abarrelfull wrote on 21 Dec 2009 06:50
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The Human Cost of Price Controls
created: 21 Aug 2014 10:41
tags: accident brazil petrobras refinery
In much of the world, consumers are insulated from the price of oil and oil products because their governments see fit to subsidize or otherwise control the prices at the pump. The fact that a valuable commodity gets sold too cheap, is wasteful and distorts the market. It means that globally we use "too much" oil. In many low income countries, stretched government budgets get wasted on providing cheap fuel to the better off, whilst schools and hospitals fall into ruin.
It is a disaster for everyone.
There is however another hidden cost, one that is extremely high for the ones that pay it. Price controls kill. Wherever a refiner is not able to sell his fuel at a market price, the result is cutting corners and skimping on maintenance:
From Reuters: Petrobras worker dies from burns in refinery explosion
The Brazilian union for petroleum workers, FUP, said the tragedy highlighted the worsening working conditions at Petrobras plants, saying the accident was the sixth in a week at different refineries run by Brazil's state-run oil company.
That is a terrible track record.
Petrobras is not the worst example of this, PDVSA is. Venezuela has the cheapest gasoline in the world, but it comes with the highest body count of any refiner anywhere. Gas is cheap, and so is life.
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Is the World of LNG going Crazy
created: 14 Aug 2014 08:55
tags: lng
You go away on holiday, and when you come back, the world has moved on. In the world of LNG, a whole lot has happened.
In Indonesia, two projects have been given permits to proceed, both the Tangguh Expansion, and the Abadi Greenfield Project were given environmental clearance. Some of the LNG will be used domestically, but Indonesia is suffering a decline in its production volumes and needs investment.
In the USA, the final investment decision was taken for the Cameron LNG Export Terminal Project. Meanwhile, CBI announced it had been given a contract for the Golden Pass Lng Export Terminal Project.
Canada, which now has more than 10 LNG projects, [archive-lng-ltd-to-acquire-bear-head-lng-project-in-canada saw a deal where] a defunct LNG gasification project, was sold with the intention of turning it into an export terminal.
On the import side, a terminal in Puerto Rico and another in Jordan had important announcements to make.
The sector is growing rapidly, and we don't know if there will be demand for all of this LNG. Some of these investors are going to get burned.
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Why ENI (and many others) Need to Split Up
created: 11 Jul 2014 14:03
tags: eni italy refinery
ENI is one of the largest oil companies in Europe and by far the biggest refiner in Italy. Outside of Italy, they own shares in Galp, which has two refineries in Portugal, and small shares in 3 German refineries. Recently they announced a deal to dispose of their shares in 2 Czech refineries.
So they are big, and predominantly focues on their own home market, which has proved to be a major problem:
State-controlled Eni, which has five wholly owned refineries in Italy and one half-owned plant, posted an adjusted net loss of 232 million euros last year in its refining and marketing division. Italian consumption of refined products fell from 72 million tons a year in 2006 to 53 million tons a year in 2013.
They have the dominant position in a market that has shrunk drastically. No wonder they are losing money.
They also have a mixed bag of assets, to say the least. The Porto Marghera Venice Refinery has already been given the bullet. It is to be converted into a biofuel facility, with the Porto Marghera Venice Green Refinery Project. Low complexity and a capacity of only 70,000 bpd, made that inevitable.
The Gela Refinery and the Leghorn Livorno Refinery are in a similar quandary. The 84,000 bpd Livorno Refinery was put up for sale back in 2009 and completely failed to find a buyer, whilst the 100,000 bpd Gela Refinery, is reportedly not currently working.
The remaining three assets, JV owned Milazzo Refinery, the recently upgraded Sannazzaro de Burgondi Refinery and the Taranto Refinery are probably ok longer term, given their better complexity, and the shareholdings in foreign assets can probably be disposed of.
Which brings me to my recommendation, to ENI and others in similar positions. You need to split the company into upstream and downstream. With projects in places like Mozambique and Angola that look far more exciting than substandard downstream, its just a waste of management time.
Restructuring would be much easier as an independent downstream firm, there is no need to prolong the pain. Marathon made the plunge, and they haven't looked back since.
There is no longer any logic in vertical integration, and its time the sector realised this.
