Top oil buyers go on light crude oil hunt to meet diesel demand
Captain Tsitrelis Ioannis and the 26-strong crew of the Malibu arrived at Ulsan in early August after sailing almost 9,000 nautical miles to deliver a million barrels of Kazakh CPC crude from the Black Sea to South Korea, one of the key buyers in the world’s biggest oil market. Another cargo of light oil, which is less sulfurous than heavier grades, is set to arrive in a couple of months at Ulsan from even farther away — the U.S. — to be processed by SK Innovation Co., South Korea’s top refiner. The two shipments are part of a stream of similar varieties flowing to Asia as companies look to process the kind of crude that yields more diesel to capitalize on surging demand for the fuel. Last month, profit margins from making diesel in Asia touched the highest since November 2015, contrary to expectations for a typical seasonal drop in demand during this time of the year due to monsoon rains. The unusual gains have been driven by higher imports of cleaner diesel by India after the government imposed new quality standards and as China uses more to feed the expansion of its construction and industrial sectors. “There’s no reason not to buy more,” Kim Wookyung, a spokeswoman at SK Innovation, said by phone from Seoul. “The margins of these fuels are pretty high.” Profits in Asia from turning benchmark Dubai crude into diesel jumped to $14.38 a barrel on July 31, a gain of 57 percent since touching a nine-month low on May 4. The crack spread, as it’s known, was at $12.64 a barrel at 12:05 p.m. in Singapore on Wednesday. The surge helped lift overall crude refining margins to $7.82 a barrel on Aug. 7, up more than 200 percent from a year earlier, according to data compiled by Bloomberg. “Diesel demand has been strong in emerging economies, including the Philippines, Indonesia and India as they focus on increasing infrastructure spending,” said Peter Lee, an analyst at BMI Research. “China’s diesel demand has returned to growth in the second quarter as construction and industrial consumption picked up.” That’s led South Korean refiners SK Innovation and GS Caltex Corp., among the top regional exporters of distillate fuels, to scour countries from Algeria to the U.S. in search of light crude. Typically, lighter varieties with a lower sulfur content will yield about 85 percent of lucrative products such as gasoil and gasoline, and about 15 percent of residue. Heavier varieties, which are usually cheaper, would yield only 55 percent of valuable fuels, according to SK Innovation. Still, the company — and most refiners — don’t process purely light or heavier crude at any given time. It blends about 15 different grades of oil before a crude distillation unit cracks it into products including diesel and gasoline. The proportion of varieties changes depending on market factors, according to an official at SK Innovation’s plant in Ulsan. While low-cost drilling methods have unlocked vast deposits in places like Texas, supplies from U.S. shale fields are primarily light, low-sulfur oil, which many of the refineries along the American Gulf Coast aren’t designed to process. As a result, exports surged and America now ships more than some members of the Organization of Petroleum Exporting Countries. More Attractive Meanwhile, supplies of heavier crudes — which are more prevalent in the Middle East — have shrunk as OPEC nations including Saudi Arabia curb output as part of a deal aimed at propping up prices. That’s made regional benchmark Dubai crude stronger relative to other markers such as Brent and U.S. West Texas Intermediate, making them more attractive to Asian buyers. “If you can get your hands on light crude now, it’s the time,” said Victor Shum, a Singapore-based vice president at industry consultant IHS Energy. “Given the current strong diesel cracks, refiners indeed should find light, sweet crude to be attractive.” SK Innovation, which is diversifying away from its long-term crude suppliers in the Middle East, will load one million barrels of WTI Midland crude in late August from Freeport, Texas, and the same amount of Mexican Isthmus crude, with both expected to arrive in Ulsan in mid-October. The increased appetite for light crude in new locations mean Captain Ioannis will be tasting new seas as he readies to embark on his next journey. While he’s still waiting to hear the destination, he doesn’t rule any country out. “I travel everywhere,” he said on board the Malibu, which was floating 3 miles off Ulsan. Nazem Kadri Jersey
India: Billionaire Dilip Shanghvi’s Sun Oil may buy GSPC’s Hazira field
