The Barrel. Platts oil blog The essential perspective on global energy Mon, 24 Feb 2020 14:17:54 +0300 <![CDATA[Commodity Tracker: 6 charts to watch this week]]> As the global coronavirus (COVID-19) case toll rises, what can Chinese refinery activity reveal about the state of oil demand? S&P Global Platts editors examine this and other energy and commodity market trends, including Asian bunker sales, Americas corn exports and more.

1. China, crude and COVID-19: are low prices the best cure for low prices?


Lula crude oil price vs ICE Brent


What’s happening? The COVID-19 outbreak and resulting economic slowdown has seen refineries slash their run rates, impacting demand for refining feedstocks. This has seen a collapse in the price of crudes sold delivered ex-ship to ports in China. The premium for Lula, a Brazilian crude popular with independent refiners, DES Qingdao over ICE Brent fell to a low of just 66 cents/barrel last week, down from an average of just under $6 a barrel throughout January.

What’s next? Low crude prices are encouraging China’s independent refineries to return to the international market for April and May delivery, reflected in the slight rise in the Lula premium to ICE Brent at the end of last week. But short term buying aside, longer term the demand outlook remains uncertain. Look for a sustained rise in the premium of Lula over ICE Brent as evidence that the economy is at last getting back on it feet.


2. Singapore’s competitive edge in bunkering challenged by Chinese ports


Marine fuel Singapore vs Zhoushan


What’s happening? China’s refineries have increasingly geared up to produce low sulfur fuel oil as demand for cleaner fuels has surged due to the International Maritime Organization’s global sulfur limit for marine fuels. In addition, China’s tax waiver on bonded bunker fuel effective February 1 is also set to boost the country’s bunkering prospects. China typically imports about 1 million mt/month of bunker fuel, with the bulk of this from Singapore. The full 13% value added tax rebate for ships using fuel oil as bunker fuel should attract ships on international routes to refuel at Chinese ports, while paving the way for domestic producers to boost bunker fuel output and reduce Chinese imports from Singapore.

What’s next? Singapore’s position as the world’s top bunkering port could be threatened in the new low sulfur emissions world. At the moment, Singapore’s bunker fuel prices are the lowest in the region.  With both China poised to contribute substantially to the availability of low sulfur marine fuel in Asia, bunker fuel prices in the region and especially at China’s Zhoushan port, will become extremely competitive.


3. US corn has narrow window in export race against South America


Corn exports US vs Brazil


What’s happening? Historically the world’s largest corn exporter — the US, lost its market share in the top importing countries of the coarse grain, Mexico, South Korea and Japan. Meanwhile, Brazil has gained a bigger chunk of the market share in these three countries. Brazil harvested a record corn crop last year, and the ample supplies from that crop were available throughout the year at cheaper prices. After June 2019, when Brazil’s corn supplies started coming in the market, exports from the country surged, while those from the US declined.

What’s next? In the current marketing year which will end in August, the US has got a very small window to push out its supplies to global markets before Argentina comes in with its supplies in March, followed by Brazil in June-July. According to the latest estimates from the US Department of Agriculture, the US is expected to export 43.82 million mt of corn in the 2019-20 marketing year, down 16.5% from 2018-19 levels. Market sources say the country will have to do exceptionally well to meet the 2019-20 target. Since its first estimates made at the start of 2019-20 season, the USDA has already made a steep cutback in US corn export projections by 11.8 million mt.


4. Rhodium’s meteoric rise fuelled by tightening emissions standards


Rhodium vs Palladium price


What’s happening? Platinum group metals used in catalytic converters have seen strong demand as higher emissions standard are implemented globally, with rhodium prices soaring faster than other products in the group. Rhodium is considered the best catalyst for the reduction of nitrogen oxides to nitrogen, as well as the oxidation of CO and hydrocarbons, and is seven times more efficient than palladium or platinum. Johnson Matthey’s rhodium spot price in January surpassed the previous 2008 all-time record of $10,100/oz and edged up to $10,775/oz in the first week of February. Rhodium set another new record last Thursday, jumping 3.2% day on day, with spot price at $12,700/oz.

What’s next? Market participants see little downside to rhodium prices. Analysts have said that China is likely to buy whatever rhodium stock it can find in order to meet its China VI emissions targets, even with no global surface stocks of the precious metal available. The coronavirus outbreak could cause a slight reduction in car production over the next two or three months, however.


5. Eyes on regulated nuclear price in France, Europe’s top power exporter


French power prices vs ARENH nuclear tariff


What’s happening? French year-ahead power has fallen to the ARENH regulated price at which EDF sells 100 TWh of nuclear generation to smaller competitors. Above-average temperatures this winter have kept French electric heat demand in check, while strong wind and hydro production have created oversupply conditions across northwest Europe. Even with reduced nuclear availability, prices have continued to fall with cheap gas filling the thermal gap.

What’s next? The French government is in the process of reforming the ARENH nuclear release mechanism. A proposed cap and floor price is to cover all EDF’s nuclear output in future, with a price corridor of Eur6/MWh allowing some flexibility in the central regulated price. The measure, which requires EC approval, could be in place by 2022. Corridor or not, fixing the price for close to 400 TWh a year will fundamentally change Europe’s power markets because France is the continent’s biggest net exporter with a growing annual surplus. French Cal 2022 baseload power has rebounded above Eur47/MWh after EDF management last week said it was confident the reform could apply from January 2022.


6. Appalachian Basin rig counts, production drop as gas prices slide


Appalachian gas rigs vs gas price


What’s happening? Persistently low commodity prices this year are beginning to take their toll on US dry gas producers operating in the prolific Appalachian Basin. At the region’s benchmark Dominion South hub, cash prices have averaged just $1.57/MMBtu this month and $1.61/MMBtu, year to date, S&P Global Platts data shows. On February 19, total rig count in the Marcellus and Utica shales was estimated at 50, which is hovering just above a recent 42-month low, according to Enverus DrillingInfo data. Production levels have followed rig counts lower with output this month estimated at 32.1 Bcf/d – about 1.3 Bcf/d or nearly 4% lower compared to a monthly record-high in November.

What’s next? Forwards markets aren’t holding out much hope for a meaningful recovery in Appalachian gas prices this year. On February 19, the balance-2020 forward curve at Dominion South was assessed at just $1.71/MMBtu. According to S&P Global Platts Analytics, average producer cash flows at current price valuations will likely keep production flat this year around 32 Bcf/d, resulting in year-on-year declines by the fourth quarter.

Reporting by Seb Lewis, Su Ling Teo, Amy Tan, Surabhi Sahu, Shikha Singh, Andreas Franke, Filip Warwick, Ben Kilbey, J Robinson

The post Commodity Tracker: 6 charts to watch this week appeared first on Platts Insight.

]]> Mon, 24 Feb 2020 11:44:08 +0300
<![CDATA[Decarbonize or die: is Europe turning its back on gas?]]> Natural gas – once praised as the key to an achievable energy transition in Europe – is increasingly falling out of favor.

EU policymakers have spent years extolling the virtues of gas, calling it the cleanest of the fossil fuels and a bridge to a lower-carbon future.

But the world – and Europe in particular – is shifting its stance toward gas quickly, meaning it is at risk of being left behind in the race to net zero emissions.

Gas projects are increasingly vulnerable, as financiers and company management face pressure from their boards and investors not to invest in fossil fuels.

The International Energy Agency has repeatedly revised down its estimates for longer-term EU gas demand. In its past five World Energy Outlooks, the picture in 2040 has worsened gradually, from an estimate of 466 Bcm in 2015’s WEO to just 386 Bcm in last year’s outlook.

IEA gas forecasts revised down

Likewise, there is no escaping the scale of environmental action spurred on by Swedish teenager Greta Thunberg, who has pushed the issue of carbon emissions to the very top of every political agenda worldwide.

Even Hollywood is getting involved, with stars like Mark Ruffalo and Cher weighing in on the debate, urging Europe not to import dirty, fracked gas from the US.

Ruffalo – currently starring in a film called “Dark Waters” about chemical pollution in the US – urged the European Parliament directly to vote against the inclusion of gas projects on the EU’s list of priority energy projects, the so-called Projects of Common Interest (PCI).

His lobbying efforts were ultimately unsuccessful, but the fact that in a few short years the mood has shifted away from gas projects being seen as a clean, sustainable element of European energy supply security to potentially as damaging as coal, is staggering.

Green deal

It was not long ago that the Southern Gas Corridor, for example, designed and constructed at a total cost of some $40 billion – just to allow Europe a smidgeon of extra supply security – was much heralded by Brussels.

Now, the EU is all about its Green Deal. And gas’s role in it is questionable.

Go deeper: Podcast – Finding a home for new gas supply to 2025

New European Commission President Ursula von der Leyen has put climate at the top of her policy agenda for the next five years, with plans to make the EU a net-zero carbon economy by 2050.

That is more ambitious than the EU’s current goal to cut emissions by at least 80% from 1990 levels by 2050, and to help achieve it von der Leyen wants to ramp up the EU’s 2030 targets to cut CO2 to at least 50%, up from 40% agreed in 2018.

If this is approved by EU lawmakers – and the European Parliament has already called for a 55% cut by 2030 – then gas demand could well be displaced before 2030 by more renewables and energy efficiency.

The EC has also launched a “Just Transition Fund” which could mobilize up to Eur50 billion ($55 billion) of public money to help heavy industry like refineries and steel works cut their emissions.

The proposed fund is part of a wider plan for a Eur100 billion Just Transition Mechanism intended to help targeted carbon-intensive regions keep up with the rest of the EU becoming carbon-neutral by 2050.

In the UK, the chairman of the energy regulator said last month that the oil and gas industry’s “social license to operate” was also under serious threat, warning there were “no second chances” given the realities of climate change.

Tim Eggar said he could not remember “anything like the industry rethink of the last few months.”

“If the industry wants to survive and contribute to the energy transition it has to adapt,” he said.

Sense of urgency

Oil and gas companies seem to be recognizing the urgency amid calls for them to make a meaningful contribution to efforts to tackle climate change is ratcheting up. And fast.

European majors –  regularly accused of “greenwashing” given the tiny fraction of capex dedicated to renewables and low-carbon fuels – are having to adapt.

In the past, they have pledged more spending on gas and LNG, highlighting its role as a bridging fuel in the energy transition. But now even gas is under increasing scrutiny.

“We are not spending enough on new energies, especially in power, and we want to ramp that up,” Shell CEO Ben van Beurden said in late January.

