newsbase downstream asia monitor

For analysis and commentary on these and other stories, plus the latest downstream developments, see inside…

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08 February 2012

Pilot Issue

� News � Analysis

� Intelligence Published by

� NewsBase

COMMENTARY 2

� ExxonMobil downsizes downstream

footprint in Japan 2

� Eastern Promise: Asia emerges as global

downstream powerhouse 3

POLICY 4

� Indonesia abandons plans to cut fuel

subsidies 4

� PTT drops fuel prices 5

REFINING 5

� Kuwait closes in on China refinery deal 5

� Chinese plan Myanmar refinery 5

� Sinopec rewards refineries for higher fuel

production 6

� Petrovietnam plans expansion 6

FUELS 7

� Chinese petroleum product imports up

30% in December 7

� Japanese petroleum product sales up in

December 8

� South Korean petroleum product exports

up in 2011 8

PETROCHEMICALS 9

� Asian traders in determined mood on Iran

petchem volumes 9

� Sabic signs MoU with Sinopec 9

TERMINALS & STORAGE 10

� Pertamina to build US$450m crude

terminal 10

NEWS IN BRIEF 10

STATISTICS 15

NEWS THIS WEEK…

Downstream downsize ExxonMobil’s decision to downsize its downstream business in Japan is indicative of the tough conditions in the fuel market and refining sector in the country.

� Exxon is to reduce its stake in TonenGeneral Sekiyu from 50.5% to 22%, which could spur a wider realignment among Japan’s oil refiners. (Page 2)

� The US super-major feels it cannot improve its Japanese oil refining and sales businesses because of the weak market, hence its retreat. (Page 2)

Pricing paranoia Southeast Asian countries such as Indonesia and Thailand remain wary of the political implications of cutting fuel subsidies despite high oil prices.

� The Indonesian government has abandoned plans to cut fuel subsidies in April. (Page 4)

� Thailand’s state-run PTT and other fuel retailers i n the country have reduced pump prices for petrol, diesel and gasohol. (Page 5)

� Thailand has used its state oil fund to pay for the cuts. But the fund is in the red and the government is borrowing money to make the cuts, which has been criticised as unsustainable. (Page 5)

NewsBase Downstream Monitor

–– ASIA ––

Downstream Asia 08 February 2012, Pilot Issue page 2




ExxonMobil is to reduce its stake in TonenGeneral Sekiyu, its Japanese subsidiary and major oil refiner, from 50.5% to about 22% on a voting rights basis.

The announcement means the US super-major will drastically reduce its Japanese business by scaling down locally based oil refining and sales operations.

Under the deal reached between the two parties, in June TonenGeneral will acquire a 99% stake in ExxonMobil’s Japanese division, which currently holds 50.5% of TonenGeneral shares, for 302 billion yen (US$3.9 billion). ExxonMobil will then acquire about 22% of TonenGeneral voting shares, thus effectively reducing its overall stake in the Japanese firm.

TonenGeneral will continue its partnerships with three domestic petrol station brands – Esso, General and Mobil – and will also procure crude oil from ExxonMobil.

Rationale The rationale behind ExxonMobil’s decision is that the company feels it cannot improve its Japanese oil refining and sales businesses owing to a softening domestic market.

“Oil demand in Japan has declined in recent years and the domestic operating environment has been characterised by continuous pressure on both margins and volumes,” said TonenGeneral Sekiyu. “Through this newly formed integrated production-distribution operation, the

company will be able to execute more effectively locally driven investments and other business decisions that will help the company adapt to the challenging operating environment.”

ExxonMobil said: “This will result in a single, integrated downstream business better positioned to meet Japan’s energy needs.”

Ruthless retreat For ExxonMobil, the world’s largest energy company, the transaction is the biggest divestiture since the 1999 deal with Mobil Corp. that created the company.

The deal, which ExxonMobil called a “restructuring” of its Japan business into a single asset, does not involve the US company’s liquefied natural gas (LNG) marketing and sales or its speciality chemicals operations in the country. But the deal does mark a de facto retreat from the world’s third largest economy by ExxonMobil, which is focusing its resources on emerging markets and the development of natural resources.

Moreover, while the company said it would keep its 14.2% outstanding stake

in the Japanese company, Sherman Glass, vice president of ExxonMobil, told a press conference that it might restructure its oil refining operations or even sell its stake in TonenGeneral.

ExxonMobil is known for ruthlessly cutting off operations that yield low investment returns. In recent years, the US company has aggressively invested in oil and natural gas exploration projects, while streamlining its refinery and sales operations in the US and Asia.

Realignment The TonenGeneral move could encourage realignment among Japan’s oil refiners, which have been cutting capacity to cope with falling demand caused by a weak economy and a shift to more efficient and environmentally friendly forms of energy.

This is because their oil manufacturing capability reached excessive levels owing to a decline in the demand for petroleum products, partly caused by the economic slowdown, an ageing population and the increasing popularity of fuel-efficient cars. The 27 refineries in Japan owned by oil distributors were capable of processing about 4.5 million barrels per day as of the end of September. But the average daily amount of crude processed was about 3.6 million bpd in 2010, only 77% of the supply capability. Furthermore, Japan’s petroleum product demand is expected to decline at a rate of 3.5% per year until March 2015, according to an estimate by the Japanese Trade Ministry.�

COMMENTARY

ExxonMobil downsizes downstream footprint in Japan ExxonMobil’s retreat from Japan’s downstream is indicative of the tough conditions in the fuel market and refining sector in the country By Andrew Mollet � ExxonMobil is to reduce its stake in TonenGeneral S ekiyu from 50.5% to 22% � Exxon feels it cannot improve its Japanese oil refi ning and sales businesses because of the weak marke t � The TonenGeneral move could encourage a wider reali gnment among Japan’s oil refiners





According to the Natural Resources and Energy Agency, demand in 2014 is likely to drop by more than 30% compared to 2009.

All this has led to a drastic streamlining of refiners’ downstream operations in the past decade in an attempt to boost profitability, with the number of petrol stations affiliated to the five major refiners falling by over 30% to little over 27,000.

Ironically, spearheading the streamlining has been ExxonMobil itself. At the end of last year, there were 3,800 petrol stations affiliated with ExxonMobil, down 45% over the past 10 years. By contrast, Japan’s biggest refiner, JX Nippon Oil and Energy, has cut its petrol station network by just 31%, with Idemitsu Kosan, Cosmo Oil and Showa Shell Sekiyu reducing their retail chains by similar percentages.

There is much talk about trying to boost margins through expanded services beyond traditional petrol pump sales by, for example, installing chargers for electric vehicles, tying up with convenience stores or building cafe-style petrol stations. But ExxonMobil’s decision to downsize in Japan’s downstream would suggest it holds out little hope for such moves.�

The US and Europe used to bestride the oil refining world but their dominance is on the wane as Asia’s growth skyrockets and traditional Western markets for petroleum products suffer the fallout from the economic meltdown.

