In 2012, these were joined by the Pluto LNG Terminal, and Australia started to become a more significant player in LNG globally.

2015 however, will forever be the turning point for LNG in Australia. First the Queensland Curtis LNG Terminal reached full commercial production and now we have this announcement that Gladstone LNG Terminal is up and running. So we now have about 35 million tpa capacity and 5 operating facilities.

This is before the great silver backed gorilla of a project, Gorgon LNG Terminal, will add another 15 million tpa capacity. That's not all, Australia Pacific LNG is to add 9 million tpa this year and next, whilst the Wheatstone LNG Terminal will add another 9 million tpa next year.

A year from now, total Australian capacity will be almost 70 million tons per annum, a close second place to Qatar which has 77 million.

The impact of all this on a market that has already seen big falls in prices, is going to be huge. This is before we take US investments into consideration. In fact given the bearish outlook for LNG prices, the shift from oil to gas will continue even at today's low oil prices. Which is yet another reason to be bearish on oil itself.

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by abarrelfull

Now the EIA has published A Report examining the restriction and its impacts under a number of different scenarios.

They come to a number of conclusions, in line with what I have always thought:

1. In cases where the Brent-WTI spread grows beyond $6/b–$8/b, removal of current restrictions on crude oil exports would result in higher wellhead prices for domestic producers, who would then respond with additional production.
2. Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports.
3. Refiner margins (measured as the spread between crude input costs and wholesale product prices), which tend to increase as the Brent-WTI spread widens, would be lower without current restrictions
4. Unrestricted exports of U.S. crude oil would either leave global crude prices unchanged or result in a small price reduction

So only US Refiners would lose out. The report calculates that they need a WTI/Brent differential of about $15 per barrel to encourage investment. Given the cost of this differential to crude oil producers, and the impact on their investments, favouring refineries is inefficient.

So for everyone's sake, lets repeal the law and get US crude exports flowing.

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The long levity of these market conditions are of particular interest to those who need to make tough decisions over their assets. Do they keep refineries running, or do they continue with plans to reduce capacity? If you believe that the margins will last for a while, then postponing refinery closures would make sense.

Total is obviously a company that is not overly optimistic about the sustainability of the current benign environment:

Three of Total’s five refineries in France — Gonfreville in Normandy, Grandpuits in the Paris region and Feyzin near Lyon — demonstrated their ability to withstand the deteriorating economic environment in 2013 and 2014 and generate ongoing income streams. The other two, Donges and La Mède, are struggling and are structurally loss-making.

Le Mede Refinery, is therefore going to be closed, whilst Donges Refinery will be upgraded.

It seems that Total has a similar view to Wood Mackenzie, who as reported by Bloomberg are expecting a sharp correction by summer.

U.S. plants, ending seasonal maintenance, will push down European prices with rising exports, particularly of diesel and jet fuel, as they eat into a domestic stockpile of almost half a billion barrels of crude. The shipments will help reduce the continent’s third-quarter processing margins by about 42 percent

In the long term, the continued closures are good news for those who remain in business. However, the short term pessimism is based on a belief that the glut of US crude will continue. For this excess to remain, we need two things to be true:

1. US oil producers must be able to make money at the current price
2. There will be no developments that ease the export of crude oil

I am personally not sure that we can rely on these two factors. Distortions in the market are keeping production levels in the USA up, but gravity has to kick in at some point. Meanwhile flexibility in crude exports solves a huge number of problems and logic has to push this one to a head.

In the meantime, European refiners will count their money whilst watching rig counts obsessively.

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by abarrelfull

Apache's net proceeds upon closing are expected to be approximately $3.7 billion for the transaction, a major cash infusion. Its a big turn around in strategy though, as these are important projects, at very different stages of development.

For Woodside, it represents a big punt on the LNG sector at a time when they have had to postpone their Browse LNG Terminal Project over cost concerns.

My question is does this herald the start of a trend? With low oil prices, LNG projects begin to look less attractive, especially those with a high investment cost.

Back in 2009, trains 6 & 7 of the Rasgas LNG Terminals, Yemen LNG Terminal & Tangguh LNG Terminal came on stream, followed in 2010 by Qatargas 3 Ras Laffan LNG Terminal, at a time when demand had slumped due to macroeconomic problems and growing US gas supplies. Prices slumped.

The low prices of that period generated renewed interest in LNG usage, and led to a number of import project announcements. This is especially true of China, whose state owned companies have invested heavily in supply projects as well as import terminals. (for more details see LNG Terminals And Trade In China )

Now some of this activity seems a little bubble like.