Van Beurden said Shell wanted to “maintain a strong societal license to operate” and to “thrive in the energy transition.”

“The pressure is keenly felt. We want to be a force for good in changing the whole energy system to a low-carbon version,” he said.

But his ambitions came with a warning. He said the energy transition should be done by oil and gas companies – “strong incumbents” as he called them.

These, he said, were best-placed to help transform the energy system by working with sectors that consume energy on the path toward net-zero emissions.

‘Wrong shareholders paradox’

Morgan Stanley, however, warns that progress could be slow because of the “wrong shareholders paradox.”

“The majors can play a constructive role in the energy transition, but their current shareholders show little appetite for large-scale investment particularly given the uncertain returns in many new energy areas,” it said in a recent report.

“Instead, they show a preference for capital discipline, near-term growth in free cashflow, reduction in net debt, and increases in distributions. This puts the majors at a cost-of-capital disadvantage versus pure-play renewables firms, and may at some point limit the pace at which the majors can transition,” it said.

Consultancy McKinsey said in a report in early 2020 that the minds of industry executives were being focused increasingly on climate issues.

“Investors are pushing companies to disclose consistent, comparable, and reliable data. Activist shareholders, for example, are challenging US- and Europe-based oil majors on their climate policies and emissions-reduction plans,” it said.

In addition, investors are increasingly conscious of environmental issues with an alliance of the world’s largest pension funds and insurers (representing $2.4 trillion in assets) in September committing itself to transitioning its portfolios to net-zero emissions by 2050.

The European Investment Bank, meanwhile, at the end of 2019 already said it had committed to stop approving unabated fossil fuel projects – including gas – from the end of 2021.

And the calls from Ruffalo and others to stop funding gas projects in Europe have support from independent consultants too.

France-based Artelys said in a damning report published last month that the majority of the 32 gas infrastructure projects on the latest EU PCI list were effectively redundant.

“Most of the projects are unnecessary from a security of supply point of view, and represent a potential overinvestment of tens of billions of euros, supported by European public funds,” Artelys said.

“Existing EU gas infrastructure is sufficiently capable of meeting a variety of future gas demand scenarios in the EU, even in the event of extreme supply disruption cases,” Artelys said.

Gas projects included in the PCI list are at risk of becoming stranded assets, it said, even in scenarios with higher gas demand.

“Most of the projects are shown to be superfluous from an economic point of view,” the consultancy said.

CCS, hydrogen

Clearly the tide is turning against gas in Europe, but what else can be done?

One avenue to explore is the conversion of gas into hydrogen using carbon capture. Progress in scaling this technology up will be critical in the coming years.

Equinor CEO Eldar Saetre said this month the company had “several levers” to reduce the net carbon intensity.

CCUS and hydrogen are expected to be significant contributors, Saetre said.

“We have tested many scenarios. I can assure you. We know quite firmly that to reach the goals stated in Paris, CCS, CCUS and hydrogen will have to be part of the solution. I basically have seen no scenarios without it as a major component,” he said.

The post Decarbonize or die: is Europe turning its back on gas? appeared first on Platts Insight.

]]> Thu, 20 Feb 2020 13:22:35 +0300
<![CDATA[Venezuela, Rosneft and US sanctions complications: Fuel for Thought]]> US efforts to starve Venezuela’s Maduro regime of oil revenues have substantially increased the role of Russian energy in the US Gulf Coast, an outcome the Trump administration likely never anticipated when it put sanctions in place over a year ago.

The situation has created a significant shift in product flows into Gulf Coast refineries and appears to have complicated the Trump administration’s plans to increase pressure on Venezuela, including plans to sanction Russian state oil Rosneft, which have remained on hold for months.

The embargo on Venezuelan crude oil, ongoing OPEC production cuts and the impacts of the International Maritime Organization’s overhaul of marine fuel sulfur regulations have created an unexpected opportunity in Gulf Coast refineries for exporters of Russian petroleum. It also presents a challenge for the Trump administration, which continues to threaten Rosneft with sanctions for its continued trade with PDVSA, Venezuela’s state-run oil company.

Go deeper: S&P Global Platts coverage of US sanctions on Venezuela’s PDVSA

US sanctions on Rosneft would likely have wide-ranging consequences for the global oil market, including immediate and potentially deep economic damage for US refiners who have spent the past year adjusting to the effects of accelerating US oil sanctions.

USGC heavy crude oil imports

“There would be a near-term disruption for Gulf refiners,” said John Auers, executive vice president of Turner, Mason & Co. “There will likely be a change in flows, but probably not an overall change in supply in the longer term.”

Russian residuum

Roughly since the US blocked imports of Venezuelan crude in January 2019, US refiners have ramped up imports of Russian residuum, US Energy Information Administration data shows. EIA defines residuum as a residue from crude oil after distilling off all but the heaviest components, with a boiling range greater than 1,000 degrees Fahrenheit.

The loss of Venezuelan supply has tightened the sour crude market for US coking refineries, according to S&P Global Platts Analytics.

With the OPEC cuts taking more higher-sulfur crudes from Saudi Arabia, Iraq and Kuwait off the market and US light sweet crude still a bad fit for US cokers, current fundamentals favor the export of light sweet US crudes and the import of higher-sulfur crudes and products, including Russian residuum, which are discounted, Platts Analytics said.

Gulf Coast refiners imported over 192,000 b/d of residuum through the first 11 months of 2019, a 75% increase from 2018 and the highest annual average since 2013, when regional refiners imported 207,000 b/d of residuum, EIA data shows. Residuum imports by Gulf Coast refiners climbed as high as 316,000 b/d in August, according to the EIA.

US refiners have been blending residuum with lighter crudes to compensate for declining imports of heavy crude from Iraq and the complete loss of heavy crude from Venezuela.

In November, Gulf Coast refiners imported about 1.35 million b/d of heavy crude, compared with 1.96 million b/d in November 2018 and 2.09 million b/d in November 2017.

As residuum imports by Gulf Coast refiners have increased, the amount of the crude residue sourced from Russia has increased, too.

According to EIA monthly data, US imports of unfinished oils from Russia averaged 472,000 b/d in November, the most since May 2013, when the same amount of unfinished oils was imported from Russia. Imports of Russian unfinished oils accounted for two-thirds of total unfinished oil imports by the US in November, compared with about one-third of all unfinished oils imports in November 2018, according to EIA.

USGC imports Russian unfinished oils

US refiners also import a much smaller amount of unfinished oil from several other countries, including Belgium and Egypt. In November, more than 66% of US imports of unfinished oils came from Russia, according to EIA.


Rosneft sanctions threat

It remains unclear what impact sanctions on Rosneft would have on US residuum imports, and it is also possible the Trump administration could grant exemptions for those imports if such sanctions were imposed.

Such sanctions, analysts believe, could impact the profitability of US refiners with significant coking capacity, potentially impacting fuel prices during a perilous presidential election year.

Analysts stressed, however, residuum imports remain a relatively small portion of US energy imports and may raise no concerns within the administration.

In August, a senior Trump administration official told Platts the US was prepared to sanction Rosneft if it continued to trade in crude oil and fuel with PDVSA, but analysts have said such sanctions have been on hold due to the potential impact they could have.

In a note this week, analysts with ClearView Energy Partners wrote the administration may be hesitant to impose sanctions on another commercially significant entity, as it did with Rusal in April 2018 and Chinese shipping giant COSCO in September, due to how these actions roiled markets.

The post Venezuela, Rosneft and US sanctions complications: Fuel for Thought appeared first on Platts Insight.

]]> Tue, 18 Feb 2020 16:31:19 +0300
<![CDATA[Commodity Tracker: 5 charts to watch this week]]> The ongoing outbreak of coronavirus, known officially as COVID-19, continues to dominate commodity and energy market developments, as illustrated by this week’s pick of charts from S&P Global Platts news editors. Plus, key trends in EU and US electricity markets.

1. COVID-19 stalls Chinese workers’ return to manufacturing centers…


Migration to Guangdong province, China


What’s happening? China’s coastal provinces are heavily dependent on migrant labour from other provinces. Every year millions of these migrant workers go home for the Lunar New Year, travelling back to the coastal cities when the holiday ends. They go back to jobs on construction sites, in factories and across the service sector. This year the annual migration has stalled due the coronavirus (COVID-19) outbreak, as shown by data from Chinese technology company Baidu. Movement of people into the coastal province of Guangdong after the lunar new year is way down compared to last year. Guangdong is home to more industrial enterprises than another province, many of them privately owned, small and medium sized, manufacturers reliant on migrant labour. The same trend can be seen in Zhejiang and Jiangsu, two other coastal provinces with a large number of private enterprises.

What’s next? State-owned companies are less reliant on migrant labour. The State Council, China’s government, recently announced that 97% of central government-controlled petroleum and petrochemical companies had resumed work. But supply of oil products is not the issue. Demand is the problem. With so few people travelling after the new year and a lack of workers in the coastal provinces, oil demand from the transport, construction and petrochemical sectors is taking a dive. The government has to balance the drive to get people back to work, and the economy moving, with efforts to contain COVID-19 – no easy task. Look for rising levels of internal migration to indicate that China’s economy is spluttering back to life and that oil demand is back on the rise.


2. …and adds to woes for already weak LNG market


LNG and coronavirus


What’s happening? China is the world’s second-largest LNG importer behind Japan. Quarantines and travel restrictions imposed to restrict the spread of COVID-19 have caused a demand contraction, hitting an already oversupplied global LNG market.

What’s next? The impact of the outbreak is expected to worsen in coming weeks as economic activity in key manufacturing hubs struggles to rebound, keeping a lid on natural gas demand and triggering more LNG trade flow disruptions. As the previous item shows, travel restrictions were still preventing millions of industry employees in China from returning to work in the week ending February 14 and factories expected only partial production restarts, with some delaying a return to operations until late February or early March.


3. Slump in Chinese construction and autos hits global steel


Steel hot rolled coil regional prices


What’s happening? Steel hot-rolled coil (HRC) prices in Asian, EU and US markets have been falling as inventories swell. The glut has been sparked by lower demand from China’s construction and automotive industries, where activity has plunged due to measures to curb the spread of COVID-19. US domestic prices have shed 5% over the past month, and Chinese domestic prices almost 10%.

