberta’s efforts to receive higher royalties from its oil sands producers by opening up an export outlet and substantially wiping off the province’s ballooning budget deficit of over C$10 billion.

Right now Alberta’s crude is heavily discounted as it has few outlets and must go through the US in order to be exported overseas. With low-cost pipeline space limited, Canadian crude also needs use higher priced rail lines to get to the market, which requires oil prices to be lower.

The genesis of Alberta’s opposition to building the power project planned by BC Hydro goes back to the 1980s. This was when the then premier Peter Lougheed expressed concerns that building a dam in the Peace River valley would inundate about 5,500 hectares of land in the Western Canadian Sedimentary Basin and impinge on the constitutional rights of the Treaty 8 and West Moberly First Nations bands to their lands.

Four decades later, the slowdown of oil sands activity in Alberta, particularly Shell’s decision to cancel its 80,000 b/d Carmon Creek project in Peace River, will result in less power demand and come in the way of BC Hydro’s PPAs.

The British Columbia government is willing to work through Alberta’s demand and find a way to work together, said its energy minister Bill Bennett. But if recent statements by the federal natural resources minister James Carr are any indication, getting oil pipelines built in Canada will not get any easier.

“Of course, the process [of building pipelines] is a political one,” Carr said at an industry event in Calgary last month. “Some people have a cynical interpretation of political in the context of pipeline. But I see political as a word that is at the very heart of our democracy. We’re elected on a platform and are held accountable for achieving those goals.”

Governments are elected to make tough choices and that could likely create a greater consensus and reduce the hurdles in building pipelines, Carr said.

The federal government is expected to play an intermediary role between Alberta and British Columbia, with Prime Minister Justin Trudeau stating unequivocally that his main responsibility is to get a pipeline built. If Canada sticks to its policy of getting a consensus when making decisions, it will be a win-win situation in the end for both provinces.

Source: http://blogs.platts.com/

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Fuss over “missing” 800,000 oil barrels: ‘Get over it,’ says IEA official

Has the hoo-ha over the 800,000 “missing barrels”, the difference between average daily global oil production and consumption flagged by the International Energy Agency in its March report gone a bit too far?

And did you fall for the argument that these barrels may not even exist, which in theory halves the presumed oversupply in the global oil market and gives us reason to be more bullish on oil prices, which had teetered near 13-year lows just two months ago?

In yet another testament to how clueless and sentiment-driven the oil markets have become, the case of the missing barrels was actually proffered by some as one of the reasons behind Brent clambering to over $41 this month, from levels near $30 in February and a $27 nadir in January.

Google “missing barrels” and you can catch all the excitement in case you missed it. The latest one is actually a sobering report that has Morgan Stanley analysts dismissing it as an old “market myth” and a “poor explanation” for crude’s rise in recent weeks.

In its monthly oil market report issued March 11, the IEA said it had actually been able to reduce the uncertainty in the supply/demand balance, described as “missing barrels,” to 800,000 b/d, after re-analyzing its data for floating storage and oil in transit. The figure, it said, was “well within the normal range considering the vagaries of data.”

The implied surplus of supply over demand remains a high 1.9 million b/d for Q1 and 1.5 million b/d for Q2 this year, the agency maintained.

We know nervous markets don’t have time to pause and reflect.

But the IEA, it seems, had not gambled upon the play its “missing barrels” was to receive. The Wall Street Journal ran a report a few days later, citing some analysts suggesting that if the 800,000 b/d doesn’t exist, the oversupply that has pressured oil prices may not be as big as estimated.

The tally of unaccounted-for oil — which comes from the difference between the 1.9 million b/d presumed surplus and the roughly 1.1 million b/d of oil calculated by the IEA as being in transit and moved into onland storage — rose to its highest level in 17 years last year, and this was an important factor in an industry dominated by oversupply, the paper said.

Brent’s trek from $36 and change at the start of March to a year-to-date high of $41.79 on March 22 has left more than a few market watchers puzzled. The dollar’s weakness following the US Federal Reserve meeting March 16, a lingering 200,000 b/d production outage in Nigeria and a drop of about 120,000 b/d in pipeline crude supplies from Kurdistan got buttressed by the “missing barrels” argument in support of crude’s rebound. Otherwise, the few hundred thousand barrels in production outages should pale in comparison with the giant global surplus.

In an oil market of 96 million b/d, and entrenched imperfections in the gathering and reporting of oil production and consumption statistics, the discrepancy between the calculated surplus and the oil tallied as moving into storage is not something the IEA can do anything about, the agency’s head of oil industry and markets division Neil Atkinson stressed March 23.

Responding to a Platts question about his take on the buzz created by the IEA report’s “missing barrels” reference, Atkinson, who was in town to participate in the Singapore International Energy Week’s launch event, took issue with the perception that the IEA didn’t know where the “missing” oil was.

“A lot of it is in China [in the form of stockpiles], there’s some in India, some sitting in pipelines and some in ships,” he said. The IEA, an energy policy adviser to the OECD countries, does obtain data from non-OECD countries, contrary to some assertions, but it’s not perfect, the official stressed. “Get over it,” is how Atkinson summed up his view on the hullabaloo.

David Hewitt, Managing Director at Credit Suisse and fellow panelist at the SIEW event, agreed, saying that some traders seemed to have seized upon the “missing barrels” story in their hunt for reasons to be bullish about the market.