Europe’s downstream in particular has seen immense change in recent years, which has shifted the centre of gravity in the global downstream industry towards Asia.

“Stringent efficiency measures and the introduction of biofuels into the energy mix is putting pressure on consumption levels in Europe,” Jean-Jacques Mosconi, a senior vice president of strategic planning at Total, said recently at an industry conference in Abu Dhabi. “European refiners will also be suffering from Phase 3 of the CO2 [carbon dioxide] emission trading system and by 2013 they could end up paying for an average 20% of their total emissions.”

Although there are pockets of malaise in the downstream industry in Asia (such as in Japan, see previous story), the potential for growth in emerging

economies in the region is phenomenal.

Eastern promise With demand for petroleum products growing significantly in Asia since 2002, it was inevitable that the region would spawn several major refining hubs.

Leading such development is China, which is expected to boost its crude oil refining capacity by one-third to more than 12 million barrels per day by 2015 to feed economic growth. (See: Chinese petroleum product imports up 30% in December, page 7)

China’s growing demand for crude oil and petroleum products was highlighted in a recent report by the University of Calgary, which concluded that over the 10-year period beginning in 2000, the country’s net growth in demand for crude stood at 91%, while the US and Europe registered negative growth rates of 3% and 4% respectively.

But with the price of oil also soaring, Asian countries became wary of importing vast amounts of petroleum products and instead started making

moves towards creating their own refining infrastructure.

“The Asian states … desperately want to reduce soaring import bills of refined products whilst also seeking investments in their domestic refining sectors,” noted Total’s Mosconi.

Chain reaction Traditional suppliers of crude to Asia have had to react to the change in dynamic in the downstream market, and the world’s largest crude oil producer, Saudi Aramco, was an early mover in this respect.

In 2007, the Saudi giant put pen to paper with Sinopec and ExxonMobil on a deal to triple the crude processing capacity of the Fujian refinery in southern China to 240,000 barrels per day and also to integrate it with a petrochemical unit. Aramco has subsequently sought to expand its downstream footprint in Asia, both in China and elsewhere.�

COMMENTARY

Eastern Promise: Asia emerges as global downstream powerhouse Strong economic growth in Asia has catalysed a revolution in the refining industry that has seen the region emerge as the major force in the global downstream sector By Ashok Dutta � The recession has dampened demand for petroleum pro ducts in the West, focusing attention on Asia � Asian countries are building their own downstream i nfrastructure to avoid expensive fuel imports � Middle East oil producers are investing in Asian re fineries to guarantee a market for their crude





Last year, it signed an agreement with PetroChina to build a 200,000 bpd crude refinery in Yunnan Province whilst simultaneously making a joint announcement with South Korea’s S-Oil that the Onsan refinery expansion project had been completed.

Its success has been replicated by Kuwait Petroleum Corporation (KPC), which in March last year set up a joint venture with Sinopec to build a 300,000 bpd world-class refinery and petrochemical complex in southern China. Located on Donghai Island in Guangdong Province, the new refinery is expected to be operational from 2014-15 and will carry a price tag of US$9 billion. Petroleum products from the refinery are to be marketed locally to meet the fast growing demand in Guangdong Province and across the rest of China. (See: Kuwait closes in on China refinery deal, page 5)

Furthermore, KPC will soon award the engineering, procurement and construction (EPC) contract for a 200,000 bpd refinery it plans to build in partnership with Petrovietnam around 180 km south of Hanoi in Vietnam.

China has also signed a series of agreements with Qatar Petroleum that will see the establishment of a 400,000 bpd refinery in the eastern Zheijang province.

The Chinese refinery projects all share a common feature in that they will receive crude feedstock under long-term deals from Aramco, KPC and QP.

“Gulf producers are looking closely at demand dynamics and participating in refinery projects in Asia to improve access to markets there amid the region’s increasing consumption of fuel and crude,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh, in a research note. “Asia,

including China, is a very strategic and important demand driver. Aramco is aware that China and Asia are the markets that drive demand given the macro fundamentals.”

Yet Asian refiners are facing fresh challenges this year. A pressing political concern is the imposition of tighter sanctions on crude supplies from Iran by the US and EU. The EU-imposed ban on Iranian exports that is due to come into effect on July 1 means many Asian refiners will be forced to open up new crude supply channels in order to avoid fiscal issues with Washington and Brussels.

That said, the ongoing recession in the West means the paradigm shift witnessed in the global downstream over the past decade is unlikely to be reversed and Asia will remain the fulcrum of refining activity for years to come.�

The Indonesian government has abandoned plans to cut fuel subsidies in April.

It said the scheme, which would have seen subsidies slashed for fuel sold to the owners of larger vehicles, would have been difficult to administer. The energy ministry has now proposed a subsidy decision that will apply to all vehicles, but said it would allow pump prices to rise according to international crude costs. In the past, the subsidy was increased if oil prices rose. In 2011, the subsidy went 30% over budget and hit US$18.35 billion.

The budget allocation for subsidies this year has been set at US$13.75 billion; however, this will still be over 70% of all government subsidies and is the second largest in ten years, according to The

Jakarta Globe. A decision on a price rise for petrol

and diesel and other fuels has not yet been made in a country that is notorious for bureaucratic delays.

“We have to study it first and establish a decent price increase that will not shock the public,” Indonesian Energy Minister Jero Wacik said in a statement to Parliament. There should be a decision before April, he said. That was originally the deadline when all car owners in Bali and Java, two of the richest provinces, were to be excluded from subsidised fuel rates.

Only motorcycles and public transport

vehicles in Java and Bali would have been allowed to use subsidised fuel. Premium pump fuels are currently being sold for just US$0.50 per litre.

A new report on energy by the World Bank published on February 6 criticised Indonesia and other Southeast Asian countries like Thailand (see next story) for subsidising fuel for the poor, saying the move actually benefited the rich more. The country and its peers in the region must eliminate fuel subsidies to “ensure an efficient, sustainable, and secure energy sector,” the report said.

“The price of fuel is a sensitive issue because it constitutes a large proportion of household budgets,” The Jakarta Globe commented. “Price hikes can lead to social unrest.”�

COMMENTARY

POLICY

Indonesia abandons plans to cut fuel subsidies

“Price hikes can lead to social unrest”





Thailand’s state-run PTT and other fuel retailers in the country have reduced pump prices for petrol, diesel and gasohol, bucking the general trend of price hikes in other Asian countries.

The reduction, which brings the cost of diesel to below US$1 per litre, is in line with election promises made by the government last year. Petrol is now priced at US$1.25 per litre and diesel only US$0.99, a drop of over US$0.01.