Go deeper: Podcast – COVID-19 crushing China’s steel and iron ore demand

What’s next? With the Chinese, the world’s largest steel producers and exporters, experiencing logistics delays and even docking and unloading restrictions on ships carrying  steel into the Philippines and South Korea, exporters elsewhere are eyeing new trade opportunities in China’s usual steel export markets. In flat products, exporters from India, Japan and Russia are seeking new trade, and in long products, Turkish, Middle Eastern and again Russian exporters are keeping a close eye on developments.


4. Successive storms test European wind turbines, power grids


UK power generation mix February 2020


What’s happening? Record wind power generation has its downsides. Storms have swept across Europe the last two weekends, sending UK grid frequency below 49.7 Hertz February 9 and triggering a call for static response from the system operator. When winds are excessive, turbines go into survival mode, automatically reducing or shutting down production. Storm Ciara led to a multi-gigawatt shortfall in UK wind forecasts, even if generation was high at 13 GW – and frequency dropped to 49.6 Hertz. A big slice of this shortfall would have been embedded, distribution-connected capacity, effectively invisible to the transmission system operator. In the event, National Grid dealt with the frequency dive. The lack of inertia on the system, however, is an on-going challenge as dispatchable plants close and more offshore wind farms open.

What’s next? Strong winds are forecast to continue into the current week, with February shaping up to be the third month in a row when European wind generation records are broken. The UK alone is forecast to have close to 15 GW of wind on the system all through Tuesday, equivalent to 50% of demand. There are now over 205 GW of wind capacity installed across Europe, the park averaging 85 GW generation in the most recent week. Average European wind generation this winter stands at around 62 GW, almost 10 GW up on year. Even deficit market Finland has now seen negative hourly prices due to surplus wind spilling from Sweden and Denmark.


5. New England power capacity auction clears at lowest price ever


ISO New England power capacity market auctions


What’s happening? The New England power market operator’s auction for electricity supplies to be delivered in 2023/24 recently cleared at $2/kW-month, the lowest price since the auction has been conducted. Reductions in expected future power demand and other factors were cited as reasons for the low clearing prices.

What’s next? Next year’s capacity auction will be influenced by a variety of factors on both the supply and demand side, many of which remain uncertain. However, the volume of resources that elect to retire from the market and market design changes being implemented to improve fuel security will impact clearing prices in the next auction. Low capacity prices have been an issue across the US and several proceedings are underway to address problems in these multi-billion dollar markets.

The post Commodity Tracker: 5 charts to watch this week appeared first on Platts Insight.

]]> Mon, 17 Feb 2020 15:50:25 +0300
<![CDATA[Canadian crude oil train derailments, closing USGC arb threaten rail exports]]> Many analysts have forecast that strong US Gulf Coast demand will help boost rail shipments of Canadian crude oil to records this year.

But recent pricing dynamics and new regulations following the second derailment of a Canadian crude train in two months highlight the risks facing the most optimistic projections.

Alberta Premier Jason Kenney estimated in a recent interview with S&P Global Platts that crude-by-rail shipments out of Western Canada would average 500,000 b/d this year, a level that would require strong USGC demand for Canadian barrels.

Go deeper: Capital Crude podcast – interview with Jason Kenney, Alberta Premier

Western Canadian Select at Hardisty, Alberta, was heard to trade Thursday at WTI CMA minus $16.95/b. WCS at Nederland, Texas, was last assessed at minus $4.30/b, putting the spread between the two locations at about $12.55/b.

Western Canadian Select arbitrage and exports by rail

Because it costs about $12/b to ship crude from Hardisty to the USGC on a committed rail contract, the current spreads are nearly uneconomical. Spot rail, which is what may shippers rely on when they can not get space on pipelines out of Canada, can cost from $15/b to $18/b.

Still, simulated coking margins across a spectrum of transport costs suggest WCS remains profitable for USGC cokers, including non-committed rail freight as high as $22/b, according to Platts calculations.

Nevertheless, should the Hardisty/Nederland spread narrow further, even pipeline shipments may come under pressure. The pipeline tariff from Hardisty to USGC is somewhere between $8/b to $12/b, with traders often saying there needs to be a $10/b spread between Hardisty and USGC to be economical.

The differential for WCS at Hardisty has strengthened in recent weeks after extreme cold in January disrupted production, according to traders. The same grade has weakened on the Gulf Coast as rising shipping freight costs have prevented exporters from moving heavy Canadian crude on the water.

Rail export pattern

A narrowing WCS price spread between Alberta and the USGC has dramatically cut rail exports out of Canada in the past.

When the price difference between the locations narrowed to an average of $11.64/b in January and February of 2019, rail exports out of Western Canada plunged to 132,426 b/d in February of that year, down from a record 353,789 b/d in December, 2018, according to data from the Canada Energy Regulator.

The latest official statistics from Canada’s government show rail exports at 297,476 b/d in November, when the spread between Hardisty and Nederland averaged $14.46/b, $2.10/b wider than the last pricing levels heard Thursday.

S&P Global Platts Analytics sees rail volumes reaching new highs of more than 400,000 b/d in the first quarter of this year before dipping in the second quarter as producers perform seasonal maintenance. Platts Analytics sees exports then rising to more than 400,000 b/d again in the fourth quarter.

Another risk to forecasts for surging rail exports is that the country’s transport ministry last week ordered trains carrying crude oil and other “dangerous” goods to observe a speed limit for 30 days.

One trading source with a background in rail operations said the speed limit, which took effect February 7, may decrease crude-by-rail exports by about 10% as long as the restriction remains in place.

The government order came after a Canadian Pacific train derailed February 6 in Guernsey, Saskatchewan, causing 31 of 104 cars to leave the track and about 12 of them to catch fire, local media cited the Saskatchewan Public Safety Agency as saying. Another Canadian Pacific train carrying crude derailed in the same location in December.

The post Canadian crude oil train derailments, closing USGC arb threaten rail exports appeared first on Platts Insight.

]]> Fri, 14 Feb 2020 18:29:03 +0300
<![CDATA[Amid rising US oil exports, Gulf Coast crude demonstrates global appeal]]> Unrestricted US crude oil exports recently entered their fifth year.

Each year so far has brought with it new records, milestones and developments as American oil continues to muscle its way into new markets and in greater volumes.

Last year could be remembered as the moment when US crude buyers and sellers more fully embraced a transparent spot market.

Historically, the US crude market has been characterized by unnamed bids and offers, broker-facilitated deals and weighted-average pricing indexes. But beyond US shores – while US crude supply grew but remained landlocked – a more vibrant and sophisticated spot market developed to find efficiency through clarity and specificity.

To attract attention and compete on a global scale, US crude needed to move toward the visible spot market.

Now, perhaps more than any other, US crude of WTI Midland quality has emerged as a truly global crude with three primary pricing hubs – FOB US Gulf Coast, delivered Northwest Europe and delivered Singapore – and several secondary markets developing alongside as well. The year 2019 introduced these new transparent hubs. Could 2020 see their becoming globally relevant benchmarks in their own right?

From zero to hero

The US has seen crude production growth in nine of the past 10 years, and in 2019 the country snagged the crown of the world’s top oil producer.

The bulk of this US crude makes its way to the Texas Gulf Coast, where it is loaded onto Aframax, Suezmax and VLCC oil tankers for export primarily to refineries in Northwest Europe, India and North Asia. S&P Global Platts Analytics forecasts US waterborne exports to be 3.4 million b/d in 2020, about one-third more than 2019, and rising to more than 4.3 million b/d in 2025.

US crude oil waterborne exports

Where US barrels flow is a numbers game. Companies around the world study S&P Global Platts price assessments of WTI FOB USGC, WTI delivered into Europe and WTI delivered into Asia, and cross-check those values against prices of competing grades and prevailing freight rates.

The interplay between new spot cargo pricing at the USGC export hub and benchmarks in major refining centers in Europe and Asia dictates to what extent, for example, a Rotterdam refinery could expect a fleet of WTI-laden crude to bring down regional sweet crude prices, while an Asian refinery consequently pulls West Africa grades that have been priced out of Europe.

Or perhaps the lack of a visible arb when comparing these price markers could result in more WTI consumption by US refiners, as a narrower Gulf Coast sweet-sour spread knocks out any advantage to running a typically cheaper barrel of Mars from the US Gulf of Mexico.

Go deeper – Explore crude grades with S&P Global Platts’ periodic table of oil

In Europe, declining local production has meant regional refineries rely on imports from around the Atlantic Basin, the Mediterranean and Russia. In recent years, US crudes elbowed their way into the picture and Midland-quality WTI is now the dominant flow into Northwest Europe, often arriving at a rate of one-and-a-half Suezmax tankers per day.

Europe took about one third of US crude exports in 2019, second only to Asia as a region, according to the latest Platts Analytics figures. That is up from about one quarter in 2018-2019 and less than 20% in 2017. The WTI FOB USGC-DAP Rotterdam price spread averaged $4/b in Q4 2019 compared with $3.70/b in 2020 to-date, according to Platts assessments. That slight narrowing has coincided with a cooling freight rate market this year so far.

WTI FOB USGC vs Rotterdam Singapore

If Europe lacks in domestic supply, the story in Asia is rather one of increasing demand, driven of course by China, but also US allies looking to diversify their crude supply, namely South Korea and Japan.

Platts data show the WTI FOB USGC-DES Singapore price spread averaged $6.80/b in Q4 2019 and $5.85/b in 2020 so far – a significantly wider spread than FOB USGC to Europe. However, US crude sent to Asia instead of Europe must cover greater ground – a 45-day journey rather than two to three weeks to the latter – and that brings with it additional costs.

Nearly all US crude exported to Asia will be done on the largest tankers available, VLCCs, to achieve greater economies of scale. Dirty USGC-Singapore VLCC rates have averaged $8.5 million in 2020 to-date, down from a whopping $10.8 million in Q4 but significantly higher than the $5.5 million range in Q1 2019, Platts data show.

Lightering from an Aframax onto a VLCC is a necessary cost when exporting to Asia; 2020 lump sum rates are about $560,000 this year so far compared with Q4 2019’s $415,000, according to Platts figures.

USGC Singapore freight costs

Despite the higher costs compared with Europe, North Asia remains the top destination for US crude led by South Korea, Taiwan and China. South Asia – specifically India – also consumes its fair share of US crude.

Participation, liquidity rise

Rising export volume brought more market participants. That has led to increased transparency and liquidity in these developing benchmarks, starting in summer 2019, days before the US Independence Day holiday.