Incidentally, both Atkinson and Hewitt were also dismissive about the other bullish ghost still lingering over the market — the “production freeze” initiative by some OPEC and non-OPEC producers. Anyone got a number for oil’s Ghostbusters?

Source: http://blogs.platts.com/

AFPM 2016: From Latin American polymers to US methanol, toluene, MX and more

Platts’ US petrochemical markets team was at the American Fuel and Petrochemical Manufacturers’ annual meeting in Dallas earlier this week, where they met with industry leaders, speakers, market participants and more about what the petchem markets are experiencing — and expecting — in 2016.
The editors filed dozens of stories, including one about the possibility of more restructuring and consolidation in the industry and another looking at various challenges facing the industry.
To give a bit more insight into wide range of products and topics that were discussed at AFPM, we wanted to share a few more stories to come out of the conference.

Brazil’s demand for polymers can improve by midyear: sources
Market participants believe Brazil’s political turmoil can stabilize by July, leading to strong demand for polymers, sources said on the sidelines of the American Fuel and Petrochemical Manufacturers’ annual meeting in Dallas.
Brazil has been rocked by a major corruption scandal at state-owned Petrobras. The turmoil has included names such as the current and former president of Brazil, multiple congressmen and other officials, Petrobras, which is looking to shed assets, is Braskem’s main provider of feedstock naphtha, which the petrochemical company uses in the production of basic petrochemicals, polyethylene, polypropylene and other polymers.
As Brazil is a key part of the Mercosur region and South America, the political outcome will impact other countries in Latin America, sources said.
“The minute Brazil is back on track, Argentina, Uruguay and even Venezuela will be impacted as well. The demand in Brazil for consumption goods exists and we need to be ready when it happens,” a trader that sells resins to Latin America said Sunday.
With Brazil’s economy struggling, demand has been talked weak for months due to a combination of factors. A palpable increase in late/delinquent payments and instability of the US dollar against Brazilian currency were some factors hindering trade, sources said.
“Buyers are cautious since last year and we believe their inventories are very low. By July 2016, this is likely to change depending on the political situation,” the trader said.
A Brazil-based distributor also said it depends on Brazil’s political stability.
“People are afraid to make debts and consumption is a short-term way to growth. So, if the political scenario changes, the consumption might increase as well,” the distributor said. “But I think July is still too early to see any changes in the economic side.”
— Ingrid Furtado

US methanol market monitoring projects, China: sources
The status of planned methanol facilities in the US Gulf Coast and Pacific Northwest and the state of the market in China have attracted the focus of US market participants, sources said Sunday on the sidelines of the American Fuel and Petrochemical Manufacturers’ annual conference in Dallas.
US methanol capacity expanded to 5.75 million mt/year at the start of the year, up from 2.25 million mt/year at the start of 2015. The amount could exceed 15 million mt/year by 2020, based on projects announced by companies.
Sources said they did not expect all planned units to come to fruition, but the expansion in US methanol will continue to some extent, they said. Methanol pricing in China has also attracted attention, recently providing reason for optimism, sources said.
“There seems to be more comfort in the market with pricing in China higher and pricing in the US appearing to come off a recent floor,” a trading source said.
Chinese spot methanol pricing reached a 2016 high at $230/mt CFR China on Friday, the highest since reaching that same level December 7, according to Platts data.
The increase in pricing in China has been driven by increased demand from methanol-to-olefins units due to recently improved economics on stronger olefins and downstream pricing, sources in that region said.
US spot pricing reached 47.75-48.25 cents/gal FOB USG for March and April, recently off a two-month high after spending February in a range of 42-45 cents/gal FOB USG, Platts data showed.
The recent tightness in shipping space has been a factor within the market, with material that typically entered the US from Trinidad and Tobago and Venezuela seeking new homes as well as firm interest from China in importing US methanol.
The expansions in US methanol production have been targeted for the US Gulf Coast and the Pacific Northwest.
Projects in the US Gulf Coast include Natgasoline (1.75 million mt/year in 2017), South Louisiana Methanol (1.8 million mt/year in 2017), Yuhuang Chemical (1.8 million mt/year in 2018) and G2X Energy’s Big Lake Fuels (1.4 million mt/year).
The Pacific Northwest has seen plans for methanol projects. Northwest Innovation Works has announced plans for plant in Kalama, Washington (3.5 million mt/year in 2019); Clatskanie, Oregon (3.5 million mt/year in 2020); and Tacoma, Washington (7 million mt/year at a date to be determined).
The US Gulf Coast has other planned methanol projects slated for the next two years. G2X Energy’s 1.4 million mt/year Big Lake Fuels secured engineering contracts and should required three years of construction, the company said Tuesday. Other projects include Natgasoline (1.75 million mt/year in 2017), South Louisiana Methanol (1.8 million mt/year in 2017) and Yuhuang Chemical (1.8 million mt/year in 2018).
— Justin Schneewind

US toluene, MX sentiment remains bullish despite blending lag: sources
US participants were still bullish on toluene and mixed xylene spot markets despite a lag in gasoline blending demand, sources said on the sidelines of the American Fuel and Petrochemical Manufacturers’ annual meeting in Dallas.
Both markets were anticipated to see upward pressure as early as February, as those markets saw in 2015, but the incline in gasoline blending demand has been slower because of higher gasoline inventories, sources said.
US toluene and mixed xylene spot inventories have remained ample as market players stored product in preparation for demand ahead of the driving season. However, for those looking to buy product for the second half of April, product was tougher to come by, a couple of sources said.
“Although we’ve seen this lag, the demand will be there as we close in on the driving season,” a source said.
US spot toluene was assessed Monday at $2.03/gal ($617/mt) FOB US Gulf Coast, while US spot mixed xylene was assessed at $1.96/gal ($594/mt) FOB USG.
— John Calton