Thai fuel prices are heavily subsidised by a state oil fund that is deeply in the red. In an admission that the price cuts are a political move, Thai Energy Minister Arak Chonlathanont said the government was looking at securing loans to support the fund. Subsidies on LPG and CNG will also continue, the minister said.

“It’s fair to say that fuel pump prices in Thailand are highly politicised,”

Bangkok-based energy analyst, Collin Reynolds, told Downstream Asia. “The oil fund is over US$480 million in debt but in order to keep retail prices down last year the government suspended oil levies that are normally paid to maintain the fund’s health. It doesn’t look like a sustainable policy.”

PTT operates one of Thailand’s biggest petrol station chains.�

Kuwait Petroleum Corp. (KPC) has said that it is close to signing a contract that would see France’s Total join its US$9 billion refinery project in China’s Guangdong province.

“They have accepted and we are advancing on an [memorandum of understanding (MoU)] now,” KPC CEO Farouk al-Zanki said on January 31. “We are in the process of signing,” he added.

He went on to say that the French energy giant would take part of KPC’s 50% share in the development. No precise figure was given, but industry sources have estimated that the stake is likely to be in the region of 20%. Sinopec owns the remaining 50% interest.

Construction of the project, which includes a 300,000 barrel per day

refinery and a 1 million tonne per year ethylene cracking unit, began in November 2011. Previously, Sinopec has said that it is expecting both facilities to come on line in 2015. In addition, al-Zanki said that KPC was looking to expand its production and refining capacity at home and abroad. Currently, he said Kuwait was pumping about 2.9

million bpd against a full capacity of just over 3 million bpd. Alongside the Guangdong refinery, Kuwait also has plans to build a 200,000 bpd facility in Vietnam as it looks to secure a market for its substantial heavy oil reserves. These are likely to form a key part of the country’s plans to raise output to 4 million bpd by 2020. However, al-Zanki said that in the shorter term, Kuwait was unlikely to be able to meet any demands from its customers for additional crude supply. Neighbouring Saudi Arabia has indicated that it may step up production to meet any shortfall stemming from a drop in exports from Iran. “It would be difficult to do that on a sustainable basis. We will remain where we are,” he said.�

A Chinese fuel trading company involved in the construction of new fuel storage capacity in Myanmar has revealed it is also considering developing a US$2.5 billion refinery in the country.

Guangdong Zhenrong Energy said it had joined up with local partners to look for a site for a 5 million tonne per year (100,000 barrel per day) refinery. “Myanmar has a rickety and inadequate

refining infrastructure and currently imports most of its fuel, some of it in tax-dodging cross-border deals with neighbours,” China energy analyst Jeff Mead told Downstream Asia.�

POLICY

PTT drops fuel prices

REFINING

Kuwait closes in on China refinery deal

Chinese plan Myanmar refinery





“A refinery such as that proposed by Zhenrong would certainly deliver more than half of Myanmar’s current and short-term domestic demand.”

Guangdong Zhenrong is based just across the border from Hong Kong in Guangzhou, where it mainly operates as an oil and fuel commodities importer and trader. The Myanmar project would be the Chinese firm’s first foray into refining. The company’s CEO, Xiong Shaohui, said that one of its partners in Myanmar was the Htoo Group of Companies, a construction conglomerate

with close ties to the country’s army. Xiong said one possible site for the

proposed refinery was the new special economic zone at Dawei on Myanmar’s southeast coast on the Andaman Sea.

Thai companies such as state-run oil and gas giant PTT are gearing up to develop refining and petrochemical plants in Dawei. However, the plans for a major industrial complex at the site were recently dealt a blow when Myanmar’s government objected to the construction of a 4,000-MW coal fired thermal power plant (TPP) that was supposed to provide

electricity for the area. Dawei is isolated from Myanmar’s

major cities and population centres, which has led critics to say it would primarily benefit Thailand by providing a new trading route and conduit for oil and gas.

“If you look at the map, Dawei is actually the middle of nowhere in terms of Myanmar,” said Mead. “If I was Myanmar’s energy minister, I would want my first new refinery somewhere around Yangon.”�

Sinopec, China’s largest refinery operator, has reportedly continued to provide its oil-processing subsidiaries with incentives for exceeding their production targets.

According to a source inside the state-owned company, Sinopec allowed its refineries to charge a higher price for the extra volumes they produced in January. This served to encourage the firm’s downstream subsidiaries to ensure supplies of refined fuels to the domestic market, he said.

The source told the C1 Energy research service that Sinopec had set ex-refinery prices at 8,720 yuan (US$1,381.9) per tonne for 90-Ron petrol and at 8,090 yuan (US$1,282.1) per tonne for zero-pour-point gasoil in the first month of 2011. He explained,

though, that these prices only applied to output up to the target levels. By contrast, he said, ex-refinery prices for production in excess of the target were set at 8,280 yuan (US$1,312.2) per tonne for 90-Ron petrol and at 7,380 yuan (US$1,169.5) per tonne. No word was available as of press time as to whether the pricing incentives would remain in place in February. C1 Energy noted that January was the 11th month in a row that Sinopec had followed this policy.

Guangdong ex-refinery prices Separately, the research service reported that Sinopec refineries were charging more for higher-quality motor fuels meeting GB-3 and GB-4 standards in Guangdong Province. They are doing so even as use of lower-quality GB-2 grades

is declining in the area, it said. Specifically, C1 Energy quoted a

company source as saying that the ex-refinery price for 90-Ron petrol meeting GB-3 specifications topped GB-2 rates by 180 yuan (US$28.5) per tonne in Guangdong. Meanwhile, the source said, ex-refinery prices for GB-3 zero-pour-point gasoil are 160 yuan (US$25.4) per tonne above the GB-2 level.

In Guangzhou, the provincial capital, Sinopec’s prices for GB-4 petrol are 380 yuan (US$60.2) per tonne above GB-2 rates, the source added.

China has yet to phase GB-2 standards out fully, but GB-3 fuels have been in wide usage in Guangdong Province since 2010.�

State-run Petrovietnam is in discussions with foreign partners on the possible expansion of Vietnam’s only refinery.

The company wants to boost crude processing at the Dung Quat refinery from 6.5 million tonnes per year (130,000 barrels per day) to 10 million tonnes per year (200,000 bpd).

The refinery, which is at Quang Nam on the central coast of Vietnam, is currently only able to meet around 30% of the country’s demand for petroleum products.

“To accommodate the increased production capacity, the People’s Committee of the Quang Ngai Province

has asked the government to expand the Dung Quat Economic Zone to 45,332 hectares – four times the current area – and transform the zone into an industrialised city complete with urban areas and ports,” the government-backed newspaper Nhan Dan reported last week.�

REFINING

Sinopec rewards refineries for higher fuel production

Petrovietnam plans expansion





Petrovietnam and its foreign partners are looking at the feasibility of ramping up the refinery’s throughput to the 200,000 bpd of crude mark by 2016.