During the Platts Market on Close assessment process on July 2, the US crude producer Occidental Petroleum offered a 700,000-barrel cargo of Midland WTI to be loaded in Corpus Christi in late August. Occidental gradually lowered its offer to Dated Brent plus 60 cents/b, where the UK oil major BP expressed interest and bought the cargo.

It was the first trade of a delivered WTI Midland cargo in the Platts Market on Close assessment process – and a step forward for transparency. Since then, 10 more trades have been executed via the Platts MOC, the most-recent on December 19.

Beyond those trades, the MOC has seen 37 offers and 21 bids and participation from Lukoil, Vitol, Trafigura, Total and Shell, in addition to the pioneers Occidental and BP. There has also been MOC activity in Asia.

This activity should set the stage for an even more robust 2020, particularly as new IMO 2020 marine fuel rules are expected to increase demand for light sweet crudes.

This increase in transparent trading coupled with rising flows into Northwest Europe, North and South Asia and beyond will undoubtedly be discussed during Platts London Oil & Energy Forum that kicks off IP Week 2020 later this month. Ongoing benchmark development will also be a theme to follow in the months ahead.

The post Amid rising US oil exports, Gulf Coast crude demonstrates global appeal appeared first on Platts Insight.

]]> Thu, 13 Feb 2020 15:31:52 +0300
<![CDATA[Market shifts, Asian demand support strong US crude export volumes: Fuel for Thought]]> The export market has been a boon for US crude oil in early 2020, with the world, and especially Asia, looking to quench their thirst for light sweet grades.

US outflows have been strong, with cFlow, S&P Global Platts’ trade flow software, estimating exports at 3.245 million b/d through the first five weeks of the year, despite worries of developing headwinds in the market.

High shipping costs in December and January, several fog-related delays and a closing arbitrage into Europe could have hampered exports, but the tides have turned in the US’ favor, with rapidly descending fright rates and new opportunities in Asia supporting seaborne volumes.

The arbitrage to purchase West Texas Intermediate out of the Magellan East Houston terminal for delivery in Rotterdam compared with Forties, a move which has been largely workable for the past year, became uneconomical in February, according to S&P Global Platts Analytics. That spread closed at minus $1.33/b last week.

That said, WTI crude bound for Asian ports has become increasingly appealing in recent weeks.

WTI MEH delivered into Singapore stood at a positive $4.70/b for the month of January compared with Malaysia’s Tapis crude, up $1.62/b compared with December and an over one-year high, according to Platts Analytics data.

American crudes for delivery into Northeast Asia appear to be more competitive than other blends, with the incentive to import WTI MEH an estimated $1.16/b compared with ESPO crude, which is more competitive than the Bonny Light, Murban and Forties grades.

Freight rates USGC to Asia

Freight rates weaken

Overtonnage concerns in both the VLCC and Aframax markets have driven freight lower across the board.

The US Gulf Coast export freight market has seen rates plummet in the past few weeks, falling 26% for the actively traded Aframax USGC-UK run and 40% for movements on the VLCC USGC-China route.

Freight was assessed February 6 on the Aframax 70,000 mt USGCUK Continent route at $28.53/mt, down from a $45.44/mt average in January and $64.04/mt to start the year. Rates dipped as low as $22.42/mt on January 31.

Freight for the VLCC 270,000 mt USGC-China route was assessed February 6 at lump sum $6.5 million, or $24.07/mt, down $5.3 million from the average rate in January.

Global tonnage availability has grown in the VLCC segment as the market re-establishes itself following a period of adjustment after the January 1 implementation of the International Maritime Association’s new low-sulfur fuel regulations.

Additionally, reduced Chinese demand during the Lunar New Year Holiday and the outbreak of the coronavirus have left the closely related Arabian Gulf and West African markets oversupplied. This has pushed USGC-loading freight on a downward slide, as the competition for ballasters eases.

Go deeper: Commodity Focus podcast – Coronavirus reshapes oil balances

WTI, Bakken popular across Asia

US crude flows to Asia are expected to pick up in the coming months as an open arbitrage in January led to an increase in sales of US crude cargoes to the region.

US crude grades across the spectrum—WTI Midland, West Texas Light, Eagle Ford , Bakken, and DJ Commons—for February- and March-loading cargoes have been sold last month to end-users across Asia, traders active in the US crude arbitrage said. Those cargoes are expected to arrive at their destinations over March to May.

“The arbitrage was very [much] open in January,” one trader said. “US crude has been sold to almost everyone here, from India in the South to Southeast Asia to North Asia.”

While US crudes have always been priced at competitive levels to Asia, previous months saw stronger European demand and higher freight rates lessening the flow of cargoes, US crude traders said.

But with VLCC freight rates now at nearly half the levels seen in end-December, traders have grabbed the opportunity to sell more cargoes to Asia.

Taiwan’s CPC was heard last month to have bought one VLCC of US flagship export grade WTI Midland crude for April arrival from a Western trader, at a premium of around $4.90/b to Platts Dated Brent, DES Taiwan, down $1/b from the levels it paid in December for March-arrival cargoes.

Traders said the latest offers for WTI Midland to Northeast Asia have likely come off even further since CPC’s deal.

Shipping reports in the last two weeks have correspondingly showed a spike in US crude fixtures to Asia.

BP has the VLCC Bunga Kasturi Tiga booked on the US Gulf Coast-to-East route for an end-February loading cargo, while Chevron has the VLCC Agios Nikolas booked on the same route for an early-March loading cargo, reports showed.

US crude trader Trafigura also has two VLCCs for March-loading crude booked for Eastern destinations.

Equinor, Phillips 66, Vitol and Occidental Petroleum are among other companies that have also booked VLCCs for cargoes loading in February or March to Asia.

February-loading US crude cargoes heading to Asia could be close to 30 million barrels, up from around 17 million barrels in January, according to shipping reports and cFlow.

China lowers tariffs

China’s move to cut its tariffs on US crude in half to 2.5% starting February 14 could also incentivize more flows of US crude into Asia.

China was Asia’s biggest customer of US crude in 2018, but it surrendered the top spot to South Korea last year amid an escalating trade dispute with Washington.

China imported 127,000 b/d, or around 46.36 million barrels, of US crude in 2019, down 48.3% from 2018, according to General Administration of Customs data. South Korea imported 137.89 million barrels of US crude last year, data from state-run Korea National Oil Corp. showed.


By Andrew Toh, Kristian Tialios, Catherine Wood and Felix Clevenger

The post Market shifts, Asian demand support strong US crude export volumes: Fuel for Thought appeared first on Platts Insight.

]]> Wed, 12 Feb 2020 17:21:39 +0300
<![CDATA[Why is sugar bucking the coronavirus trend?]]> The commodity complex has been on the slide on concerns about oil demand destruction caused the coronavirus outbreak in China, but sugar has bucked the trend.

Sugar price vs GSCI

The sugar price has been supported by forecasts for the supply and demand deficit in 2019-20 (October-September) widening, as well as massive speculative buying.


Global surplus and deficit of sugar

The deficit is largely down to the weather hitting production in Asia and North America.


Sugar production change on year


Can sugar continue to resist?

It remains to be seen if shutdowns and quarantine in China will have a significant impact on domestic sugar demand.

But, with oil prices under downward pressure, ethanol produced from sugarcane is becoming less competitive at the pumps in Brazil, which could curb domestic demand.

This, combined with a fall in the heavily commodity-based real against the dollar, has meant an erosion of spot ethanol’s premium to dollar-priced sugar.


Brazil hydrous ethanol premium vs sugar

The result of this could be producers in Center-South Brazil, one of the world’s largest sugar-exporting regions, switching away from ethanol toward sugar in their product mix around the start of the new season in April. S&P Global Platts Analytics is forecasting a sugar mix of 37.5% in 2020-21 compared with 34.4% in 2019-20. Each percentage-point change in the mix represents 750,000-800,000 mt a year of sugar.

On the other hand, with the launch of Renovabio program in Brazil and total fuel demand there forecast by Platts Analytics to grow 2.5% on the year, the hydrous ethanol market could be tight.

Looking beyond Brazil for supportive factors, the weather-related falls in Indian, Thai and Mexican production could be greater than forecast.

The post Why is sugar bucking the coronavirus trend? appeared first on Platts Insight.

]]> Tue, 11 Feb 2020 12:06:49 +0300
<![CDATA[Commodity Tracker: 6 charts to watch this week]]> Global gas price convergence tops this week’s pick of energy and commodities charts to watch. Plus: US LNG exports, coronavirus impact on Asian crude oil and bunker fuel trade, emerging European power market dynamics, and global steel price trends.

1. Globalized gas prices race towards rock bottom…


Global gas prices converge


What’s happening? Global gas spot prices have converged again in recent weeks to the downside as the coronavirus outbreak and its impact on Chinese LNG demand adds to already very bearish sentiment across the world. Spot prices in Asia, Europe and the US have converged in an extremely narrow $1.10/MMBtu range as the global gas glut looks set to worsen amid weak demand, high storage stocks and mild winter temperatures. The JKM Asian spot price has fallen to an all-time low of just $2.95/MMBtu.

What’s next? Coronavirus has begun to weigh significantly on Chinese LNG import demand, which has been the main driver of global gas demand growth in recent years, with state-owned CNOOC declaring force majeure on some of its import contracts. With cargoes expected to be diverted to Europe, it seems likely there will be more pressure on northwest European hub prices in the coming weeks. With no improvement in global gas prices expected through 2020, the trend for price convergence looks set to continue.

Go deeper: S&P Global Platts on coronavirus – news, analysis and more


2. …setting US LNG exports on a bumpy path


US LNG export forecast


What’s happening? The upward trajectory of US LNG exports is expected to stall next year before falling and rising again, leading the market on a roller-coaster ride through the middle of the decade amid uncertainty about new project start-ups, S&P Global Platts Analytics data shows. Weak prices in Asia, lower than expected demand in key markets and geopolitical concerns have been weighing on suppliers and end-users. Add in the coronavirus outbreak and a perfect storm of challenges is festering.

What’s next? Relief may depend on China’s next move. It plans to cut tariffs on imports of US crude and other products February 14, but for now is leaving duties of 25% on US LNG in place. US developers of new liquefaction projects are counting on long-term contracts with Chinese customers to help advance their terminals.


3. Chinese refinery activity drops, hitting Russia’s ESPO crude


ESPO crude price differential


What’s happening? China’s domestic oil demand has already drastically declined with industrial, manufacturing and construction activities coming to a halt due to the coronavirus outbreak. For example, Sinopec, the world’s biggest refiner by capacity, recently slashed overall crude throughput by about 13% and its refineries across China are currently operating at minimum run rates. Throughput levels for another state-owned refiner, PetroChina, saw sharp declines in recent weeks. Independent refiners in Shandong province have also reduced their average run rate by more than 17 percentage points from mid-January, sources told Platts.