Source: http://blogs.platts.com/

Seeds of change: Ukrainian minister seeks to bolster country’s agriculture

Fighting for its future, Ukraine is now relying on its agriculture more than ever to support its struggle. Platts’ Thomas Houghton goes to Kiev to discuss politics, production, and transfer pricing with Oleksiy Pavlenko, Ukraine’s minister for food and agrarian policy.
It is impossible to talk about the political situation in Ukraine right now without balking at the size of the task facing the country. Some 25 years of corruption, theft and mismanagement left the country in a difficult place. Now, revolution, political in-fighting and the threat of economic collapse have added to the mix. And all of this as a proxy war against Russia drags along in the east. While stable for now, Ukraine’s economic situation remains precarious. And overall, Ukraine’s recent history has, unfortunately, been a series of missed opportunities and false starts.
Oleksiy Pavlenko, Ukraine’s minister of food and agrarian policy, is determined to change that. He is forcing the issue through modernization programs, simplifying and streamlining bureaucratic procedures, and making (sometimes unpopular) changes. His goal, in the wake of 2014’s Euromaidan revolution, is to stop the rot and drag Ukraine forward.
The softly-spoken Pavlenko, who started his career at KPMG and ABN Amro before moving on to senior roles at Ukrainian food and agricultural companies, talks all the talk of a westward-looking reformer. And since taking office in December 2014, Pavlenko has walked the walk too, presiding over a mini-renaissance for Ukrainian agriculture. Foreign investors are lining up to get a slice of the action in Ukraine’s agriculture industry. Grain output, meanwhile, increased 6% during the first year of his tenure, while exports were up 8% to an estimated 34.8 million mt. This figure is forecast to increase another 1% for the 2015-16 marketing year, despite production falling 2.5%.
Agriculture now accounts for 38% of total exports, Pavlenko says, which when combined with logistical and port facilities, as well as foreign direct investment, accounts for an $11.1 billion net inflow — accounting for as much as 20% of GDP.
But it has not all been plain sailing. The precarious situation of the government is probably highest on the list of obstacles he faces. Pushing through changes in a polarized parliament — you have possibly seen the videos of brawls breaking out at the speaker’s box — is a challenge, to say the least. President Petro Poroshenko, meanwhile, seems content to use Prime Minister Arseniy Yatsenyuk as a lightning rod for dissatisfaction in parliament and among the population, making the cabinet’s task even tougher.
The situation came to a head last month, as Pavlenko tendered his resignation before retracting it several days later and opting to stay in the cabinet. The coalition party which endorsed him — Samopomich, Ukrainian for Self Reliance — was less than pleased with his decision. But the minister seems to think that there are more pressing issues at stake than party politics and jockeying for position in the new Ukraine, perhaps taking his former party’s name to heart as he goes about his work as one of only two independent members of the cabinet.
This work has seen Pavlenko implementing free market oriented reforms and breaking up networks of patronage. This has certainly earned him some detractors, but Pavlenko remains stoic and defiant in the face of criticism of the changes his ministry is implementing in the sector.
“We are sure that the right time is now to make unpopular [reforms],” he says. “The next election will be in three years, and now is the time to clean up all the stuff that was not done over the last 24 years.”
Indeed, the cuts and reforms Pavlenko has to make seem somewhat less though than those in other departments closer to the day-to-day lives of Ukrainians. Chief among them is a vast privatization program which will see 400 state-owned enterprises shut down or sold off to the highest bidder. He has also earmarked 3.6 million hectares of state-owned arable land for sale, having successfully pushed through legislation on the assessment and sale of agriculture land, which the minister says can easily be used to start pilot sales to foreign investors.
However, Pavlenko is guarded on providing guarantees that private investors looking to secure agricultural land have been seeking. This seems to be a real break with the past, relying on developing the rule of law instead of the favoritism that many foreign investors in the former Soviet Union sought and found to be worth no more than the paper it was written on.
Instead, he points to two factors that could sway braver investors to make a calculated risk: first, the ministry’s record to date in passing reforms and commitment to push through further changes. And second, the low cost of doing business in Ukraine — at least in terms of day-to-day expenses — with some of the lowest wages in Europe and a currency which has slumped from 8 to 26 against the US dollar since the change of government.
There has been no shortage of foreign investors over the years, with all of the biggest names in the grain trade established in-country since the early days of independence. This shows little sign of slowing down, with Cargill announcing last month that it will invest $100 million in a new port terminal at Yuzhniy. Other big announcements will be in the offering over the coming year, Pavlenko says.
What else has he been able to achieve? At an operational level, simplifications to the quarantine certification system have removed bureaucratic steps which necessitate “facilitation payments” — that is, backhanders — to get things done. It would be naïve (and wrong) to say that corruption has disappeared completely. But when asked about a scandal last year involving offshore companies circumventing payments to the Ukrainian state using false paperwork, smuggled currency and deceased directors, Pavlenko was able to put a positive spin on the story. The seizure of several thousand tonnes of grain, in the context of 35 million mt of exports, is a sign that the system is working in its detection of evasion rather than proof that circumvention is still ongoing.
Pavlenko points to the removal of 56 different licenses and certificates under his tenure, simplifying procedures and reducing the interaction between private and public institutions — reducing the possibility for graft. In the last year as much as 12 billion hryvnia’s worth of hidden schemes were prevented by the reduction of red tape, Pavlenko says. “It’s simple — no certificates, no corruption!” he said.
More contentiously, a VAT rebate system has attracted criticism from a number of Ukrainian traders, who speak of unclear processes and additional burden that it puts on their business. Some even go so far as to suggest that favoritism in the system has jeopardized the business of some and contradicts the government’s claims that it is clearing up graft. It should be noted that such allegations remain unproven, while generating VAT income is a burden that may have been deemed a necessary evil in order to raise much-needed government revenue as other sources of income have dissipated.
Ultimately, Pavlenko is defiant in his assessment of the VAT reform situation, and incredulous that some would even question it.
“Now in Ukraine we have the lowest taxation in Europe — come on! We cut our social taxes twice. We also have lower income taxes than the rest [of Europe]. It is now an issue of social responsibility of businesses. … Guys, we are decreasing the taxes, but you should pay them! We are decreasing salary taxes tremendously, but you should also actually pay them,” he said.
It is this demand for social responsibility — as well as stress on the symbiotic relationship between the state, the government, and business — which has acted as a cornerstone for Pavlenko’s work and won the ministry approval outside the country. The European Bank of Reconstruction and Development has thrown some $300 million at Ukrainian agriculture in the past year, with more likely to come after a series of ministry-sponsored roadshows and investor forums for the sector.
As for the future, Pavlenko remains cautiously optimistic about the prospects for the new grain crop. Despite an autumn drought causing damage to early development, a relatively mild winter has held out and things look to be heading towards a positive end. The minister puts his agronomists’ office projections on lost wheat acreage at “no more than 20%” — notably even more conservative than those in the private sector, which (some, admittedly, unscientific surveying suggests) are estimating in the region of 10-18%.
Ukraine is also targeting new markets and looking to expand its export volumes further still. It has improved phytosanitary arrangements, opening new markets for Ukrainian producers, as well as signing bilateral agreements on trade relations with a number of different countries. China has been targeted for more additional grain exports on top of the 2 million mt already sold this marketing year, while efforts are to be redoubled on winning new business in the Middle East (in particular the UAE and Iran). As for the EU, Pavlenko did not seem to hold out much hope for an increase in grain export quotas for Ukrainian producers, but seemed content with the current relationship with economic bloc and stressed its importance as a destination market for meat and dairy products.
But where Pavlenko — and indeed, Ukraine — goes from here really remains to be seen. While positive strides have been made and the early signs of improvement can be seen, there is a fragility that pervades everything in Ukrainian politics. At the time of writing, Prime Minister Arseniy Yatsenyuk again appears to hang by a thread, with much of the coalition cabinet at risk of being swept away with him. The minister does not appear fazed by the situation. Instead he is content to play his role in a bigger process of state-building as Ukraine struggles to overcome past failures, foster a national identity, and find an independent voice and role for itself in the world.