So what happens next?

I think we will see a number of more projects postponed, or even abandoned. However, for those who go ahead, the costs are going to be lower. Engineering, construction and equipment companies are not going to have the full order books of recent times, and will have to be more competitive. Their costs will also be lower.

So in a few years time, when another bull market is upon us, those companies whose project economics were good enough to go ahead, will gain twice, once from higher prices and secondly from less competition.

by abarrelfull

Firstly the lack of production growth in the short term is actually a blessing. Infrastructure that was not sufficient can be developed. Quality of life issues that impact production regions, such as housing and public services, can be dealt with. Issues over the environment and regulation can also be straightened out. Oil companies will focus on improving cost efficiency and will no doubt develop better technologies, when under cost pressure. When production growth resumes again, it will be much more sustainable.

Only the oil companies are losers from the current situation, not society as a whole. This is why this idea stinks. Throwing free trade out the window, to help a small number of companies is a really bad idea

If the USA wants to wean itself off imported oil, it need to increase production AND reduce consumption. The best way to reduce consumption is to tax fuel at the pump. Given that pump prices have fallen so much, this is a very opportune time to make such a move. As it will reduce consumption in the medium term, and because the USA is the world's largest consumer, oil prices will be marginally lower in the long term, meaning that some of the tax will be paid for by oil producers.

Meanwhile, giving permission to Keystone XL, would improve the supply situation in the medium term, and a government that increases taxes on fuel, can tell the environmentalist to butt out on Keystone, which is in America's interests.

So you reduce CO2 emissions and increase energy security at the same time. A perfect win. It will not happen of course, but that doesn't mean that it shouldn't.

by abarrelfull

There are a number of reasons, however, why I think that the new price environment will be helpful for Europe's beleaguered refiners.

1. Rapid rising crude production in the USA, gave us a huge Brent/WTI spread, and American refiners a massive advantage. The spread is now miniscule
2. Europe's natural gas is largely sold at Crude Oil indexed prices. These will come tumbling next year, reducing energy costs. Relative to US competitors, the disadvantage will be much less.
3. US gas producers rely a great deal on good prices for liquids. With lower liquids prices, gas production will decrease, increasing prices
4. Russian refinery upgrades are creating stronger competitors, as the capability of producing Euro V compliant fuels increases. The combination of sanctions & low prices will slow this trend to a crawl
5. Working capital needs will be less, particularly important for heavily indebted companies.
6. Europe suffers from cyclical demand destruction, especially in the South. Low oil prices will spur demand
7. Oil producers headlong rush into refinery investments will slow down as they need to preserve their cash

All in all, Europe's refiners will enjoy a much better 2015 than most of the recent years, whilst US refiners will see most their advantages reduce or disappear.

by abarrelfull

By the time the meeting was held, most market players had come to the conclusion that there would be no change, but even the small remaining hopes of positive language were shattered. Oil prices fell further and are languishing at levels many thought impossibly low just two years ago.

Not so long ago, the consensus was that Saudi Arabia, the driving force behind OPEC decisions, needed $90 dollars a barrel to balance its budget, and so would defend that price.

That proved to be false.

So what was it that drove the decision, and what can we expect for the future?

1. Firstly, I don't think that the Saudis had much choice. There have been very big increases in supply and stagnant growth. The amount that would have to be cut in the short term to defend $90 per barrel would probably need to be bigger than acceptable
2. A cut of even a million barrels per day may not have worked, and OPEC would have been exposed as a paper tiger
3. If it worked in the short term, US tight oil production would have continued to rise, gradually nullifying the impact
4. The impact of low oil prices hurts others much more that the Gulf States
   • Venezuela, a regular cheater, is in big trouble and will see its production shrink as it cannot invest
   • Iran, the Gulf States number one enemy is already hurting from sanctions and may be forced to a decision on their nuclear programme, which interests the Saudis even more than it does the Israelis
   • Russia was already in trouble, as mature fields decline and massive investments are needed in their replacements. The political environment has made this a challenge. Sanctions have made this even more difficult, as Russian companies struggle with financing. Now low oil prices have made it impossible. This story is one small example of the problems.
   • In general, new projects need huge investments. Low oil prices are forcing companies everywhere to postpone projects

So over the medium term, we can expect to see investments fall and therefore the global production capacity will decrease. Don't forget that production from mature fields declines at a significant rate, and most investment only replaces production, it doesn't increase it.