Dung Quat was built by French firm Technip, which still provides technical maintenance, but the plant is operated by Petrovietnam subsidiary Binh Son Company.

Although Vietnam is a net exporter of crude oil, the country still has to import the bulk of the diesel, petrol and other petroleum products it consumes.

Dung Quat produces liquefied petroleum gas (LPG), propylene and kerosene, as well as unleaded petrol and

diesel oil. Two other refineries have been

proposed in Vietnam but their construction has been held up repeatedly owing to a lack of funding. Foreign investors have been wary of pumping money into the projects because of concerns about their profitability, given the Vietnamese government’s strict control of fuel prices.

The groundwork for a second refinery, also with a 10 million tonne per year (200,000 bpd) capacity, is almost complete at Nghi Son in central Than Hoa Province. The project is a joint venture between Petrovietnam, Kuwait

Petroleum International and Japanese firms Idemitsu Kosan Company and Mitsui Chemicals. The US$6.2 billion Nghi Son refinery is due for completion by late 2014.

Negotiations for a third refinery at Long Son in southern Ba Ria-Vung Tau province are continuing between Petrovietnam and Japan’s JX Holdings.

Vietnam’s state-run fuel distribution company, Petrolimex, is also in talks with South Korean firm Daelim Industrial about a possible fourth refinery, at Nam Van Phong near Hai Phong on the country’s northern coast.�

China’s petroleum product imports grew by 30% year-on-year in December as domestic refiners struggled to meet growing demand. The surge in demand was largely driven by increased car usage.

The country imported 2.64 million tonnes of petroleum products in December, according to statistics from the General Administration of Customs.

Singapore blended products were the preferred fuels during the month owing to a shortage of domestically produced low-sulphur, low-density fuel oil, said Shanghai-based market analysts C1 Energy.

The sharp rise in December was in part linked to stockpiling ahead of the long Lunar New Year holiday, during which tens of millions of Chinese take to the road for family reunions.

Imports in the first two months of this year are likely to be driven by South China bunker traders, with 200,000 tonnes booked for January, said C1 Energy. Almost 95% was drawn from Singapore.

China’s demand for refined products is

forecast to grow by an average of 5.5% per year up to the end of 2015, according to a statement issued by the Industry Ministry last week.

By 2015, annual fuel demand will have reached to 320 million tonnes per year, compared with 245 million tonnes in 2010, said the ministry.

Capacity ramp-up Plans are being drawn up to increase China’s refining capacity to about 600 million tonnes per year (12.5 million barrels per day) by 2015, although state-run refiners, led by Sinopec, continue to operate at a loss because of the government’s tight grip on retail prices.

By 2015, the average refinery’s capacity will have grown to at least 6 million tonnes per year (120,000 bpd), the ministry revealed.

China is working to consolidate its refineries, focusing on building large-

scale plants and closing down less profitable smaller facilities – so-called ‘tea-pot’ refineries – that are mostly run by private companies.

Domestic petroleum product demand is likely to reach 320 million tonnes by the end of 2015, marking a compound annual growth rate of 5.5% for the five years to 2015, the Industry Ministry said. This is slower than the 7.8% annual growth witnessed in the five years to 2015.

The anticipated slowdown is partly because of weak demand for petrol, Lu Ying, an oil analyst, told state-run China Daily.

China’s petrol demand is expected to stagnate at around 3% to 4% in the period up to 2015, while diesel demand will also probably experience slowing growth, Lu said. “The major demand engine will be jet fuel,” he added.

Meanwhile, ethylene demand in China is rising at over 5% per year and will reach 38 million tonnes per year in 2015, although domestic production capacity at that time is forecast to be only 27 million tonnes.�

REFINING

FUELS

Chinese petroleum product imports up 30% in December

“The major demand engine will be jet fuel”





A cold weather snap helped lift Japan’s petroleum product sales by 2.7% year-on-year in December, while petrol sales recorded their first increase since February, government data showed on January 31.

During the month, total petroleum product sales rose to 19.59 million kilolitres, or 3.98 million barrels per day, according to a release by the Ministry of Economy, Trade and Industry (METI).

The figures marked the fourth rise in petroleum product sales over the past 11 months, but could prove to be a bit of a blip amid a longer-term decline in demand, analysts said.

Japan’s strong yen, combined with the economic blow dealt by last March’s earthquake and tsunami, have hit oil

demand that was already slowing in Japan owing to preferences for cleaner fuel plus a shift to more energy-efficient cars.

Sales of petrol, which accounts for more than a fifth of total fuel use in Japan, rose 1.4% year-on-year in December, while sales of kerosene for heating increased 6.3%.

Sales of B- and C-type oil, which are mostly used for power generation, leaped 58.3% as utilities were forced to make up for idled nuclear power capacity by making greater use of thermal power plants (TPPs).

Utilities also used seven times as much crude oil for direct burning in December 2011 as in December 2010, getting through 1.64 million kilolitres, or

332,000 barrels per day. Northern Japan experienced average

temperatures in December that were 1 degree Celsius lower than usual. Coastal districts facing the Sea of Japan in western and northern areas meanwhile were hit by heavier than usual snowfall, Japan’s national weather agency said.

For the whole of 2011, however, Japan’s total petroleum product sales were down 2.4% to 192.48 million kilolitres, or 3.32 million bpd. This was the lowest level since 1987, when annual petroleum product sales stood at around 187 million kilolitres, according to METI.

All types of products reported sales declines last year, apart from B- and C-type fuel oil.�

South Korea said its petroleum product exports rose in value by 64% last year, with those to Japan reaching a record high.

Over the course of 2011, South Korea exported 457 million barrels of oil, up 17% on the previous year. Overseas sales of bunker C-oil reported the biggest increase, jumping 34%, while those of petrol and diesel were up 33% and 22% respectively, according to figures from the South Korean Ministry of Knowledge Economy.

It was in terms of value that the growth was really striking, however, with exports of petroleum products hitting US$51.6 billion in 2011, making fuel South Korea’s second largest export item after ships. The main driver for the value increase was high crude oil prices.

Japan was a major buyer of South

Korea’s petroleum products last year, with its imports storming ahead to US$7.39 billion –72.5% higher than the previous high of US$4.08 billion in 2006, according to data from state-run Korea National Oil Corp. (KNOC).

On top of high crude oil prices, Japan’s extra demand was triggered by the shutdown of some Japanese refining capacity following March’s devastating earthquake and tsunami.

This made Japan South Korea’s second biggest market for petroleum products after China. South Korea exported petroleum products to 48 countries last year.

