Sunday, July 5, 2015

Asia Oil Refining Margins Hit 2015 Low, Mideast Supply to Drag

Singapore. Rallying oil refining margins have ground to a halt in Asia. Currently at a 2015 low, they could drop another 20-30 percent this quarter, led by declining profits in diesel as supply from the Middle East adds to a global glut.

While softer Asian demand for diesel will be a drag, margins will likely draw some support and stay above last year’s low as the region’s gasoline uptake remains healthy.

Asian refining margins enjoyed a stellar run in the first half of this year on weak oil prices and hit a two-year top above $10 per barrel in June. But they have almost halved this week to $5.60 with supply of refined products from traditional importers in the Middle East building up.

“We see refining margins weakening on worsening diesel fundamentals, particularly east of Suez, though gasoline should be supportive,” said Robert Campbell, head of oil products research at Energy Aspects.

Energy Aspects estimates a near 20 percent drop in third-quarter Asian crude refining margins versus April-to-June levels, while consultancy FGE sees a 30 percent drop.

This could force refiners to cut production to avoid eroding their margins further in an already well-supplied market. Middle Eastern producers have added at least 1.2 million barrels-per-day (bpd) of capacity over the past two years.

New refineries are typically configured to produce about 30 to 50 percent of middle distillates, comprising diesel and jet fuel, which has led to a glut of these products.

In fact, global diesel inventories rose by more than 25 million barrels in April from a year ago and are expected to continue growing this year, Standard Chartered said in a report.

This comes at a time when demand at one of Asia’s largest diesel consumers, China, is slowing down.

As a result, “a lot of diesel will be trapped in the Far East and this will lead to run cuts in places like Japan and South Korea as the arbitrage to the west will be closed by growing Middle Eastern supplies”, said Campbell.

Gasoline: A bright spot

Demand for gasoline, and crude prices that are more than 40 percent below last year’s high, should help keep a floor under Asian margins.

Gasoline demand is expected to see a double-digit growth in Thailand, the Philippines, Vietnam, Pakistan and India, according to Energy Aspects. This should help keep third-quarter refining margins above a low of $2.47 plumbed in August 2014.
Naphtha margins are also expected to stay firm as the product is blended into gasoline.

But Campbell cautioned that while gasoline demand will continue to be firm, it would be “hard for gasoline to go much higher without some significant refinery outages”.

Chinese refiners have been maximizing gasoline output to meet strong demand. Refineries returning from maintenance in China and South Korea will further add to the surplus.

“Run cuts will be needed to balance things, particularly if there is a warm start to the winter,” said Campbell.


Minister: Indonesia Expects Total to Decide on Mahakam Within Days

Jakarta . French oil firm Total will decide how large a stake it will retain from 2018 in Indonesia’s offshore Mahakam oil and gas block within days, the country’s energy minister said on Friday.

From Jan. 1, 2018, state energy company Pertamina will take over as operator of Indonesia’s top gas producing field from Total. But it is not yet clear how Total and other partner Japan’s Inpex, will split the 30 percent stake that Indonesia has proposed they share.

“Inpex has said they are ready to continue no matter what portion [they get],” Energy Minister Sudirman Said told reporters.

There may be no decision until the middle of next week at the earliest, according to Joko Siswanto, upstream oil and gas director at the energy ministry, who said Total would meet the other firms on Wednesday.

“They will sit together with Pertamina and Inpex …If it’s economic for them, they will join,” 

Siswanto told reporters, referring to Total’s interest in Mahakam. He added that his office would give Total and Inpex until the end of July to decide the size of stake each would take.

Siswanto noted that as well as their operating interest, the split — the percentage of oil and gas production firms take in a production sharing contract with the government — could change to give contractors a greater portion of production.

Siswanto said the move was justified given Pertamina is a state-owned enterprise and its share was essentially going to the state as well.

Where previously Total and Inpex handed 70 percent of gas and 85 percent of oil and condensate output to the government, the split could change to 60-40, he said, so Pertamina, 

Inpex and Total would share 40 percent of output between them from 2018.

A spokesman for Total’s Indonesian unit was not immediately available to comment on the matter.