Billionaire Dilip Shanghvi’s Sun Oil and Natural Gas is close to acquiring state-run Gujarat State Petroleum Corp.’s (GSPC) 66.67% stake in the Hazira gas field located in the Cambay basin in Gujarat, two people aware of the development said. The deal is expected to close by September, the people said on condition of anonymity, without disclosing the deal value. The purchase would give Sun Oil and Natural Gas full control of the gas field, in which it bought a 33.3% stake from Canada’s Niko Resources Ltd in December for an undisclosed sum. Also in December, state-owned explorer Oil and Natural Gas Corp. Ltd (ONGC) said it had decided to purchase an 80% stake and development rights in GSPC’s Deen Dayal West field in the Krishna -Godavari offshore block OSN-2001/3 for $995.26 million. The Hazira field is part of 16 hydrocarbon assets in Gujarat’s Cambay basin in which GSPC holds stakes. Niko has operated the field for the past 22 years. Sun Oil and Natural Gas is a unit of Shanghvi’s Sun Petrochemicals Pvt. Ltd. GSPC is 87% owned by the Gujarat government. “With the Deen Dayal deal with Oil and Natural Gas Corp. done, GSPC is looking at monetizing other assets. GSPC is in talks with Sun Oil and Natural Gas to sell its entire stake in the field,” said one of the two persons cited earlier. Sun Oil and Natural Gas declined to comment. GSPC did not reply to an email sent on Monday. Currently, the Hazira field produces 1,300-1,400 barrels of oil per day (bopd) and 7-9 million standard cubic feet of gas per day. Gas production began from the field in 1996 and oil production commenced in March 2006. “The field has neared the end of its life and post September, GSPC may have to abandon the block. However, selling it to Sun Oil and Natural Gas would be a better way to monetize the field than abandoning it as abandoning a field costs nearly $30 million (to adhere to the safety norms of abandonment like dismantling the offshore platforms, maintenance of the pipelines etc),” added the first official mentioned above. A banker aware of the deal said it would be a good purchase for Sun Oil and Natural Gas, which has studied the field and wants to explore it further unlike Niko and GSPC, which have other financial commitments. “Sun Oil and Natural Gas’s technical advisers are confident of rich hydrocarbon deposits in the field, which Niko and GSPC do not wish to commit financially to. Thus Sun Oil and Natural Gas would be getting the field at almost scrap value,” said the banker, the second person cited above.
UDAN provides new hope for defence airports in Bengaluru
The Civil Aviation Ministry’s aggressive promotion of the regional connectivity scheme (UDAN) is providing some hope for defence airports in Bengaluru and Bidar to resume operations for small passenger aircraft. The recent “no-objection“ from the Bangalore International Airport (BIAL) board to the Hosur airport in Tamil Nadu to operate five flights a week is being seen as a positive step in this direction. The HAL airport in the city and the Bidar airport have not been able to benefit from the phenomenal growth in the civil aviation sector in recent years because of a clause in the concession agreement the Civil Aviation Ministry has signed with private airport operators. This clause seeks to protect private investors by barring a second airport for commercial flights within a radius of 150 km. The Fairfax Group-controlled BIAL and the GMR Group-controlled Rajiv Gandhi International Airport in Hyderabad have not allowed HAL and Bidar airports, in that order, to host commercial flights. Industries and infrastructure minister RV Deshpande told ET that he has been pursuing with the Bengaluru and Hyderabad airport operators on the need for regional connectivity at these two airports on certain terms and conditions. “I have told BIAL to look at HAL airport’s case in the same way as Hosur airport. I recently met GMR Group chairman GM Rao and told him to help as the north Karnataka region badly needs air connectivity in the backdrop of industrial and other activities.“ The GMR Group chairman, he said, responded positively and the Rajiv Gandhi International Airport CEO has followed it up with a letter to the Civil Aviation Ministry . The minister said he has also spoken to MoS (Civil Aviation) Jayant Sinha to call a meeting with all airport stakeholders and open the HAL and Bidar airports for regional connectivity . “As far as HAL airport goes, the ball is in BIAL’s court. Both BIAL and HAL have to work together to make things happen. That the BIAL Board granting permission for Hosur airport is a good sign and it may pave way for similar treatment for HAL airport too,“ said DV Prasad, Additional Chief Secretary, Industries Department, and a BIAL board member till recently . HAL, a company spokesperson said, has recently written to the Civil Aviation Ministry requesting inclusion in the list of airports identified for regional connectivity . According to government officials, non-availability of takeoff and landing slots at Bengaluru and Hyderabad international airports may work in favour of HAL and Bidar airports. These metro airports are unlikely to entertain small aircraft deployed for regional connectivity in peak hours. At a recent meeting the Karnataka government convened, airline executives told Deshpande that airlines deploy smaller aircraft such as ATRs for regional connectivity and ATRs usually take more time for takeoff compared to a large aircraft. Metro airports prefer slotting bigger aircraft to turboprops precisely because of this reason. The turboprops too would need peak-hour slots if regional connectivity scheme has to meet passenger needs, they said.