By volume, South Korea’s petroleum product exports to Japan reached 64.9 million barrels, roughly equal to the volume in 2005.

“The biggest reason for the increase

comes from soaring international crude prices that spiked up production costs of such products as petrol and diesel,” an unnamed industry source told South Korea’s Yonhap news agency.

South Korea’s domestic sales of petroleum products were virtually flat in volume terms, edging up just 0.9%, the government said.

The country’s shipments of petroleum products amounted to 49% of the crude it imported last year, ministry figures showed. South Korea imported 926.76 million barrels of crude oil last year, mostly from Saudi Arabia, Kuwait and Qatar. Iran was the country’s sixth biggest petroleum products supplier.

Last year saw the average import price paid by South Korean refineries for a barrel of crude oil jump to US$106.30, up from US$78.70 in 2010.�

FUELS

Japanese petroleum product sales up in December

South Korean petroleum product exports up in 2011





Despite tightening sanctions and political pressure making trade with Iran increasingly difficult, Asia-based traders are finding creative ways of doing business with the Islamic Republic.

Sources in Iran’s downstream sector have confirmed that alternative payment solutions are being used to facilitate petrochemical deals when necessary.

These measures have seen Pakistan as well as Iran’s Middle Eastern neighbours used as payment routes, with the currencies used varying from deal to deal.

A report by ICIS news service said that many buyers have started using non-

traditional currencies, including the Japanese yen and the UAE dirham, for letters of credits (LC) to pay for Iranian cargoes.

“They prefer it this way as well, so they save on the interest charges of not obtaining credit,” a source from an Iranian petrochemical producer was quoted as saying.

“We accept any method of payment that works,” another producer said.

The report added that most payments for benzene and styrene, base oils, polyethylene (PE) and chemicals such as methanol were now paid in dirhams.

“I have been paying through dirham-

denominated [telegraphic transfer (TT)],” one Indian trader was quoted as saying.

This is a more direct alternative with trade finance increasingly difficult to obtain, but appealing only to those with healthy cash flow. The scramble for payment and trade solutions among Asian buyers follows a tightening of Western-backed sanctions early this year, ultimately designed to unhinge Iran’s controversial nuclear research.

In November 2011, a UN report said there was good evidence to believe Iran is seeking to develop a nuclear weapon, something Tehran has always denied.�

Saudi Basic Industries Corp. (Sabic) and China’s Sinopec recently signed a memorandum of understanding (MoU) on forming a strategic partnership that builds on existing close ties between the companies.

In March 2011, the firms signed an initial agreement in which they committed to invest around US$1 billion in the construction of a 260,000 tonne per year polycarbonate plant in Tianjin. The complex is due to be commissioned in 2015.

The facility is to be located in a complex developed by Sinopec Sabic Tianjin Petrochemical Company (SSTPC), an existing joint venture between both firms. The SSTPC complex, which came onstream in 2010 at an estimated cost of US$2.7 billion, has a capacity of 3.2 million tonnes per year and comprises a 1 million tonne per year ethylene cracker and eight downstream units.

Polycarbonate is a plastic that is

utilised in the manufacture of car components, compact discs and various other products.

An unnamed Dhahran-based analyst told Downstream Asia: “Sabic and Sinopec have been working on setting up a strategic partnership for a long time … For the former, the primary interest is to get a footing into a major consumer market like China, while for the latter it is a case of accessing cheap feedstock

ethane that will make products competitive to produce.”

The price of feedstock gas in Saudi Arabia is US$0.75 per million British thermal unit, making it the most competitive globally.

“Sabic has a strategic agreement with ExxonMobil for the US and European markets and now is keen on strengthening its ties with Asia-Pacific using China as a gateway,” he added.

Saudi Kayan recently awarded a US$131 million engineering, procurement and construction (EPC) contract to Sinopec Engineering of China for its distilled natural alcohol plant at the industrial city of Jubail.

The scope of works covers the detailed EPC, testing and commissioning of the plant, which will have a capacity of 50,000 tonnes per year. The plant is scheduled to enter commercial production in the second half of 2013 and will utilise natural gas as feedstock. Sabic has a 35% stake in Saudi Kayan.�

PETROCHEMICALS

Asian traders in determined mood on Iran petchem volumes

Sabic signs MoU with Sinopec





Indonesian state-run oil and gas firm Pertamina is to begin constructing a centralised crude terminal (CCT) in Lawe-Lawe, in East Kalimantan, at a cost of US$450 million.

The CCT is to be built on an area covering 750 hectares in Lawe-Lawe, Penajam Paser Utara regency, and is scheduled to be completed in 2014, Pertamina said.

The Lawe-Lawe CCT will have 25 storage tanks with a total capacity of 25 million barrels of oil, which is equivalent to a 25-day supply for the country’s refineries, local media reported last week, quoting a Pertamina spokesman.

Mochamad Harun said that Pertamina had already completed an environmental impact study for the CCT construction project and that the regional administration had also expressed its

support for the project by accelerating the issuance of required permits to execute it.

“We’re going to start the tender process for the terminal. The Lawe-Lawe CCT will provide a crude blending facility, including domestic crude with high contaminant, so that it will allow Pertamina to buy various types of crude oils at competitive prices,” Harun said.

“By maximising the absorption of domestic crude, we can reduce imports, which will allow us to cut high shipping costs,” he was quoted as saying by The Jakarta Post.

Indonesia is the largest crude oil and natural gas producer in Southeast Asia. But the country pulled out of OPEC in 2008 as ageing fields and declining output turned the nation into a net oil importer.

Pertamina currently operates six refineries, which have a combined processing capacity of about 1 million barrels per day. But the firm supplies only 70% of the petroleum products that are consumed in Indonesia and imports the remaining 30% from abroad.

Last December, the Indonesian government unveiled plans to build a new oil refinery in Tuban, East Java, with a total capacity of 300,000 bpd to process oil from the giant Cepu block.

The Indonesian Energy Ministry’s director-general for oil and gas, Evita Herawati Legowo, said at the time that Pertamina was now seeking investors to fund the project. She also said that the development of the planned refinery could be started in 2013.�

POLICY

Saudi oil price cut for Asia refiners It may be tempting to view the cut in the premium Saudi Arabia charges Asian refiners for oil as proof the world’s largest exporter is doing its best to show it can supply the biggest-consuming region as much crude as it needs. This is especially the case when the currently heightened tension over the increasingly likely disruption of shipments from Iran is making refiners in Asia nervous about where they will get all the crude cargoes they need. But that may be reading too much into the Saudi action and it’s always a risk to assume geo-political motives are at work when talking about the oil market.