Earlier, Total’s Indonesian unit said the firm is in the process of scaling back drilling operations at Mahakam and expects to reduce the number of operating rigs from seven to three by the end of 2016.

“In terms of number of wells to be drilled this year it is around 107 and next year is around 70,” 

Total Indonesie spokesman Arividya Noviyanto told Reuters via e-mail.

Gas output from Mahakam could decline 9 percent to an estimated 1,494 million standard cubic feet per day (mmscfd) in 2016 from a targeted 1,645 mmscfd this year, Noviyanto said, noting that these figures were subject to change.


Sunday, June 28, 2015

Sinar Mas’ Energy Holding Pushes Ahead With Coal-Fired Power Plants

Jakarta. Dian Swastatika Sentosa, Sinar Mas Group’s energy and infrastructure holding company, is working on two new coal-fired power plant projects worth $620 million, a director at the company said.

Hermawan Tarjono, a director at Dian Swastatika, said on Wednesday that the two projects consist of a 2×150 megawatt power plant project called Sumsel-5 Musi Banyuasin in South Sumatera, and a 2×50 MW of Kendari-3 in Southeast Sulawesi.

He said construction of the Sumsel-5 plant, estimated to cost about $420 million, has reached 90 percent completion and by the end of the year is set to open for operation.

“The coal need for Sumsel-5 is expected to reach 2 million tons per year. We can take coal supply from the company’s [Dian Swastatika] subsidiary Andalan Satria Lestari,” said Hermawan in Jakarta on Wednesday.

Meanwhile, the Kendari-3 is scheduled to begin construction in early 2016, and will cost about $200 million. Dian Swastatika has set a target to start operating the plant in 2018.

Hermawan said the plant would require 500,000 tons of coal per year. Dian Swastatika is seeking to secure coal for its Kendari plant from its listed coal mining arm Golden Energy Mines.

The director said the company would seek about 75 percent of the financing for the $620 million project from bank loans and the remaining from equity injection.
In March the company signed a loan worth $510 million with the China Development Bank (CDB) to help finance the power plant.

“The process for disbursion of loans from CDB really depends on the progress of the project,” Hermawan said.

“For example, Kendari-3 now is still dealing out with land acquisition. If it can be settled soon, then the loans will also be disbursed faster."

Investor Daily

James Murdoch Says Family is United as He Takes Helm of Fox

Cannes. James Murdoch, who will take the helm of Twenty-First Century Fox next week, said there was little he and his father Rupert did not agree on with respect to the future of the family media empire.

At the Cannes Lions advertising conference on Thursday, the 42-year-old executive also said his relationship with brother Lachlan, who will be elevated to a co-executive chairman in the recently announced reshuffle was “very much a partnership”.

While James and Lachlan are said by company sources to have a good relationship and approach the business as partners, the dual-reporting line could prove to be confusing and a source of tension, analysts have said.

“The family is obviously a big shareholder in the business, so we are all really invested in each others’ success,” said Murdoch.

“We all see very eye to eye on the business, so I think we’re in reasonably good shape there.”
Rupert Murdoch, who controls Fox through a trust that owns 39 percent of the voting shares, announced the long-expected elevation of his sons this month as he prepares the future of the company at a time of wrenching change in the television and entertainment businesses.

James Murdoch will soon be running a sprawling media empire that owns cable assets, broadcast networks and movie studios, including Twentieth Century Fox, Fox News and Star India. Fox is also the largest shareholder in European pay-TV group Sky PLC with 39 percent.

The family spun off the newspaper business News Corp., long a passion of Rupert Murdoch, into a separate company in 2013.

Some investors have questioned whether James is less attached to some parts of the media empire that his father built, such as the less profitable newspaper arm. The future of Fox’s investment in Sky is also an issue after media reports of interest from European media group 

Vivendi and telecom operator Vodafone James Murdoch did not comment on Thursday on those topics in particular, but did not mention News Corp. or Sky when asked what he thought the most promising areas of development were for the company.

“We are a global business and have always been so but I have to say we think India is the single greatest opportunity in the next five to ten years,” he said, adding that Latin American and the United States were also bright spots.

Asked whether he would one day like his own children to run the family business, Murdoch laughed.