Source: http://blogs.platts.com/

The stars align to support US steelmakers

Real demand is still flat and US steelmakers appear to be facing a “perfect storm” — a good one, this time.

Whether it’s Adam Smith’s “invisible hand” or some kind of global steel zeitgeist, things are all of a sudden looking great for US mills, just in time for the seasonally strong second quarter.

One of the biggest boosts is coming from actions set in motion last year: unfair trade cases filed by domestic producers against sheet steel imports from 11 countries.

The US Commerce Department last week announced long-awaited preliminary dumping duties of 4-49% on imports of hot-rolled coil, the largest and most contentious market among steel products. This important determination came on the heels of the establishment of provisional duties of 2-266% on cold-rolled coil and 3-256% on hot-dip galvanized sheet, the other two major sheet steel products. Taken together they represent roughly half of all American steel shipments.

Subsidy-remedying countervailing duties were also established. These too are preliminary, but they are just as costly to importers who must make cash deposits in the amounts of the duties, pending final determinations.

Furthermore, some of the sheet duties, against the most allegedly egregious offenders, were made retroactive by 90 days.

The high ends of the duty ranges on CRC and HDG belong to Chinese exporters. The HRC duty range in this most recent round of trade case filings is modest by comparison because China had already been assessed similarly high HRC duties from a previous round of filings.

This trade litigation success is being followed by surprising recent strength in global steel markets and a boost in US scrap prices, which will help mills justify the finished steel price hikes they recently put into play. US scrap prices moved up $20/lt the first week of March and look likely to rise by at least that amount during the April buy week.

Finally, US mill production cuts made late last year and early this year — along with a drying up of imports due to the trade case filings — have apparently reduced supply to a point of inflection. In the words of one sheet buyer, a “rude awakening” awaits those who managed to avoid earlier US mill price hikes only to face much more substantial ones today.

It’s not just sheet makers experiencing a harmonic convergence of positive developments. One buyer of plate steel, citing rising scrap costs, low inventories, longer mill delivery lead times and pending trade cases, likened the producers’ current situation to the planets lining up, and then added another analogy: “The pendulum has swung to the mill side of things.”

Whether it’s swinging pendulums, planetary shifts or meteorological phenomena, it seems clear that US steelmakers, after many months of struggling, can count their lucky stars.