I don't think that US tight oil is the issue. The business well established, infrastructure is in place or being built, and experience has been gained. Low prices will hurt production, but that can quickly come back on again. It will however slow down new developments elsewhere, which is an important target for OPEC

Even a few months of prices at this level will create a level of uncertainty that will impact investment decisions over the next few years. Given that heavy crude and deep water developments are a major part of the investment portfolio, this will prove to be evr more significant as time goes by.

So what does OPEC do next?

If the oil price stabilises at today's level, a small cut in 6 months time might increase prices enough to give a decent boost to revenues without taking them high enough to spur investment. It would certainly work better than a cut today, which probably would have achieved nothing

by abarrelfull

Canadian LNG Projects is a list of LNG export facilities in Canada that have entered the regulatory review process.

There are as follows

1. Douglas Channel LNG
2. Kitimat LNG
3. LNG Canada
4. Pacific Northwest LNG
5. Prince Rupert LNG
6. Goldboro LNG
7. Woodfibre LNG
8. WCC LNG
9. Triton LNG
10. Aurora LNG
11. Kitsault Energy Project
12. WesPac Marine Terminal
13. Steelhead LNG
14. Grassy Point LNG
15. Discovery LNG
16. Cedar LNG
17. Orca LNG

Given the rate of change in market conditions and the competition from the USA, Australia, East Africa and elsewhere, most of them will never get built.

Still nice to have a list though. It shows me where I am lacking on information

by abarrelfull

by abarrelfull

So whilst we were waiting, I thought it would be useful to identify which refineries are those that are at risk.

Let us start with Italy, a market with substantial refining capacity, that has seen demand shrink significantly in recent years. It is widely believed that ENI is to shut some or all of the following: Gela Refinery, Leghorn Livorno Refinery and Taranto Refinery. Of the other Italian refineries, Falconara Marittima Ancona Refinery is also thought to be a candidate. Other potential closure candidates have changed hands and are assumed to be safe for now.

France also needs to reduce its capacity but Total had promised back in 2009 not to close any more refineries until 2015. With the critical date just around the corner, Donges Refinery, Feyzin Refinery and Provence Refinery are those rumoured to be in the firing line.

In the UK and Ireland, we have Whitegate Refinery which has been looking for a buyer for some time as a strong contender. Lindsey Oil Refinery has also failed to find a buyer, whilst Grangemouth Refinery and Stanlow Refinery have both found buyers, but in both cases, buyers regret saams to have set in.

When it comes to buyers regret however, nothing can surely come close to PKN Orlen's feelings towards the Mazeikiu Nafta Refinery, which has been a thorn in their side since the acquistion in 2006.

MOL is having similar feelings about Sisak Refinery, and is in a battle with the Croatian government over a potential closure. Despite investing in the plant, Hellenic can not make a profit from its Thessaloniki Refinery, and has not been running it for a while. Tenerife Refinery is in a similar state of limbo.

In the North, Shell is not happy with the Fredericia Refinery and Statoil has evil thoughts towards its Mongstad Refinery.

Meanwhile a dwarf in the land of giants, Europoort Refinery owner Q8 is trying to find a caring home for its unwanted plant.

With problems of their own, the Russian giants will not be coming to the rescue this time, so for some of these plants, its only a matter of time.

by abarrelfull

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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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by abarrelfull

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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by abarrelfull

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.

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by abarrelfull

Economic problems have led to declines in demand in what were already stagnant markets, WTI / Brent differentials and low Henry Hub gas prices mean that US refiners are able to produce more and sell into the European Market. The Jubail Refinery Project, the first of many Projects in the Middle East has come onstream and is selling diesel to Europe.

In the midst of this doom and gloom, Exxon announces that it is to invest $2 Billion in a project to upgrade its Antwerp Refinery in Belgium.

So what are we to make of this?

First of all, we need to remember that all refineries are not created equal, and that some are hurt worse than others by the current situation. The more complex you are, the better you can cope with the poor environment. This investment increases their complexity.

Secondly, the refining sector is a classic cyclical one, where the best investments are made counter cyclically. Only those with deep pockets (and they don't come much deeper than Exxon's) can afford to take such an approach. It is generally cheaper to do this and the investment finishes at a better time.

Thirdly, if you are going to survive, you need to produced the right products. Global demand for Residual Fuel Oil is on the wane, Natural Gas Liquids are eating directly and indirectly into the Gasoline market. The future is in Middle Distillates, Diesel & Jet Fuel.