What’s next? In the oil markets, the coronavirus outbreak continues to cast its spell on Asian Pacific crude price differentials. Far East Russian crude oil, in particular, is likely to bear the brunt of China’s economic slowdown aggravated by its outbreak, with both state-run and private Chinese refiners poised to cut imports of their favorite feedstock ESPO Blend crude amid faltering refinery throughput. Platts assessed first-month ESPO Blend crude at a premium of $4.6/b against Platts Dubai on Feb 6, marking the lowest price differential since $4.5/b on July 19, 2019.


4. Ship diversions could benefit South Korean bunker suppliers


Marine fuel delivered prices


What’s happening? In the North Asian bunker markets, bunker demand in China has fallen significantly this week as markets reopened after the extended Lunar New Year holiday, with the seasonal low demand period amplified this year by the coronavirus outbreak.

What’s next? Despite efforts by some 16 ports and port groups in China to offer exemptions and reductions in port charges in a bid to spur business, including the main ports of Shanghai and Ningbo-Zhoushan, bunker fuel traders in South Korea are expecting an uptick in demand as vessels increasingly divert from China and refuel in South Korea, where marine fuel is already available at competitive prices. Although ships en route to China were unlikely to change course mid-way, shipowners said they may consider other options for upcoming journeys. Delivered marine fuel 0.5% was assessed at $580/mt in Shanghai Thursday, higher than $550/mt in South Korea, S&P Global Platts data showed.


5. Warmer winters could reshape EU power price dynamics


Nordic vs UK power prices


What’s happening? Above-average temperatures have knocked the stuffing out of Nordic power prices, which are sensitive to the widespread use of electric heat. Reduced demand for electric heat combined with healthy hydro reservoir levels and strong wind generation to drive Nord Pool system spot prices down to a Eur17.25/MWh average in the first seven days of February – a 40% decline on month.

What’s next? In the short term, forecast precipitation in the Nordic area over the next two weeks is 50% above seasonal average, according to broker Energi Danmark, while temperatures are set to remain five degrees Celsius above average. Longer term… is this what electrification looks like? Winters are getting warmer and conventional gas-fired heat systems such as the UK’s will move towards to heat pumps and other electric-based techs. UK power prices are based on the cost of gas, in turn supported through winter by heat demand. This dynamic will ebb away as zero marginal cost renewables encroach on heat markets, UK housing stock evolves and, alas, weeks of hard frosts pass into folklore.


6. Turkish steel mills seize opportunity amid plunging scrap price


Turkish scrap price


What’s happening? Prices of steel heavy melting scrap 1&2 (80:20) delivered into Turkey plunged almost 16% from mid-January to the first week in February. The product is a basic raw material for steelmaking, particularly in electric arc furnaces, and is one of the most traded scrap grades in the export markets. Prices plunged as the coronavirus outbreak weakened steel market sentiment and prices generally, and Turkish steelmakers pressured for lower prices for their key input amid slack domestic steel demand.

What’s next? A slight uptick in scrap prices at the end of last week may continue as Turkish mills seize what they perceive as an opportunity to sell more steel into export markets temporarily vacated by China due to port and other transport restrictions. Turkish mills are reportedly already increasing their steel output to plug this gap.

Reporting by Stuart Elliott, Harry Weber, Surabhi Sahu, Su Ling Teo, Diana Kinch, Pascal Dick, Gawoon Philip Vahn, Analyst Oceana Zhou, Analyst Daisy Xu, Andrew Toh, Henry Edwardes-Evans.

The post Commodity Tracker: 6 charts to watch this week appeared first on Platts Insight.

]]> Mon, 10 Feb 2020 13:34:38 +0300
<![CDATA[After Petrobras: Brazil’s liberalizing gas market in limbo]]> In the first of a new series, S&P Global Platts editors weigh in on Brazil’s liberalizing gas market, taking in opportunities and risks for third-party pipeline imports from Bolivia, private LNG imports from the global market, and the growth of domestic competition in both the offshore and onshore markets.

Last summer, Brazil began opening its natural gas trade to competition through historic market reforms. But recent challenges are raising doubts about the pace and certainty of liberalization.

Brazil’s so-called “New Gas Market” was inaugurated in June with decisive regulatory changes aimed at ending state-owned oil company Petrobras’ monopoly in the country’s onshore markets, and bringing with it the opportunity for increased foreign investment and market efficiency.

The stakes couldn’t be higher. A successful outcome could lower fuel prices for power generators and industry, bring a wave of new foreign investment to Brazil, and give the country’s struggling economy a decisive boost.

Even for neighboring countries – including Argentina, Bolivia and Chile – a fully liberalized gas market could pave the way for similar reforms across South America’s southern cone, potentially creating an integrated regional market that could ultimately become a major consumer and exporter of LNG.

Transport, distribution and onshore production

Within weeks of the new regulatory framework being introduced, Petrobras announced the sale of a 90% stake in two key midstream gas transportation companies: Transportadora Asociada de Gas or TAG and Nova Transportadora do Sudeste or NTS, both of which account for two-thirds of the countries gas pipelines.

Furthermore, Petrobras also sold major stakes in its state-level gas distribution companies to Japan’s Mitsui. Previous to the sale, Petrobras had held a stake in 21 of Brazil’s 27 state gas distributors.

Just two months later, another of Petrobras’ midstream subsidiaries, Transportadora Brasileira Gasoduto Bolívia-Brasil or TBG, – which imports over one-fifth of the country’s marketed gas supply on the 1.1 Bcf/d Gasbol import pipeline from Bolivia – announced an open season for some 60% of its capacity.

Brazil gas supply 2019

In the open season, TBG approved the participation of 18 rival shippers. Among them were foreign oil companies, industrial end-users and state-level distribution companies, along with Petrobras.

Brazil’s National Petroleum Agency, or ANP, simultaneously announced plans to reactivate Brazil’s stalling onshore production – which now comprises less than 20% of the country total domestic output – in a coordinated effort to bring new, third-party producers into Brazil’s gas market.

In the weeks that followed, the future of Brazil’s New Gas Market looked bright, with competitive gas imports from Bolivia expected to hit the domestic market by January 2020.

That burgeoning promise was scuttled just days before Petrobras’ 20-year gas import contract with Bolivia was scheduled to expire on December 31. At the time, ANP abruptly suspended its open season for the Gasbol import pipeline, citing irregularities in the bidding process.

Petrobras, it said, had submitted a bid for the pipeline’s entire 18 million cu m/d contracted import capacity, citing political instability in Bolivia for its aggressive bidding move.

In a subsequent decision that followed weeks later, the ANP reauthorized its Gasbol open season under new rules that will exclude the participation of Petrobras. Still, the delay has raised questions about whether and how quickly other sectors of Brazil’s natural gas market will liberalize.

LNG and offshore competition

As Petrobras’ ambitious and hopeful rivals await the launch of ANP’s reauthorized open season in August, competitive forces in other sectors of Brazil’s gas market seem to face a longer time horizon.

Brazil’s first private LNG-to-power project, which could begin ramping up just days from now, promises to bring competitively priced LNG imports to Brazil’s Northeast. But with limited pipeline infrastructure in the region, excess LNG supplied to the project isn’t likely to reach Brazil’s broader market in any meaningful way.

Brazil LNG imports

A second private LNG-import project at the Port of Açu in the state of Rio de Janeiro state, could offer better access to Brazil’s gas grid, but currently faces a longer time horizon for completion.

Third-party producers already operating in Brazil’s offshore subsalt fields offer Brazil’s most hopeful, but also its most distant source, of competitively priced gas supply.

With existing and under-construction offshore-to-onshore pipeline routes largely controlled by Petrobras, third-party producers face limited access to the liberalizing midstream markets onshore.

The limitation reduces the effectiveness of offshore gas meeting Brazilian demand and easing pricing. Over the past five years, Brazil’s offshore gas production has grown by 31%, reaching over 4 Bcf/d this past summer.

According to recent data from Brazil’s Ministry of Mines and Energy, Petrobras supplies gas to end-users at around $8 to $9/MMBtu –  a steep premium when compared to sub-$2/MMBtu gas at the US Henry Hub.

Under the existing regulatory framework, getting competitively priced offshore gas production into Brazil’s domestic market requires that third-party producers finance, fund and construct new subsea pipeline routes – a planning and logistical process that could take years.

Additional reporting by Ryan Ouwerkerk

The post After Petrobras: Brazil’s liberalizing gas market in limbo appeared first on Platts Insight.

]]> Wed, 05 Feb 2020 14:51:15 +0300
<![CDATA[Commodity Tracker: Coronavirus and commodity markets]]> The spread of coronavirus outside China and the WHO’s escalation of the outbreak to emergency status last week continue to stoke fears over weaker energy demand and disruption to key mineral resource supply chains.  In this special edition of Commodity Tracker, S&P Global Platts editors take a look at the impact across a number of energy products and raw materials.

1. Key benchmarks fall

Coronavirus and dated Brent, copper price

Click to enlarge

Dated Brent lost approximately 5% of its value during the course of last week (January 24-31), while copper – seen as a barometer of economic health – saw an even larger slide. However, by the end of the week market participants were seeing the metal as oversold, with some looking to take long positions in anticipation of China returning to the market.


2. No blue skies for jet


Global jet fuel demand forecast coronavirus

Key international airlines including British Airways, Lufthansa, American Airlines, United Airlines, Swiss International Air Lines and Austrian Airlines, suspended or reduced flights due to the outbreak. S&P Global Platts Analytics forecasts show potential for a steep drop in jet fuel demand. In the best case scenario, global demand for jet fuel could fall by 618,000 b/d in February, and in the worst case scenario, by 1 million b/d.


3. Palm oil problems


Palm oil prices coronavirus

Prices of crude palm oil, commonly used in food products, fell sharply last week following a three-month long rally, correcting by 10% in a single day, on a combination of a huge selloff worries about lower demand. China, the world’s second-largest palm oil buyer, imported 6.8 million mt of the product in 2018-19 (October-September).