Source: http://blogs.platts.com/

Vietnam’s oil tax rules run counter to self-reliance policy: Fuel for Thought

Ironic and unusual aptly describe the conundrum facing Vietnam’s sole 130,000 b/d state-owned refinery located in the central province of Quang Ngai.
The refinery has been struggling to sell its oil products since Vietnam’s free trade agreements with ASEAN and South Korea kicked in last year making it cheaper for local petroleum retailers to import oil products instead of buying from Dung Quat.
The reason behind this is a tariff imposed on Dung Quat’s products which are locally referred to as an “import tax”. This tax was originally intended to be at the same level as the tax imposed on imported oil products but as the FTAs kicked in, the tax structure started working against Dung Quat.
A lack of policy coordination has led to this unusual situation, according to an analyst at the Vietnam Petroleum Institute, the research arm of PetroVietnam.
“There are two separate teams in each relevant ministry—one is responsible for FTAs while the other is in charge of tax policies for Dung Quat. They did not cooperate well with each other,” the analyst said.
The results are intermittent tank tops at Dung Quat and strong growth in the country’s oil product imports, which is ironic given that the reason behind Dung Quat’s construction and planned construction of other refineries in the country is to lower reliance on product imports.
Vietnam’s oil product imports rose 19% year on year in 2015 to 10.06 million mt. Supplies from Singapore, Thailand and Malaysia saw a dramatic jump of 48.50%, 164% and 87.40% respectively, data from Vietnam’s customs showed.
In the first two months of 2016, imports have risen 12.3% year on year to 1.69 million mt, while South Korean supplies have seen a 57.60% year-on-year surge in the period.
After several pleas by Binh Son Refining and Petrochemical (BSR), the operator of the Dung Quat refinery, the government earlier this month agreed to implement a second round of cuts to the tax imposed on the refinery’s output. But barring jet fuel, for which Dung Quat enjoys a lower tax rate than imports from ASEAN, the tax rate on Dung Quat is generally still higher.
The table below highlights the tax rates imposed on different oil products produced by Dung Quat and those imported from ASEAN countries and South Korea:
Dung Quat ASEAN South Korea
Diesel 7% 0 5%
Kerosene 7% 0 5%
Gasoline 20% 20% 10%
Fuel Oil 7% 0 0
Jet Fuel 7% 10% 5%
Notes: The import tax on gasoline imported from ASEAN countries is valid until 2018; import tax on diesel, kerosene, gasoline, and jet fuel imported from South Korea is valid until 2018.
The table illustrates how the tax structure makes importing gasoline from South Korea and importing gasoil from ASEAN countries the best option. Vietnam’s largest retailer Petrolimex expects to import a lot more gasoline from South Korea once some of its existing term contracts expire in the middle of 2016.
No plan to remove domestic tax
According to a local industry source, the Vietnamese government is unwilling to simply remove the tax on Dung Quat because in a low price environment it is keen to maximize its tax revenue. But this is coming at BSR’s cost and at the cost of potential new investment in Vietnam’s refining industry.
Due to the tax disparity, the price of imported South Korean gasoline in January was about $4.78/b lower than Dung Quat’s gasoline, which hit BSR’s sales.
Petrolimex has requested BSR to consider lowering the selling price of gasoline on both a spot and term basis for the second half 2016, so that the refiner’s prices would be equal to South Korea’s State-owned PetroVietnam recently said that if such high disparity in taxes continued for long, Dung Quat might be forced to suspend operations or lower run rates.
Domestic products still have some advantages to imports. For example, Petrolimex does not need to issue letters of credit to Dung Quat, the delivery times are shorter and the parcel sizes can be flexible so some retailers would still prefer to buy from the domestic refinery.
Petrolimex sources said that once the 200,000 b/d Nghi Son refinery comes onstream in late 2017, Vietnam would become fairly self-reliant on oil products but the FTAs would still provide ample incentive to import, which could lead to lower utilization rates at the local plants.
This does not bode well for Vietnam’s refining plans, which not only include new greenfield plants, but also an expansion of Dung Quat for which BSR is already facing difficulty finding a foreign partner in the current low oil price climate. — Mriganka Jaipuriyar in Singapore