REUTERS, February 6, 2012

COMPANIES

ONGC, OIL to pay higher subsidy The Indian government has asked upstream oil companies to compensate state-run oil refiners for 37.91% of revenue losses on fuel sales during April to December 2011, a government source told reporters. “Together, upstream companies’ subsidy share will be 368.94 billion rupees,” said the source, who declined to be identified. For the first two quarters of the current fiscal year, upstream companies had compensated 33.33% of the losses due to state-set fuel prices.

ET, February 4, 2012

Goldman upgrades RIL Goldman Sachs has upgraded India’s Reliance Industries (RIL) to buy from neutral, citing a potential lift in margins on increased refining and recovering oil demand, sending the refiner’s shares up in pre-open trade on Tuesday. “We believe that an upcycle in refining will lift margins and is likely to drive an earnings surprise for RIL over the medium term, by offsetting lackluster E&P performance,” the bank said in a report dated on Monday. Goldman raised its target prices for the oil and gas major to 970 rupees (US$19.77) from 960 rupees previously.

TNN, February 7, 2012

TERMINALS & STORAGE

Pertamina to build US$450m crude terminal

NEWS IN BRIEF



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Japan’s JX looks to Africa Japan’s biggest refiner, JX Holdings, is in talks with African nations in addition to Saudi Arabia, the United Arab Emirates and other oil producers to replace crude oil imports from Iran, a company executive said on Friday. Japan is under pressure from the United States to cut back on Iranian oil imports to secure a waiver from a U.S. law imposing sanctions on financial institutions that trade with Iran’s central bank.

REUTERS, February 3, 2012

Bangchak’s green push Bangchak Petroleum (BCP), the majority state-owned refinery and retailer, expects its earnings before interest, tax, depreciation and amortisation (EBITDA) from renewable energy will nearly triple to 30% in the next six years from 12% last year. President Anusorn Sangnimnuan said Bangchak plans a huge long-term investment of 20 billion baht in renewable energy from 2012-17 including solar farms and ethanol/biodiesel production. The lion’s share, 15.4 billion baht, will be used for solar farms, for which the company holds licences from the Energy Ministry for combined capacity of 118 megawatts. Solar farm development will be divided into three phases from 2011-14. The 4.5-billion-baht first phase encompasses 38 MW in Ayutthaya’s Bang Pa-in district, with commercial operations slated by the middle of this year. The first phase was originally expected to be fully operational by the end of last year but became delayed due to flooding at the project site in October. The second phase will cover a combined 32 MW capacity worth 4.5 billion baht and is scheduled to go online next year. Of that capacity, 16 MW will be from a plant in Chaiyaphum province and 16

MW from one in Ayutthaya’s Bang Pahan district. The third phase, to be located in the central region, will comprise 48 MW and become operational in 2014. Mr Anusorn said the remaining 4.6 billion baht will be slated either for new development or mergers and acquisitions involving ethanol and biodiesel production. Last year, renewable energy accounted for 6% of Bangchak’s EBITDA, with the proportion expected to enjoy strong growth, reaching 30% soon. BCP shares closed yesterday on the Stock Exchange of Thailand at 20.70 baht, down 10 satang, in trade worth 178 million baht.

BANGKOK POST, February 8, 2012

REFINING

Tianjin refinery to process 1.1m tonnes of oil in January The Tianjin refinery of China’s largest refiner Sinopec Corp. is estimated to process a total of 1.1 million tonnes of crude oil in January. The refinery’s product oil output is estimated at around 54,000 tonnes. Its output of chemicals is also likely to hit a record high.

XINHUA, January 30, 2012

Essar starts bitumen production at Vadinar refinery Essar Oil announced starting production of viscosity grade (VG) bitumen from its Vadinar refinery in Gujarat. “Essar Oil has successfully produced superior performance VG grade bitumen (VG 30) by processing a judicious mix of crudes and blending components,” the company said in a press statement. The 300,000 barrels per day refinery is equipped with a state-of-the-art laboratory, which is dedicated to developing superior grade petro products that find acceptance in both domestic and international markets.

ET, January 27, 2012

HPCL to shut Vizag refinery unit Hindustan Petroleum Corp plans to shut a 60,000 barrels per day (bpd) crude unit and fluid catalytic cracker at its Vizag refinery in southern India for maintenance in April-May, a company source said on Tuesday. The planned maintenance shutdown will continue for about 45 days, said the source. HPCL earlier had planned to shut the two units at its 166,000 bpd Vizag refiner in November.

REUTERS, January 31, 2012

MRPL worried about crude supply disruption India’s biggest importer of Iranian crude oil, Mangalore Refinery & Petrochemicals Ltd (MRPL), is concerned about possible supply disruption because of international sanctions and is keeping all options open, Chairman Sudhir Vasudeva said on Wednesday.

ET, January 25, 2012

MRPL buys first Libyan cargo Mangalore Refinery and Petrochemicals bought its first cargo of Libyan Mellitah condensate in a tender as it seeks to diversify oil sources to feed its growing refining capacity. Traders said that MRPL bought 650,000 barrels of the super light oil from European trader Totsa at a premium of USD 1 a barrel to dated Brent for March. MRPL’s refinery has a capacity of 236,400 barrels per day which could be raised by 27% to 300,000 bpd by March and to 360,000 bpd by 2015/16. The refiner had said it may buy less oil from Iran in 2011/12, citing shutdowns, but crude processing data showed the cutback may reflect payment problems with sanctions hit Tehran.

ET, February 6, 2012

NEWS IN BRIEF






Refinery planned for Balochistan in Pakistan An investors group will establish an oil refinery at a cost of US$600 million in Balochistan’s coastal Gaddani area, the chief executive of Biko Oil and Petroleum Group (Pakistan) said in a meeting with Chief Minister Nawab Aslam Raisani on Friday. “Our group will also invest Rs5.5 billion in another project in connection with movement of cooking oil through Balochistan,” Amir Abbasi said. He emphasised the need to build road infrastructure in Lasbella district so that the province attracted more investment. Abbasi said his group would provide import and export facility of cooking oil at Gaddani under a “single point” mooring project.

DAWN, February 5, 2012

Thai Oil scouting for investment Thai Oil (TOP), PTT’s flagship refinery business, is ready to expand to Asean countries, chief executive officer Surong Bulakul said. He said TOP and the PTT group had conducted a joint study on possible investment destinations in Asean, especially Burma, Indonesia, Vietnam and Cambodia. TOP will focus its investment on the refinery business in these countries. The study focuses on upstream petroleum investment, natural-gas and oil pipelines, gas-separation plants, refineries, and the petrochemical business. He added that there was potential for investment in Burma, which is opening up its economy. TOP is also interested in investing in refinery-related businesses in Vietnam when there are favourable opportunities. He forecast that the Dubai crude oil price this year would be in the range of US$105-$106 per barrel, almost the same as last year, despite global economic problems. TOP has devised a risk-management plan to deal with the volatile global oil price. As part of its five-year investment plan, TOP will spend $1 billion (Bt31 billion), part

of which would be poured into the expansion of its seaport capacity to enable transport of 50,000 tonnes per year, up from the present 5,000 tonnes per year. It will also expand its paraxylene production capacity by 100,000 tonnes per year from the present 400,000 tonnes. The expansion is expected to be completed in the third quarter. It will also invest in setting up two small power plants, each with capacity of 120 megawatts, and costing Bt10 billion per plant. They will sell 90MW to the Electricity Generating Authority of Thailand, starting in 2014 or 2015.