4. Double blow for LNG


JKM LNG price

The coronavirus outbreak has compounded an already depressed market for LNG. The JKM Asian spot LNG price has fallen below $4/MMBtu to levels not seen since May 2009 on persistent oversupply and weak demand. China has driven global LNG demand growth in recent years, so any slowdown in import growth in the country could have a significant impact. If reduced industrial activity across Hubei Province extends to end-February, S&P Global Platts Analytics estimates it would reduce Chinese LNG demand in the month by 5%-7% relative to its base case, or 11-15 million cu m/d.


5. Iron ore falls


Iron ore fines 62% Fe IODEX

Prices of iron ore 62% Fe fines delivered to north China (IODEX) fell 10.3% over the past week alone (January 24-31) to $81.65/dmt on Friday, after steel market demand prospects deteriorated. Some steel mills in Shandong and Shanxi provinces have reportedly reduced production by up to 20% in February. Transport restrictions to control the spread of coronavirus have made it difficult to obtain raw material supplies or export steel, while many local construction projects have been halted.


6. Emissions impact


China emissions by sector 2017

Quantifying the impact of the coronavirus outbreak on China’s carbon emissions is a hugely complicated endeavour. However, the most obvious sector impacted is oil, which dominates China’s transport emissions at 1,094 million mt CO2 in 2017. China’s power sector – which is dominated by coal – generated 4,393 million mt CO2 in 2017, while the industrial sectors emitted 3,380 million mt. A key factor will continue to be the extent of Chinese government curbs on transport and industry. Even a 1% drop in China’s annual CO2 emissions from energy consumption would amount to 96 million mt, , equivalent to France’s annual regulated CO2 emissions.

The post Commodity Tracker: Coronavirus and commodity markets appeared first on Platts Insight.

]]> Mon, 03 Feb 2020 13:05:37 +0300
<![CDATA[Aluminum cups hit Super Bowl, scoring points on sustainability and cost]]> Those fortunate enough to have scored a ticket to Sunday’s Super Bowl LIV in Miami know how pricey it is just getting into the big game.

On the online ticket resale site StubHub, the lowest-priced, single ticket was going for more than $4,000 in the lead up to the NFL season finale between the San Francisco 49ers and the Kansas City Chiefs.

And once inside Hard Rock Stadium, super fans won’t get any breaks when it comes to the price of fueling up to cheer on their favorite team.

For instance, concessions such as a draft beer will set them back $9.50. That’s up roughly 35% from last year’s Super Bowl in Atlanta, where the same suds cost just $7, according to published reports.

High-cost stadium concessions are no surprise for an event like the Super Bowl. However, what might surprise fans attending the game is that while the beer they’re holding is more expensive than it was at Super Bowl LIII, the material many of the stadium cups will be made from is much cheaper than it was this time last year.

That’s because 50,000 cups distributed at this year’s Super Bowl will be made from aluminum instead of plastic.

Aluminum packaging maker Ball Corp. has teamed with Hard Rock Stadium catering partner Centerplate and Anheuser-Busch’s Bud Light to offer new 20-oz aluminum cups in the stadium’s clubs, suites and concourses during the game, the three announced recently. The cups will continue to be available throughout the year at future Hard Rock Stadium events.

Aluminum beer cup produced by Ball for Super Bowl

Beer will be served in aluminum cups at the Super Bowl LIV in Miami. (Photo provided by Ball Corp.)

Plastic has become a major focus of concern in sustainability circles, and the infinite recyclability of Ball’s new aluminum cups is estimated to help reduce the stadium’s waste by somewhere in the neighborhood of 500,000 plastic cups a year.

The recycling initiative comes at an opportune time for aluminum consumers, as aluminum pricing in the US is down significantly from a year ago.

The all-in aluminum price – the London Metal Exchange per-ton price, plus the US Midwest Aluminum Transaction Premium – was down by $246.50/mt from January 29, 2019, to $2,030.50/mt on January 29, 2020.

The Midwest premium, which S&P Global Platts assesses, soared in the wake of the Trump Administration’s imposition of 10% tariffs on primary aluminum imports in early 2018, as well as sanctions on one of the world’s largest aluminum producers, Rusal – reaching as high as 22.5 cents/lb in April of that year.

The premium, which reflects wide-ranging market dynamics such as supply and demand, trade and labor issues and delivery and logistics costs, dipped well under 20 cents/lb by January 2019 and had fallen to a multi-year low of 13.5 cents/lb by January 28, 2020.

The gradual decline in the US Midwest Premium came as the market digested the tariffs and reacted to developments such as the removal of Rusal’s sanctions, as well as tariffs on aluminum imports from Canada, the top exporter to the US.

Go deeper: Tariffs and tribulations: recasting US metals industries

Perhaps in acknowledgement of the declining market, the Trump Administration earlier this month announced it would expand US aluminum import tariffs beyond primary aluminum to include certain products derived from aluminum, as well.

How the expanded tariff plan will play out when it comes to overall aluminum pricing this year remains unclear.

What is clear, though, is that while fans won’t see lower beer prices at this year’s Super Bowl, at least the consumers of aluminum – including the producers of the new aluminum cups and cans that brewers rely on – are enjoying lower aluminum pricing than they did last year.

And for at least one segment of the US aluminum market, that’s probably worth raising a glass, er, aluminum cup, to cheer.

The post Aluminum cups hit Super Bowl, scoring points on sustainability and cost appeared first on Platts Insight.

]]> Thu, 30 Jan 2020 20:17:29 +0300
<![CDATA[Mexico sends rare cargoes of medium sour crude Isthmus to USGC]]> Mexican state-owned oil producer Pemex exported three separate cargoes of the Mexican medium sour crude Isthmus to the US Gulf Coast between December and January.

Low operating rates at some of Pemex’s refineries are thought to have freed up barrels of Isthmus crude. At the same time, refineries on the USGC have been looking for alternatives to Venezuelan crudes following the imposition of sanctions last year.

Mexico resumed trading Isthmus in the Americas region about three years ago according to recently-released US Customs Bureau and Platts Analytics data.

Isthmus and Maya

Pemex’s petroleum refining systems in Mexico run a mix of Isthmus-Maya crudes to process oil products.

Isthmus is a medium sour grade with a 32-33 API gravity and 1.8% sulfur content with high gasoline, diesel, jet fuel and naphtha yields.

Production units with a larger intake of Isthmus crude have been Pemex’s 330,000 b/d Salina Cruz, 315,000 b/d Tula, 275,000 b/d Cadereyta and 245,000 b/d Salamanca.

Mexico refinery production

Low operating rates at those refineries, caused by declining crude production and poor maintenance works, are believed to be the reason for the availability of Isthmus in the export market.

Refining decline

On September 2019, the average total production capacity in use of Mexico’s refining system was 40%, the most recent Secretariat of Energy (Sener) data showed.

Additionally, since 2010, crude oil inputs to Mexico’s petroleum refining system have declined 50% to 600,000 b/d from 1.2 million b/d, according to a report published by the US Energy Information Administration in 2019.

The last time an Isthmus crude cargo was imported into the US was December 31, 2017, when 406,000 barrels were loaded out of the port of Dos Bocas, Tabasco, and delivered to Honolulu, Hawaii, the same data showed.

However, Pemex data shows April 2018 was the last date the company loaded 8,000 barrels of Isthmus exported to the Americas region, without disclosing the exact destination of the cargo.

US refiner Valero has been the buyer of the three Isthmus cargoes recently, imported and loaded out of the port of Pajaritos, Veracruz, located in the Gulf of Mexico.

Mexican crude oil exports to US

The vessel Uraga Princess delivered nearly 500,000 barrels of the Mexican grade to the port of Corpus Christi on January 16, with Valero as the receiver, according to US Customs data.

Also the tankers Ningbo Dawn and Leo Sun delivered 407,000 barrels and 495,400 barrels of Isthmus, respectively, at Port Arthur between December 11-23, the same data showed.

Medium-sour Isthmus has typically been used as diluent for heavy sour grades – Mexican Maya included – in USGC refineries with coking and sulfurization units.

Go deeper: Explore crude grades with S&P Global Platts’ periodic table of oil

The recent imports of Isthmus by Valero were believed to be used by the company to blend the crude with high sulfur fuel oil, according to market sources. Valero did not immediately respond to a request for comment.

Since the US Department of Treasury imposed sanctions on Venezuela’s state-owned oil producer PDVSA in January 28, Valero has been seeking replacements for Venezuelan crudes

Chevron, Valero and Citgo were the top three buyers of Venezuelan crudes in the US market.

In 2019, Pemex changed the formula used to calculate its exports crude prices. The new formula excluded the fuel oil component to avoid a major price impact of the International Maritime Organization sulfur-cap regulation, which went into effect on January 1.

As a result of that change, the differential of Isthmus deliveries to the USGC dropped nearly $8 year on year to minus $4.40 in January from plus $3.50 in the same month of 2019, according to Platts data.

The average outright price for Isthmus deliveries to the USGC was nearly $60.50/b in 2019, but so far in January, the average price has been $63/b, the same data showed.

The post Mexico sends rare cargoes of medium sour crude Isthmus to USGC appeared first on Platts Insight.

]]> Thu, 30 Jan 2020 13:23:39 +0300
<![CDATA[Map: Libya’s oil and gas infrastructure]]> Libya’s oil output fell from more than 1.1 million b/d at the end of 2019, to 262,000 b/d in late January, after the self-styled Libyan National Army suspended oil exports from key terminals and shut in the country’s main oil fields.

The LNA, led by General Khalifa Haftar, has been trying to take over Tripoli from the UN-backed Libyan Government of National Accord since April.

The blockade, which has at least temporarily removed around 1 million b/d of high quality crude from the global market, comes at a time when Libya’s National Oil Company had managed to increase output and was beginning to convince some international oil companies to return to the country.

As during a number of previous crises in the country, gas exports to Italy remained unaffected as of January 28.

The map below shows Libya’s key oil and gas fields and pipelines.

Libyan oil and gas infrastructure

Click to enlarge


Libya's key oil terminals

Status of key oil terminals on on January 28 2020


Go deeper: Latest news coverage of Libya’s oil and gas sector

Sweet crude market pressure grows as Libyan blockade enters second week

Libya chaos to deepen if blockade continues: NOC’s Sanalla

Libyan gas exports to Italy unaffected so far by oil blockade

Feature: Libya’s oil output aims threatened by political strife


The post Map: Libya’s oil and gas infrastructure appeared first on Platts Insight.