Source: http://blogs.platts.com/

Nuclear safety upgrades post-Fukushima cost $47 billion

Five years after the accident at Fukushima I in Japan resulted in three reactor meltdowns, the global nuclear industry is spending $47 billion on safety enhancements mandated after the accident revealed weaknesses in plant protection from earthquakes and flooding. This is according to a Platts review put together by Steven Dolley in DC, Benjamin Leveau in London, Yuzo Yamaguchi from Tokyo, as well as Platts correspondents in Sweden, South Korea and China.
Reactions to the March 11, 2011 accident ranged from pauses in new nuclear construction programs in China to Germany’s decision to gradually phase out nuclear generation.
But in the majority of countries with nuclear power, plans for new reactors have been scaled back, not just because of the Fukushima I accident but for economic reasons, as competing sources of power become less expensive, renewable energy grows in popularity and slow economic growth curbs demand.
Global nuclear regulators carried out reviews of the accident, and in most countries nuclear plant operators were required to install backup sources of electric power and cooling water along with additional protection from earthquakes and flooding. A record-setting earthquake triggered a tsunami that swamped backup emergency power generators and disabled on-site power distribution systems at Fukushima I, leading to a complete loss of cooling.
Those safety improvements have come at a high cost.
A Platts review found that in nine of the 13 countries with the largest nuclear fleets, costs to comply with post-Fukushima requirements will total more than $40 billion, mostly before 2020. Those countries accounted for 289, or two-thirds, of the power reactors in operation worldwide.
The median of the costs was $46.9 million/reactor.
If the remaining reactors not covered in the Platts survey spent the median amount to meet post-Fukushima regulatory requirements, the global cost to make post-Fukushima enhancements would be $47.2 billion.
Post-Fukushima nuclear safety costs through 2020
The greatest cost per country was in Japan, where operators may spend $640 million per reactor to enhance safety.
The OECD Nuclear Energy Agency released a five-year status report on the Fukushima I accident, concluding that actions implemented by member countries had improved the overall safety of the world’s nuclear fleet, but that enhancing safety remains “a long-term process.”
NEA Director General William Magwood said February 29 he believes the addition of portable power sources and sources of cooling is one of the most important improvements resulting from the Fukushima I accident. Validating the safety culture and independence of a country’s nuclear regulatory regime is another element that Magwood said is important.
While Magwood said he recognized member countries had responded differently to the Fukushima I accident, he said he had been “struck by the commonality” in the response to the accident.
In the US, Nuclear Regulatory Commission members in 2012 ordered power reactor operators to enhance their ability to mitigate severe accidents. The US nuclear industry has estimated more than $4 billion, or about $40 million/reactor, will be spent by 2017 or 2018 to meet the requirements.
“The industry has managed its response to Fukushima while avoiding costly new requirements that would have provided little benefit,” said Marvin Fertel, CEO of the Nuclear Energy Institute, in New York February 11.
Anti-nuclear groups have said the regulatory and industry response following the Fukushima I accident has been insufficient. Regulators in the US have “capitulated” to industry by failing to order vent filters, the group Beyond Nuclear said in a March 10 statement.
Measures to protect nuclear plants from earthquakes and flooding have left unaddressed vulnerabilities in areas such as plant security, the group said.
The biggest problem facing US nuclear plant operators recently has been economic. Low natural gas prices and an abundance of cheap renewable electricity in some markets have created financial problems for nuclear plants in competitive electricity markets. Entergy in late 2015 said it would permanently shut two stations, the 849 MW FitzPatrick in New York state and 728 MW Pilgrim in Massachusetts.
Japan’s nuclear reactors were all shut following the Fukushima I accident, and only two have met regulatory requirements and restarted.
The country’s nuclear industry has budgeted about Yen 3.1 trillion ($27.5 billion) for earthquake and tsunami protection following the accident.
Shunichi Tanaka, chairman of the Japanese nuclear regulator, said March 23 that Japanese reactors have to be protected from greater earthquake or tsunami risks than those in most other countries. “There have been few big earthquakes or tsunami in Europe, unlike in Japan.”
Power companies in Japan are willing to spend billions of dollars on reactor upgrades because they expect the investments will help them reduce substantial costs spent on replacement fossil fuels. Restarting the two Takahama reactors, for example, could save about Yen 10 billion/month for Kansai Electric Power Co., a company spokesman said March 22.
For Germany, the Fukushima I accident was the catalyst for a government decision to permanently shut the country’s nuclear reactors.
In April 2011, German Chancellor Angela Merkel said her government was moving to phase out nuclear power in favor of renewables. After the accident, the government ordered that the country’s seven oldest units be shut permanently and set a schedule for nine remaining units to shut by 2022.
The phase-out decision, which parliament confirmed, sparked a number of lawsuits by German nuclear utilities that are still pending.
Because of the broad German political consensus on shutting nuclear power, politicians have said there is no reversing the phase-out decision.
“The nuclear phase-out decision will not be reversed as there is no serious political party favoring nuclear power,” Claudia Kemfert, a professor of energy economics at the Hertie School of Governance in Berlin, said.
Despite the Fukushima I accident, the political consensus in favor of nuclear energy and the UK’s new nuclear plant construction program remains.
Tim Yeo, who was an environment and energy minister in the Conservative government of Prime Minister John Major in the mid-1990s, said March 14 he attributes this to a combination of bipartisan support for nuclear power and a robust and the UK regulator’s 2011 report concluding there was no inherent weakness in the regulation of UK nuclear stations.
France ratified last year a law that aims to change the country’s energy mix, reducing the share of nuclear energy in electricity production to 50% from 75% and promoting renewable energy use in its place. But the practical steps to reduce nuclear power’s share of generation have yet to be discussed.
State utility EDF estimated in late 2011 that it would cost Eur11 billion to 2033 to implement the safety measures that the country’s nuclear safety authority, ASN, recommends. The post-Fukushima measures were divided in phases, with the first two phases costing an estimated Eur4.5 billion to 2020.
South Korea will spend a total of Won 1.1 trillion ($930 million) to carry out post-Fukushima measures from 2011 to 2017, Kim Tae-Seok, a senior spokesman for the country’s state-run nuclear power operator, Korea Hydro & Nuclear Power, or KHNP, said March 15.
The political and economic impact of the accident in South Korea include larger protests by residents against plans to build new reactors, which has forced the government to offer larger economic aid packages to win support in those communities.
Following the Fukushima I accident, China’s government slowed the approval process for planned units and suspended approvals for the start of construction of any new plants, Xu Dazhe, the chairman of the China Atomic Energy Authority, said at a briefing January 27.
The country resumed new nuclear plant construction approvals in 2015, with the start of work at Hongyanhe-5.

Source: http://blogs.platts.com/

Is it time to go long on European steel?