“My kids are really little right now. I’d just like them to pass the fifth grade.”


Thursday, June 18, 2015

Future of Mahakam Block in Joko’s Hands: Minister

Jakarta. How the Mahakam natural gas block off East Kalimantan will be managed from 2018 lies in the hands of President Joko Widodo, Indonesia’s energy minister said on Tuesday.
Sudirman Said, the minister for energy and mineral resources, said the president needs to decide how production shares will be split between the three companies set to manage the block.

The block, which is Indonesia’s single-largest source of natural gas, is currently operated by French-based oil company, Total Indonesie, and Japanese firm Inpex. Both companies have a 50 percent share.

Pertamina will begin operating Mahakam block from Jan. 1, 2018.

“We give recommendations to the president but we wait for his wisdom. I am waiting for a call from him to discuss the final decision,” Sudirman told journalists, refusing to comment on what the three companies had each requested in negotiations.

Discussions between the three companies about how the block will be managed are underway, the minister said, including detailed plans for the block’s transition to Pertamina.

The government has said it wants Pertamina to wholly control and operate Mahakam block, but it is negotiating with the two former operators for production share.

“Normally, Pertamina would have 100 percent [control]. But perhaps Pertamina needs a facility from the government to create a convenient situation for all parties. The government will need to decide the stakes,” Sudirman said.

Sudirman rebuffed questions from journalists over claims Pertamina asked for 51 percent stake, saying: “I don’t want to give a specific number. The majority of shares is minimum 51 percent. We’ll just see the decision of the president.”

Pertamina’s president director, Dwi Soetjipto, said he was still waiting on the government’s decision so the company could move ahead with plans.

Investor Daily

Tuesday, June 16, 2015

Indonesia Sets 2016 Oil Output Target at 830,000 Barrels Per Day

Jakarta. The House of Representatives’ Commission VII and the Energy Ministry approved on Monday Indonesia’s oil production target of between 800,000 and 830,000 barrels per day during a working meeting to deliberate the 2016 State Budget.

Energy and Mineral Resources Minister Sudirman Said considered the figure realistic based on this year’s oil output so far.

“We will continue to monitor production until the end of the year so we can set a clearer target for next year,” he said.

Monday’s working meeting was the third between the ministry and Commission VII, which oversees the country’s energy sector.

Indonesia’s current oil production stands at 802,046 barrels per day on a monthly average and 77,347 per day on a yearly average, according to ministry spokesman Dadan Kusdiana.

The figure is still below domestic demand, which is recorded at 1.43 million barrels per day. To cover the gap, the government imports oil from various countries.
Indonesia is currently in talks to rejoin the Organization of the Petroleum Exporting Countries (OPEC) despite being a net importer of the commodity.

Monday’s meeting also saw the government and the legislature approve a subsidy of Rp 1,000 (7 US cents) per liter for gasoline and diesel.

Investor Daily

Canadian Oil Drillers’ Group Sees More Than 25,000 Jobs Lost

Calgary, Alberta. The number of drillers’ operating days is expected to decline by an additional 10,320, after the industry body said in January that 64,645 operating days would be lost. In 2014, the total number of operating days in 2014 was 131,021.

As a result the CAODC estimates 25,110 jobs linked to the drilling industry will be cut, up from a previous forecast for 23,000 positions to be lost because of the downturn.

The drilling industry in Western Canada has been particularly hard hit by the drop in oil prices, which tumbled from more than $100 a barrel last June to around $45 in March, as producers sought to drive down operating costs by renegotiating contracts with service providers.

Benchmark US crude has since recovered to just under $60 a barrel, but oil companies continue to defer new projects and keep a lid on capital spending.

There are currently 123 active drilling rigs in the Western Canadian Sedimentary Basin, according to the latest figures from RBC Capital Markets, down 54 percent from the same time last year and 53 percent below the five-year average.
CAODC president Mark Scholz said other factors, including the potential for Alberta’s new left-leaning government to change how crude producers pay royalties, meant the outlook for drillers was uncertain.

“Potential policy changes in Alberta with respect to royalties, other factors such as LNG activity in British Columbia and depressed commodity prices, means our members must continue to streamline operations and remain agile,” said Scholz.