THE NATION, February 3, 2012

FUELS

CNPC raised oil product sales in 2011 China National Petroleum Corporation (CNPC), China’s largest oil and gas producer, said on Monday that it sold 115 million tonnes of petroleum products in 2011, 12.49 million tonnes more than in 2010. The parent company of the listed PetroChina sold 102.51 million tonnes of products in 2010. Sinopec Group, China’s second largest oil and gas producer and the parent company of Sinopec Corp., sold 100.1 million tonnes of products in 2011, according to the company’s website.

XINHUA, January 30, 2012

Shell Hong Kong bumps price of LPG Shell Hong Kong Limited announces that there will be a price increase on Shell domestic LPG of HK$1.99 per kg and HK$4.85 per cubic metre according to the current pricing mechanism. Effective from 0000 hours on January 28, 2012, the new wholesale price for domestic cylinder LPG will be HK$13.66 per kg, and the listed price for domestic piped-in LPG will be HK$40.23 per cubic metre. “Same as before, we adjusted the domestic LPG price according to the established pricing mechanism to reflect

the trend of import costs within the review period,” said Ms. Anne Yu, General Manager for Shell Gas (LPG) in Hong Kong and Macau. The current pricing mechanism has been in place since January 1999. The price is reviewed every quarter. The adjustment reflects mainly the difference between the forecast and actual import prices for the past quarter and the forecast price for the coming quarter. Prudent adjustment is made for every price review based on the latest import price figures. An annual review of operating cost is incorporated and reflected every January. Shell will continue to closely monitor the import prices, and will certainly reduce LPG prices through the pricing mechanism should import costs decrease.

CHINA BUSINESS NEWS, January 29, 2012

Diesel fuel price lowered State-run oil refiner CPC Corp, Taiwan yesterday said it would keep gasoline prices unchanged, reflecting lower costs after global crude oil prices rose by a slight 0.77%. However, CPC will cut its diesel price by NT$0.1 per liter, according to a statement posted on its Web site. Global crude oil prices increased by US$0.84 per barrel to US$109.95 last week, up from US$109.11 the week before, on the expectation that Greece was close to reaching an agreement with creditors to fix its debt problems, CPC said. In addition, the strong New Taiwan dollar also offset rises in importing crude, CPC said. The NT dollar rose 1.73% last week to NT$29.525 against the US dollar. Formosa Petrochemical Corp, yesterday also said it would keep gasoline prices stable, while lowering prices for its diesel by NT$0.1 a liter, according to a company statement.

TAIPEI TIMES, February 6, 2012

NEWS IN BRIEF






Indian jet fuel prices slashed State-owned oil companies today slashed jet fuel prices by over 3% as an appreciating rupee made imports cheaper. The price of aviation turbine fuel (ATF), or jet fuel, in Delhi was cut by Rs 1,974 per kilolitre (kl), or 3.02%, to Rs 62,908 per kl with effect from midnight tonight, an official of the nation’s largest fuel retailer Indian Oil Corporation said.

PTI, January 31, 2012

Oil companies resume jet fuel supplies State-owned oil companies have resumed jet fuel supplies to Air India after the national carrier promised to pay Rs 2.68 billion in dues. Oil company officials said the supplies are being resumed after Air India promised to clear dues by tomorrow evening. All the three oil companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum - had jointly stopped Air Turbine fuel (ATF) supplies to Air India at Delhi, Mumbai, Kolkata, Chennai, Trivandrum and Kochi from 1600 hours.

PTI, February 2, 2012

Indonesia preparing fuel station loans The government will prepare Rp500 billion in soft loans for 295 petrol stations to sell non-subsidized pertamax petrol as part of the government’s program to limit the use of subsidized fuels in Java and Bali starting April 1. The funds would be incorporated in the revised 2012 state budget, Director General of Oil and Gas at the Energy and Mineral Resources Ministry Evita Legowo said here on Tuesday. “We have got assurance from the Finance Ministry that there is Rp500 billion in funds for soft loans to petrol stations,” she said. But she added that she did not know yet the scheme of the soft loans which was now being drawn up at

the Finance Ministry. The loans would make petrol stations in Java and Bali more prepared to implement the government’s program on limitation of subsidized fuels, she said. So far, only petrol stations in and around Jakarta had been ready to implement the government’s program as of April 1, 2012, she said. “If all petrol stations in Java and Bali are obliged to sell pertamax petrol as of April 1, 2012, Pertamina will not yet be ready. They can do so in stages,” she said. Yet the number of petrol stations selling pertamax petrol this year was higher than that of 2010, she said. Earlier, Pertamina spokesman M Harun said the state oil and gas company needed soft loans as new investment to develop more petrol stations selling pertamax petrol. He said the investment need of 295 of Pertamina’s petrol stations reached Rp115.9 billion or Rp393 million each. In Java and Bali, 2080 of 3,062 Pertamina petrol stations had sold pertamax petrol, 687 needed to replace their ground tanks and 295 others need new investment to sell pertamax petrol, he said.

ANTARA, January 31, 2012

Nepal’s fuel crisis deepens Desperate times call for desperate measures. Residents of Sallaghari in Bhaktapur neighbouring Kathmandu did just that on Wednesday. Angered at continuing scarcity of cooking gas, they intercepted five vehicles carrying LPG cylinders and distributed among themselves after paying for them and handing over empty containers. Apart from daily power outage of 14 hours, Nepal is at present going through an acute fuel and cooking gas crisis. Wednesday’s incident was a reflection of the grim situation. PM Baburam Bhattarai met petroleum and LPG dealers on Thursday. News reports say he has requested India to increase supplies to ease the problem.