]]> Wed, 29 Jan 2020 14:48:28 +0300
<![CDATA[Commodity Tracker: 6 charts to watch this week]]> Traders of oil products and iron ore have their eyes trained on China’s supply-side dynamics, as the country grapples with the coronavirus outbreak. Also in the spotlight this week: Permian gas output, Germany’s coal plant closures, US corn exports and European gas prices.

1. China oil product demand pressured by Wuhan travel curbs…


Hong Kong jet fuel demand during SARS crisis


What’s happening? China’s oil product consumption growth could face a setback in the first quarter, with the outbreak of the Wuhan coronavirus limiting both road and air traffic flows during the Lunar New Year festive period, one of the country’s busiest travel seasons. Wuhan City Council has suspended all public transport including city buses, subway, ferry and coach. It also shut the city’s airport and railway stations, effective Thursday.

What’s next? Demand for jet fuel may take a significant hit from the epidemic as authorities put greater emphasis on controlling flights in and out of Wuhan city. Taking the SARS epidemic in 2003 as a guideline, several major cities could register a decline in aviation fuel demand. Hong Kong saw the city’s jet fuel imports tumble in the second quarter of 2003, a period during which the death toll peaked. Year-on-year demand growth for jet fuel would slow to 3% in Q1 this year if the coronavirus persists till May according to S&P Global Platts Analytics. That would be a significant slowdown compared to the average growth rate of around 7%-8% seen in previous years.

Go deeper: Factbox and infographic on the impact of the coronavirus outbreak


2. … while iron ore markets focus on Chinese demand for price direction


Iron ore 65% Fe premium to IODEX


What’s happening? Iron ore markets saw the price differential for 65% Fe fines expand last week. Reference iron ore 62% prices declined on a drop in futures and expected disruption to steel markets from the coronavirus outbreak in China. Traders reduced positions ahead of the Lunar New Year holiday and were attuned to any signs of slowdown to expected steel demand from sectors such as construction, which typically picks up in the spring as weather improves. In contrast, recovery in steel margins in Q4 and seasonal iron ore sinter cuts kept up demand for high grade iron ores, lump and pellets.

What’s next? With steel prices yet to support further increases in margins, and Chinese steel demand and output expected to slow down in 2020 after a rapid expansion in 2019, analysts expect longer-term pressure on iron ore prices as supply recovers in Brazil. Should iron ore and steel prices fall, demand for high grade iron ore for increasing productivity may slow down. This may put a cap on premiums for 65% Fe fines, with growth in Chinese iron ore concentrate output, and potential for greater availability of pellets.

3. US gas boost from Permian oil push sticks in 2020


US dry gas production 2019 2020


What’s happening? Total US dry gas output is up sharply year-over-year, thanks in part to associated gas generated from the oil-rich basins. These basins have increased their gas capture rates and gas-to-oil ratios along with flatter gas declines in the Permian, in West Texas and New Mexico, and in the Bakken, in North Dakota. That comes even as winter figures are trending below S&P Global Platts Analytics’ monthly average outlook. The trends in these plays have shifted market dynamics and incentivized new investment across commodity sectors.

What’s next? Notwithstanding the impacts of demand and prices, the arc of future gas supply numbers may depend on how aggressive midstream operators are in building and bringing online new pipelines to bring the additional volumes to market.


4. US corn exports to pick up pace as S American supplies dwindle


US corn export trend


What’s happening? US corn exports to Japan and South Korea in 2019 fell significantly year on year on the back of increased competition from Brazil and Argentina. Japan and South Korea are the two largest buyers of US corn after Mexico. In 2019, US corn exports to Japan and South Korea were seen down 27% and 72%, respectively. Overall exports from the US also declined 40% in 2019 from 2018 levels. Both Brazil and Argentina exported corn at a record pace in 2019 following a bumper harvest and competitive prices. US corn exports particularly declined after June 2019 when Brazilian supplies started arriving in the market. A delay in the US harvest further slowed down its exports.

What’s next? Corn exports from the US are likely to pick up pace in 2020, as supplies from Brazil and Argentina are nearly tapped out. So far in January, the daily pace of Brazilian corn exports has slowed down sharply to 96,000 mt from 208,000 mt in December 2019. Corn prices in the South American countries have also firmed up recently, allowing US corn supplies to compete in the market.


5. Bearish outlook for EU gas as pipeline, LNG flows set to stay high


TTF summer 20 price


What’s happening? European gas prices for delivery this summer have tanked since the end of 2018, and are currently trading at Eur10.50/MWh at the Dutch TTF hub. Demand for storage injections this summer is likely to be weak given the expectation of a significant storage overhang at the end of this winter. S&P Global Platts Analytics is forecasting the TTF Q3 price could fall to close to Eur7/MWh.

What’s next? Last summer, Equinor deferred significant Norwegian gas production from its swing Troll and Oseberg fields due to low prices, but it may not be possible to defer additional volumes this summer even with the low prices. With Russia pumping high levels of gas to Europe under its “volume over value” strategy, the continuing glut of LNG, high stocks and Norway not curtailing as much as last year, the bearish outlook for the summer is set to continue.


6. German coal exit could lead to net power imports within five years


German coal phase-out


What’s happening? Germany has agreed a timetable for the closure of 18 GW of lignite stations that generate a fifth of the country’s electricity. The first closures target RWE’s Hambach assets, in part to preserve the nearby forest, which had become a focus for environmental protests. Eastern German plants and mines have been spared until the late 2020s, this being offset by a more aggressive timetable for hard coal closures. Meanwhile the government has cleared Uniper’s Datteln 4 unit to come online this summer as Germany’s last new coal plant.

What’s next? The coal exit law is expected to pass cabinet this Wednesday but we’ll have to wait a little longer for some key details. Yet to emerge are details on compensation auctions and cancellation of CO2 permits. With a combined 17 GW of nuclear and coal capacity set to close within 18 months, S&P Global Platts Analytics sees Germany becoming a net importer over a five year view, with its power prices moving from a discount to a premium with regard to France and Spain, while spreads with the UK tighten considerably.

Reporting by Phil Vahn, Shikha Singh, Rohan Somwanshi, Harry Weber, Hector Forster, Stuart Elliott, Andreas Franke and Henry Edwardes-Evans

The post Commodity Tracker: 6 charts to watch this week appeared first on Platts Insight.

]]> Mon, 27 Jan 2020 12:50:07 +0300
<![CDATA[Nimble Singapore bunker market swiftly adjusts to IMO 2020]]> The Singapore bunker market recorded its highest monthly sales volume for the year in December 2019, and uptake of low sulfur bunker fuel finally brought some optimism back into the market as it falls in line with IMO 2020.

The International Maritime Organization’s global sulfur cap, which kicked in January 1, has been the major talking point in the oil and shipping industry for the past three years.

The release of preliminary December sales numbers for Singapore bunker fuel last week showed how the market adjusted physically to prepare for the new regulation.

Bunker sales slip in 2019

Maritime and Port Authority of Singapore data for 2019 showed sales volume slipping 4.7% year on year to 47.46 million mt. This was a deeper fall than the 1.65% year-on-year decrease seen in 2018 from the record 50.64 million mt sold in 2017. The headline figure may have concealed an otherwise phenomenal transformation, not achieved at any other port at such scale.

Singapore bunker fuel sales

On the surface it might look like Singapore is gradually ceding market share to ports elsewhere globally, as competition increases particularly from China’s Zhoushan, which has a high-profile aspiration of becoming a bunkering hub.

Bunker sales from the Chinese port are believed to have reached the 4 million mt mark for 2019, representing about 10% growth from the year before. Bunker fuel prices in China are also expected to be more competitive following the implementation of tax rebates on fuel oil, supporting its push to be a bunkering hub, traders said.

However, a more thorough look at the Singapore bunker sales data shows the material change that happened in the Singapore bunker market during the last three months of 2019.

Traders ready for IMO 2020

Drastic changes in fuel requirements created challenges and new opportunities for many bunker suppliers in 2019, with some saying the last quarter was their best.

Fuel oil traders upped their game by stocking huge amount of compliant fuel or blendstocks on floating storages near Singapore, which are readily available for Singapore bunker demand. More than 25 VLCCs, holding more than five million mt equivalent of the products, were stationed near Singapore at the peak of this activity, according to trade sources. These barrels acted as a buffer to the switch that happened between December and January.

All 44 licensed bunker suppliers in Singapore are able to provide compliant fuels as of mid-January 2020, according to MPA data. Among them, all but two now supply MGO, 29 supply fuel oil with maximum 0.5% sulfur (LSFO), and 11 supply fuel oil with maximum 0.1% sulfur (ULSFO). Meanwhile, 29 suppliers are also hanging on to HSFO business, continuing to make the grade available for ships with scrubbers.

The sales volume of the mainstay fuel – high sulfur 380 cst – halved just between October to December, with its share in total bunker sales volume shrinking to a slender 26% in December, compared with an average 71% share of total sales in the first three quarters of the year.

On the other hand, sales of IMO 2020 compliant low sulfur 380 cst bunker fuel soared to 2.25 million mt in December, accounting for more than half of total bunker sales at Singapore, and about four times that of October sales of this grade. The December sales volume of the fuel was 50 times greater than that recorded in the first three quarters of the year.

The impact of these dramatic shifts in the grades demanded by vessels refueling at the biggest bunker hub in the world were also seen at a pricing level.

Low sulfur premium balloons

The changing balance of the two major grades was reflected in the wholesale cargo market, where the price spread hit a record average of $303.16/mt in December. This wider spread in turn attracted more low sulfur material into the bunkering hub, and reduced inward flows of high sulfur cargoes.

For comparison, the spread stood at $175.27/mt in October, and an average of $73.04/mt during the first three quarters of the year.

Low-sulfur marine fuel price vs HSFO

The more niche low sulfur marine gasoil grade, which can also be used as an IMO 2020 compliant fuel, saw a bump in demand, with 2019 sales doubling year on year to reach 3.09 million mt last year.

Total bunker sales of all grades in December came in at about 4.47 million mt, up 3.67% from the same month a year ago, the preliminary data showed. This was the second straight month of year-on-year increase after the 4.34% growth saw in November.

With the high premiums commanded by low sulfur bunker fuels at Singapore, supply of the grade is expected to continue to rise in the coming months. High sulfur 380 CST grade, which used to be the mainstay, is likely to continue to lose market share as the fuel can only be legally consumed by vessels with scrubbers.

The reversal of the roles between these two grades has taken place over a very short period of time at the world’s largest bunkering port.  That is a robust demonstration of the industry’s ability to adapt to changing market forces, along with the infrastructure it relies on.