The recent rebound in European steel prices could represent the beginnings of a recovery for companies who suffered huge losses as a result of the dramatic price collapse in 2015. Initial reluctance from buyers to pay rising prices has turned to acceptance and, with imports now offered at the same levels as domestic material, it seems the recovery may not be as temporary as was first thought.
Across the continent purchasing managers will be asking themselves “is this the right time to buy?” Increasingly the answer would appear to be “yes.”
Hot rolled coil imported into Europe now costs the same as material from a local mill. This has not been the case since December 2014, according to Platts Market Data. Platts daily ex-works Ruhr assessment was at €350/mt Monday March 24, with CIF Antwerp imports assessed at parity – prices have remained static at such levels since.
The disappearance of the spread between import and domestic material has effectively left the European market at the mercy of domestic producers. Buyers usually want at least a Eur20-30/mt discount to make the extended delivery times — and the unknown future that comes with this — worth the risk.
“If China comes back in the next two-three weeks then we know lead times have been 4-5 months, that would mean you would already be talking September/October,” a mill source said. A UK-based trader agreed: “The key thing is the next ten days are critical, if the prices are still holding up in early April then people will shake their heads and say wow this is where we are.”
Without the threat of imports the picture is much brighter in Europe, where demand is not as bad as elsewhere. Whereas Asia, CIS, US and South American apparent steel demand decreased last year, European Union demand rose by 3.4% in 2015. However, this benefit was not felt by domestic producers as the EU28 imported a whopping 7.5 million mt of wide strip, up almost 54% on the 4.9 million mt figure in 2014.
The China story has had lots of airtime of late, with a potential 50% cut in crude production for mills in Tangshan – the country’s steelmaking hub – amid a horticultural exhibition filtering into more bullish sentiment. Stockpiles in the country are also significantly lower compared to this time last year, and traders are taking long positions in anticipation of further rises, both domestically and in export markets.
But outside of China other mills have also taken meaningful steps to address the ‘new-normal’. Global capacity utilization dropped 5.7 percentage points last month, compared to February 2015, according to the 66 countries reporting to the World Steel Association. In Germany crude output fell 4.3%, while Italian production dipped just over 2%. Turkish crude production rose 4% compared to February last year, but this could partly be explained by mills melting more scrap than buying billet for re-rolling.
CIS countries are another key player in the global export market, and there offers have been rising rampantly of late. Russian mills have been benefiting from strong Turkish HRC demand, with prices around $390-400/mt CIF for commodity grade coil recently. Slab supply is also tightening in the CIS and elsewhere, with mills often seen in the merchant market preferring to cash in on rising coil prices. “A lot more [slab] production is moving to laying down HRC for CR and galv,” a procurement source with an international trading house told Platts — he said his slab replacement cost had risen from $265/mt FOB Brazilian port a week ago to $290/mt FOB.
What does all this mean for the European producers? At present they have a captive market and clearly could well press for at least one more increase. Perhaps more significantly, it could give them license to push for higher prices in three to five months, if there is a sustained lack of import bookings.

Source: http://blogs.platts.com/

The long and short of ethane in the Northeast US

On March 9, the JS INEOS Intrepid departed Sunoco Logistics’ Marcus Hook terminal in Pennsylvania with the first waterborne ethane cargo. Arriving at the INEOS steam cracker in Rafnes, Norway, on March 23, the shipment is the culmination of four years of work to transport ethane internationally. However, uncertainty around the ethane market has grown as new projects for domestic and export use all come online simultaneous with declining production and low prices.
Platts Bentek details this uncertainty in a free Market Alert, No Longer Adrift: Navigating a Tighter Ethane Market. Ethane exports have been viewed as a major relief for gas producers in the Northeast, where limited infrastructure has forced producers to reject large volumes of ethane into the natural gas stream. Currently Platts Bentek’s Market Call: North American NGLs estimates 2016 Northeast ethane production at the wellhead at 311,000 b/d, with 125,000 b/d (nearly 40%) of that rejected. Ethane rejection was estimated at nearly 65% in 2015.
The volumes involved in ethane exports are comparatively small. Range Resources, the primary shipper in the contract with INEOS, has 20,000 b/d contracted on the Mariner East 1 pipeline to Marcus Hook. Approximately 50,000 b/d of ethane is contracted to flow on the Mariner West pipeline to cross the US/Canada border and serve southwestern Ontario’s petrochemical industry.
Enterprise Products Partners reports 110,000 b/d currently flowing on the ATEX pipeline from the Northeast to the Gulf Coast. Current capacity on ATEX is 125,000 b/d, and Enterprise has stated that an expansion up to 265,000 b/d would require 18-24 months’ work.
US ethane production forecast
Blue/red is total US ethane production based on our October 2014 forecast and green/purple is production based on our January 2016 forecast. Both are materially revised downward.
Looking forward, low commodity prices have reduced drilling activity and led to a less aggressive ethane production forecast, both nationally and in the region. In the 4Q 2014 Market Call: North American NGLs, published in October 2014, Bentek expected ethane supply from gas plants to reach roughly 2.07 million b/d in 2018.
In the latest edition of Bentek’s Market Call: North American NGLs, published January 2016, ethane supply reaches only 1.86 million b/d in 2018, a 10% decline. In the Northeast, the new ethane projections indicate a smaller decline, of just 8% from 479,000 b/d to 443,000 b/d in 2018.
Projects that will increase ethane demand both domestically and for export continue to move forward, primarily in the US Gulf Coast. Eight ethane crackers are currently under construction on the Gulf Coast will come into service between 2017 and 2018.
Among the cracker projects announced for the Northeast, none are expected to come online by 2018. Export volumes are expected to ramp up as the other ethane export terminal, Enterprise’s Morgan’s Point terminal in Texas, comes online later this year.
US ethane demand
With demand growth on the Gulf Coast, Northeast ethane remains stranded without greater pipeline access. ATEX is set to reach capacity in 2018, and Enterprise has made no announcement of expansion plans. The only alternative destinations for Northeast ethane in the near term are Mariner West to Canada or on Mariner East for waterborne export, both of which are already subscribed. Because ATEX is the only pipeline serving the Gulf Coast, it is the best candidate for expansion to meet new domestic petrochemical and export demand. Without that expansion and with current production forecasts, ethane rejection could exceed 175,000 b/d in the Northeast in 2018.
If capacity on ATEX remains restricted, Northeast producers will be disconnected from the domestic market. Lower regional ethane prices won’t matter because of the physical transport constraint. Thus, the ethane supply for new projects will need to be sourced from other regions, initially Texas and the Mid-Continent, and later the Rockies and Williston basin. Ethane prices will have to rise dramatically to overcome the costs to transport ethane to market, i.e. Mont Belvieu, Texas, and to fractionate ethane from other NGLs.
But even with ethane from the Rockies and Williston, without Northeast production, the US ethane market is short by just over 75,000 b/d by 2018. This ethane shortage would need to be made up through a combination of lower operating rates by existing petrochemical plants, delays for plants under construction, or reductions in export volumes. While this spring brought optimism for Northeast producers via a new market for their ethane, the lack of a domestic outlet looms on the not-so-distant horizon.