Fourthly, Greenfield Refinery investments make money on the refining margin, that is the weighted average price of the products produced, minus the weighted average cost of the crude oil processed. Upgrading projects however, make money on the price differential between the products that you will be able to produce, minus the products being produced now. For a Delayed Coker, this means the differential between diesel and fuel oil, which is pretty large, even today.

So Exxon's investment makes a lot of sense, because it will align the refinery with future demand, reduce low value products and invest whilst it others are not. It also sends a signal to the market that this is one refinery that is here to stay. Many others will not be so lucky.

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Mistral Energy confirmed on Friday, May 2, that it has received exports of purity ethane in an inaugural shipment along the Vantage pipeline from the Williston basin in North Dakota, to connect with the Alberta Ethane Gathering System (AEGS) near Empress, Alberta, in Canada.

We already have seen that shale gas has turned the US petrochemical sector on its head. Rising supply of ethane from natural gas, has led to a big change in petrochemical feed stocks and a slew of new investments.

Yet even this will not be enough to utilise all of the new ethane production. So we are seeing investments in export capability. A pipeline to Canada is a fairly simply one, but some companies Enterprise Products to Build Ethane Export Facility on Texas Gulf Coast are even more ambitious.

Enterprise Products Partners L.P. announced today that it plans to build a fully refrigerated ethane export facility on the Texas Gulf Coast.

So ethane exports will be possible to anywhere that has an import capability, and there will be a lot of ethane to export:

We estimate U.S. ethane production capacity currently exceeds U.S. demand by 300 MBPD and could exceed demand by up to 700 MBPD by 2020, after considering the estimated incremental demand from new ethylene facilities that have been announced

So we can expect to see more of these type of investments

There has already been an important project announced for export of ethane to Europe. Ineos, a company with many petrochemical plants in Europe and elsewhere, is one of the partners.

CONSOL Energy Inc. announced today that it has entered into agreement with Ineos Europe AG, part of the Ineos Group, to export ethane via Sunoco Logistics' Mariner East infrastructure and the Marcus Hook Delaware River port for use in Ineos' European cracker complexes.

So what is this going to do to the Naphtha market?

Extracting ethane and exporting it will help gas producers in the US and pet-chem producers in Europe. The one group that will be hurt by this is naphtha producers. Given that Europe is already long on gasoline, and it now faces a new substitute in the gasoline pool, I think we can safely say that this is one more nail in the coffin for Europe's gasoline producers.

As if Shale Oil were not bad enough Shale gas is blowing a typhoon through the world of refining as well.

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by abarrelfull

One thing that always strikes me when I discuss the Middle East with people in Noth America is how easy it is to be hawkish from 10,000 miles away. When sanctions on Iran are discussed in Washington, there are no commercial implications. in Brussels, however, there are. European refineries have lost huge sums of money due to the banning of Iranian crude. The biggest winner has been Russia, who has seen their discounts reduce to nothing.

It is possible that Russia is next in line for sanctions, and once again European companies will bear the brunt of them.

Meanwhile in a parallel universe on the other side of the Atlantic, our alleged ally refuses to sell us their crude oil, even though they have too much. Instead of the champion of freedom that we were always told that America is, they are running a beggar thy neighbour policy, and one that probably even harms themselves.

The USA already has an image problem and this just reinforces the view that it doesn't care about its allies.

So whilst I will agree with any American that thinks European leaders have a tendency to be lily livered, from where we are standing, we are being asked to be tough, and to also pay all of the bill.

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by abarrelfull

The result of this has of course been that WTI, the US crude benchmark and Brent, the North Sea based global benchmark have been out of sync. The impact of this has been huge, Shale Oil Impact on both sides of the World talks about some winners, whilst Why Nigeria is Losing from US Tight Oil discusses one of the losers.

However, according to the EIA, crude oil stocks are down 32% over the past two months. So we finally have, albeit probably temporarily, a solution to our WTI "problem". It is not a surprise it is thanks to a couple of pipeline projects, first the Seaway Crude Oil Pipeline was reversed and expanded, secondly the first section of the Keystone XL Pipeline Project was recently completed.

Just as the impact of too much US crude was felt world wide, The Impact of Keystone XL on Global Oil Markets is going to be big as well.

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by abarrelfull

• A great little video from Valero's Meraux Refinery showing the intricacies of moving and lifting refinery equipment.

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