HT, February 6, 2012

Group presses Thai Energy Minister on ethanol Thai Energy Minister Arak Chonlatanon is being urged to speed the use of ethanol to replace petrol, as capacity utilisation remains low. Sirivuthi Siamphakdee, chairman of the Thai Ethanol Manufacturers Association, said his group will soon call on the new minister to discuss how seriously he takes phasing out pure petrol by October to stimulate demand for locally produced ethanol. “We want to know for sure that the plan to phase out pure petrol will be on schedule. Otherwise we’ll export the ethanol surplus,” Mr Sirivuthi said. Since the government cut levy collection from petrol last October, the spread between petrol and gasohol has narrowed to 1.20 a litre from 3 baht. The use of ethanol for blending in gasohol dropped accordingly, to 1 million litres a day from 1.3 million. The cut has also led the existing 16 ethanol producers to cut their production in half from a full capacity of 2.4 million litres per day. The Alternative Energy Development and Efficiency Department earlier estimated use of ethanol would rise to 2 million litres per day once pure petrol was removed from the domestic market. Anusorn Sangnimnuan, president of the state majority-owned refiner and retailer Bangchak Petroleum Plc, said the company plans to shift crude oil purchases to new resources in Russia and Africa, which offer a better refining quality to produce diesel and jet oil instead of petrol.

BANGKOK POST, January 28, 2012

PTTEP sets sights on fuel in Lebanon PTT Exploration and Production yesterday confirmed reports that it plans to explore for energy resources in Lebanon.�

NEWS IN BRIEF






PTTEP president and chief executive officer Anon Sirisaengtaksin said countries on the Mediterranean constituted one of the firm’s strategic locations for pursuing exploration and production (E&P) business. The company is conducting a geological study of Lebanon’s resources, Anon said. It might ask the Lebanese government for permission to send a team to explore the country after the study is complete. Anon’s comments follow recent remarks by fugitive former prime minister Thaksin Shinawatra that he had spoken with Lebanese officials to pave the way for PTT to conduct exploration in that country and cooperate with the government there to promote growth in the energy sector. Anon said the company had conducted studies aimed at promoting E&P businesses in many countries deemed to have high energy potential, including Lebanon and other countries in the eastern Mediterranean, as well as in East Africa. He said it was normal for the Thai government to support the company’s exploration efforts and offshore business activities. PTTEP is willing to cooperate with the government - or any person involved with the government - who helps the company in order to promote Thailand’s energy industry, the CEO said. Meanwhile PTTEP, in cooperation with the Meechai Virivaidya Foundation and Business for Rural Education and Development (BREAD), yesterday introduced a new brand of packaged rice, School Rice, designed to promote farmers’ incomes and benefit society.

THE NATION, February 1, 2012

PETROCHEMICALS

Sinopec Jingmen plans EB-SM plant start-up An industry source based in China informed a polymerupdate team member on the startup plans of a new ethylbenzene-styrene monomer (EB-SM) plant operated by Sinopec Jingmen

Petrochemical. The source said, “located at Jingmen, Hubei province in China, the EB-SM plant will have a production capacity of 80,000 mt per year.”

POLYMERUPDATE, January 30, 2012

IVL in landmark chemical buy Thai-listed Indorama Ventures (IVL) is practising backward integration by acquiring two ethylene makers for US$795 million, a move that should boost its bottom line by 25% this year. The world’s No.1 integrated polyester chain producer yesterday announced it would buy Old World Industries I and Old World Transportation, owners of the largest ethylene oxide and ethylene glycol facilities in the US. Monoethylene glycol (MEG) is a key component, together with purified terephthalic acid (PTA), in producing polyethylene terephthalate (PET), as well as the polyester fibre and yarn that IVL produces, the company said in a statement to the Stock Exchange of Thailand. The Texas-based Old World has annual capacity of 435,000 tonnes of ethylene products, including 385,000 tonnes of MEG. Old World’s earnings before interest, taxes, depreciation and amortisation reached $150 million last year. Aloke Lohia, IVL’s chief executive, said the acquisition will be completed this quarter, subject to customary approvals. “The acquisition makes IVL the only global player in the polyester space with integration in both PTA and MEG,” he said. “It represents a rare opportunity to integrate into MEG, the most competitive zone for feedstock availability.” PTA pricing is weak with oversupply, while MEG is seeing demand outstrip supply, allowing IVL to enter during the upcycle and maximise value from the PET chain to contribute to earnings. An industry source said the acquisition of Old World will increase IVL’s net profit

by 25% year-on-year in the remaining three quarters, with the company securing raw materials at very low cost. MEG spread is $550 per tonne in the US or about $100 per tonne higher than in Asia, as demand has outstripped supply. The industry utilisation rate is nearly 90%. The PTA spread, by contrast, is at a record low of $150 per tonne. “Restocking of PET is under way. PTA producers are not achieving high utilisation due to tight paraxylene,” IVL said. Mr Lohia said the competitiveness of petrochemicals in the US has been bolstered by favourable gas prices relative to oil due to the abundance of shale gas. “By entering MEG now, IVL will be able to capture the premium margins that are expected to remain firm for the next four or five years, when new capacity is likely to enter the market,” he said. The deal is being financed partly by new credit facilities granted by Siam Commercial Bank and cash available. IVL’s net debt-to-equity ratio now stands at 0.7 times, a figure expected to remain below one despite the acquisition. The company reported liabilities totalling 78.2 billion baht as of last Sept 30, up from 45.6 billion baht in 2010. Evercore Partners and HSBC are the financial advisers to IVL. Allen & Overy are acting as legal advisers. Shares of IVL closed yesterday on the SET at 34.75 baht, up 1.50 baht, in heavy trade worth 2.47 billion baht.

BANGKOK POST, February 6, 2012

PIPELINES

IPI gas by 2014 The National Assembly’s Standing Committee on Petroleum and Natural Resources was informed that the supply of natural gas through the Iran and Pakistan pipeline would start by December 2014.

SG, February 5, 2012

NEWS IN BRIEF





STATISTICS

Asian refinery capacity 2000-2010

0

5000

10000

15000

20000

25000

30000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Other Asia

Thailand

Taiwan

South Korea

Singapore

Japan

Indonesia

India

China

Australia

Source: BP Statistical Review of World Energy

Downstream Asia 08 February 2012, Pilot Issue Back Page

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HEADLINES FROM A SELECTION OF NEWSBASE MONITORS THIS WEEK

Oil and Gas Sector

AfrOil Eni has begun drilling the Nunya-1X well on Ghana's Keta block.

AsianOil ONGC plans to invest US$33 billion over the next fi ve years, with a heavy emphasis on the upstream.

ChinaOil ConocoPhillips and CNOOC have agreed to pay US$160 million in compensation for the Bohai Bay oil spill .

FSU OGM KazMunaiGaz now says it expects the Karachaganak ga s-processing plant to cost US$3.7 billion.

GLNG Sinopec is confident of state approval for its Beih ai LNG terminal, which is to take LNG from Queensland.

LatAmOil Peru has pledged to invest US$3 billion in oil and gas projects over the next four years.

Downstream MENA Sabic and Sinopec have signed an MoU on forming a strategic partnership that builds on existing close ties.

NorthAmOil Gulf Coast LNG Export has applied to export LNG fro m Brownsville, Texas.

Unconventional OGM Ukraine will hold a tender this month covering shal e gas exploration and extraction in the country.

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