Source: http://blogs.platts.com/

The Port of Singapore as a barometer of health of China’s economy and global trade

Shipping, rather than commodity prices, can often be a good barometer of the overall health of China’s manufacturing and of international trade, so it was quite a surprise to see a large number of empty container berths in the vast, sprawling container terminals of Singapore last week.

When driving in from Changi airport at night, the first indicator was the large number of container gantry cranes with their booms up, rather than down and working cargo.

It may have been dark, but each crane is lit, so as not to be a hazard to aviation, so they were clear to see.

As my taxi drew nearer to the Tanjong Pagar, Keppel and Brani terminals, my eyes were not deceiving me and it was crystal clear that there were few ships in port.

As we drove further west towards my final destination, near the new Pasir Panjang terminal, capable of handling the largest container ships in the fleet, the skyline was filled with upward pointing container crane booms.
Just one ship occupied the easternmost berths of the Tanjong Pagar Terminal on the afternoon of March 26, 2016, with idle gantry cranes from the Keppel Terminal visible in the background. Photo by Anthony Poole.
Normally in Singapore, as soon as a ship comes off a berth, another is in place to quickly move alongside to take its place; but not so in the third week of March.

A large percentage of the container traffic in Singapore carries manufactured goods from China.

The big ships come in, discharge thousands of containers that are destined to be transshipped onto smaller vessels better suited for trading to the Indian subcontinent and parts of the Middle East. Singapore also handles a large volume of empty containers on their way back to China.

Nowadays, when the bigger ships do come in, it is clear they are carrying far fewer containers than usual.

Some say the high rates charged by the Port of Singapore are to blame, but several sources in the container business argue that Singapore has little competition as such a major transshipment point in southeast Asia and can, therefore, justify charging high rates compared with many other large, mainline container ports.
A more typical view of the easternmost berths of Tanjong Pagar Terminal, Singapore, May 27, 2013, a year in which Singapore handled 32.58 million containers. Photo by Anthony Poole.
The statistics speak for themselves and confirm what the eye sees. In January, Singapore handled 2.49 million containers, down 10.4% from the 2.78 million that passed through the port in January 2015, according to the port’s own data.

In February, Singapore handled 2.41 million containers, down 7.3% from 2.6 million a year earlier.

While Lunar New Year was in the first week of February, shipping is a 24/7 business, 365 days a year, and this year is a leap year, meaning that February had one more day compared with February 2015, yet the throughput still fell.

Given that we know China’s real slowdown began in late 2014 and gathered pace in 2015, it is not surprising that we see this reflected in the annual container throughput in Singapore in 2015 compared with 2014.

In 2015 Singapore handled a total of 30.92 million containers, down 8.7% from 33.87 million in 2014.

The 2014 total is clearly the high-water mark over the last 10 years and was up from 32.6 million mt in 2013.
One ship on the easternmost line of berths of the Tanjong Pagar Terminal in Singapore on the afternoon of March 26, 2016, and several gantry cranes not in use in the Keppel terminal in the background. Photo by Anthony Poole.
With data in for just two months of 2016 so far, it is too early to tell whether this downward trend will continue. In the first two months of this year, throughput is down 8.85% year on year.

If the trend continues, total throughput could fall to around 28.1 million containers, making 2016 the slowest year since 2010, when Singapore handled 28.43 million containers.

Some analysts argue that China is transitioning from being a manufacturing economy to one based on services and consumerism.

If true, it implies the port throughput figures in Singapore could be in long-term decline, unless it becomes an import-dependent economy.

But it is highly unlikely China as a service economy will succeed in keeping hundreds of millions of people employed.

Only manufacturing can do that, which suggests that, at some point, Chinese manufacturing and exports will recover, and the container throughput in Singapore will also.

Given China’s demand for raw materials has such a significant bearing on the price of industrial commodities from crude oil to base metals, a visible recovery in international trade will be of interest to the broader commodities complex.

Source: http://blogs.platts.com/