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]]> Thu, 23 Jan 2020 19:02:11 +0300
<![CDATA[Recycled plastics market will feel the heat from consumer demand in 2020]]> The global recycled plastics market will continue to grapple with unfavorable economics in 2020.

In the long term, demand for recycled plastics is expected to grow significantly, along with recycling rates for core materials PET, PE and PP.

But in the short term, there is likely to be a mismatch globally between the high demand for recycled plastic and the available supply, which should see a further disconnect in pricing mechanisms between virgin and recycled plastics as recyclers try to maintain margins.

Price competition

The bearish sentiment in the virgin plastics market due to significant production capacities planned to come online both in China and the US will test brand owners’ commitments to purchasing recycled plastics in 2020.

In China, around 1.7 million mt/yr of PET capacity will be added. In the US, 34.35 million mt/yr of polyethylene capacity will be added in the 2020s and, in the near future, the market is awaiting LyondellBasell’s 550,000 mt/yr HDPE plant to start up in 2020 in the Houston Ship Channel.

In the face of cheaper virgin material, brand owners will either bite the bullet and continue buying the more expensive recycled material, or reduce recycled plastic purchasing to minimum levels. This poses a different problem, since milestone brand owner commitments to minimum recycled plastic content in their packaging are fast approaching. The latest Ellen Macarthur Foundation New Plastics Economy annual report shows that many of the largest brand owners are far away from their proposed targets.

Recycled PET vs virgin PET plastic

The latter scenario seems the more likely. Media and consumer pressure alone seemed enough in 2019 to keep demand for recycled plastics high. The question now is whether supply can increase sufficiently to meet demand.

Go deeper: More on recycled plastics in S&P Global Platts’ report, Global petrochemical trends: H1 2020

S&P Global Platts Analytics forecasts growth in recycled plastics supply globally, with PET leading the way as the most mature market and with HDPE and PP also showing good growth. Globally, recycled plastics are expected to replace around 8% of virgin polymer demand in 2020, a modest increase from 7% in 2019. Again, PET leads here, as the global consumer packaging market is expected to replace far greater volumes of virgin polymers with recycled material than the polymer markets in general.

Single-use plastics in the firing line

There are also bans coming into force across the globe for commonly used single use plastics, such as plastic bags, straws and cutlery. These bans pose other questions, including what materials will be used to replace them, how much they will cost and, importantly, how much more environmentally friendly they actually are.

One polymer that could face a tricky demand year is PVC, a versatile plastic used in everything from upholstery to food packaging, as many signatories to the New Plastic Economy propose to eliminate the difficult-to-recycle polymer in 2020. For PET, in particular, this could put further strain on supply as it becomes the go-to replacement polymer for PVC.

While 2020 looks to be a challenging year for recycled plastics markets globally, there are some positive signs coming through, particularly with the expected growth of recycled plastic supply and planned investment in infrastructure globally.


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]]> Wed, 22 Jan 2020 12:43:21 +0300
<![CDATA[Hydrogen transport: moving molecules a core challenge for H2 market growth]]> Pure hydrogen (H2) is increasingly seen as a tool for decarbonization in a wide range of industries. But in order to break into the mainstream, the fuel will need reliable methods to transport it.

While current demand for H2 is limited primarily to oil refining and chemical production – mainly ammonia and methanol – there is growing consensus that H2 could serve as a key decarbonization approach in an array of commercial, power generation, transport and industrial applications.

Reliable, sustainable, and cost-effective transportation of H2 to where it is needed is a prerequisite to the competitiveness and uptake of H2, as centralized production is likely to dominate supply in the near to medium term.

S&P Global Platts Analytics’ recent report Pumping Protons: The Landscape of Transporting Hydrogen, explored both mature and cutting edge transportation pathways for H2, assessing feasibility and impacts on price.

Go deeper: Request a copy of Pumping Protons: The Landscape of Transporting Hydrogen

Hydrogen pipelines

As of 2016, there were over 2,800 miles of dedicated H2 pipeline installed globally, with 1,600 miles in the US. This is in contrast to over 130,000 miles of onshore oil pipelines and 300,000 miles of onshore natural gas pipelines in the US alone.

Hydrogen transport pipeline length

Due to their high capital cost and long lifetime, H2 pipelines are typically reserved for high volume flows with stable and long-term demand of 15-30 years. This use case is most typical in the chemical and refining industry, sectors which own and operate the bulk of current installed pipeline capacity. At low flow volumes, pipelines are typically not cost effective.

Natural gas pipelines

Blending H2 into existing natural gas pipeline networks would allow for pipeline H2 transportation without new dedicated pipes. Blended H2 can either be removed at city gate pressure step-down facilities, or left as a constituent of the natural gas.

While leaving H2 blended in the natural gas stream can reduce costs, it can also cause challenges for end-use infrastructure such as natural gas burners and turbines. To address this, some jurisdictions have defined H2 blend limits in natural gas pipeline system.

Blend walls for hydrogen, selected territories

Platts Analytics estimates that a global 5% blending of zero carbon H2 into the gas grid could abate up to 340 MT CO2 per year – equal to the total annual GHG emissions of a country like Spain.

Gaseous tube trucks

Gaseous hydrogen (GH2) can be transported by heavy duty trucks in small quantities in compressed gas containers, known as tube trucks. GH2 tube trucks use several pressurized gas cylinders, or tubes, bundled together on large trailers.

Tube trucks are commonly employed for transporting H2 to sites with low and intermittent demand such as light-duty vehicle H2 refueling stations. Compressor loads are a primary cost contributor to GH2 transportation.

Liquid hydrogen trucks

Liquefaction is an energy-intensive, multistage process with costs exacerbated by H2 having the lowest boiling point of any element, requiring temperatures below -253oC to enter into the liquid phase, compared with around -160oC for LNG.

Liquefied hydrogen (LH2) is stored in large, insulated containers at terminals before loading onto insulated trucks. In its liquid state, a single truck can haul up to 3,500 kg of LH2, over three times the haul-per-load of a GH2 tube truck.

This requires significant investment in a liquefaction terminal, highly-insulated storage tanks and truck trailers, and regasification terminals at destination. At the same time, it saves money on high pressure storage and operational transportation costs.

Due to the high capital investment required to set up a liquefaction plant, LH2 delivery is typically saved for medium- to high-demand volumes consistent enough to validate the investment, but below volumes that justify a pipeline. Many supply chains feeding H2 refueling stations in California are utilizing liquefaction to increase volumes.

International shipping

Marine hydrogen trade provide countries the opportunity to diversify their energy imports with low carbon fuels, particularly for regions that have domestically constrained natural resources.

Similar to LNG, H2 could be liquefied at port terminals before being loaded onto highly-insulated tanker ships. Based on assumptions about volumes of current LNG tankers and LH2 density, dedicated LH2 ships would likely have a carrying capacity of between 12,750-18,400 tonnes H2/ship.

Boil-off of product is a key concern, even when utilizing bunkers with active cooling measures. On an eleven-day journey (typical of a bunker trip from Australia to Japan), an LH2 ship could experience losses of 2% of cargo, though a portion could be utilized for ship propulsion (similar to LNG bunkers).

H2 need not be produced internationally to be sourced from international energy sources. To avoid the headache of transporting H2 on dedicated marine bunkers, market participants could leverage LNG’s vibrant and lower-cost international trade network to import LNG as a feedstock for the production of H2 in-country. While this pathway is likely much lower cost, it requires domestic access to both domestic LNG regasification facilities, hydrogen production facilities with carbon capture, and geologic storage for captured CO2.

Future hydrogen transport

Next-generation H2 transportation pathways increasingly look to simplify transportation by chemically incorporating H2 into larger molecules that exist as liquids at or near ambient temperature and pressure.

LHCs are much denser than GH2, allowing for greater mass of H2 per unit volume without the liquefaction and insulation challenges of LH2. LHCs also change the chemical properties of H2, alleviating some transportation concerns, though often in exchange for toxicity concerns.

Several LHCs are under consideration, including ammonia and methanol. Conversion of H2 to ammonia requires 7%-18% of the energy within the hydrogen. While use of LHCs has multiple theoretical benefits, the practice has yet to gain traction due primarily to conversion costs.

Up to now, H2 pipelines and liquefied trucking have proved to be low cost and reliable modes to service current H2 demand. Ambition to diversify both production and demand into novel low-carbon pathways will require a rethinking of the H2 supply networks we rely on today.

The post Hydrogen transport: moving molecules a core challenge for H2 market growth appeared first on Platts Insight.

]]> Tue, 21 Jan 2020 16:55:52 +0300
<![CDATA[Commodity Tracker: 7 charts to watch this week]]> This week’s pick of energy and commodity market trends kicks off with EU biofuels demand prospects and a window of opportunity for Australian crude oil grades. US and European gas market dynamics and Brazilian corn prices are also in the sights of S&P Global Platts news editors this week.

1. Renewables goals boost global biofuels demand


Global biofuels demand


What’s happening? In 2020, each EU member country will need to meet specific national renewable energy targets set by the European Commission. One route is to blend more biofuels into road fuels, with more countries adopting E10 gasoline, which contains up to 10% ethanol, twice as much as the current E5 standard. In 2019, the Netherlands became the latest European country to introduce E10 gasoline, following Finland, Belgium, France and Germany.

What’s next? In France, E10 sales have now overtaken E5 deliveries. Growth of the E10 ethanol blend have been hindered in Germany by consumer belief that it could harm car performance. Meanwhile, the UK has yet to introduce E10 despite a very ambitious clean energy target, because most fuel stations do not have enough tanks to offer both E5 and E10 simultaneously. The US adopted tier 3 standards on 1 Jan 2020, which means less sulfur in the fuel and lower exhaust emissions of nitrogen oxides. India will move to BS VI specifications which limit the sulfur levels for road fuels to a maximum 10ppm from April 2020. China is implementing Euro 6 equivalent fuel standards and favoring higher levels of ethanol and biodiesel in the blend. The move has been phased in from 2019 and should be completed country-wide by 2022.

Go deeper: EU, US aim to boost ethanol share in gasoline


2. Aussie crude grades command high premium in IMO 2020 setting


Australian Pyrenees crude oil price rally


What’s happening? Australian heavy sweet crudes including Pyrenees and Van Gogh are widely seen as ideal for blending into low sulfur marine fuels due to the grades’ rich fuel oil yield, very low sulfur content and unique specifications such as low pour point and high flash point, industry and Asian refinery sources have told Platts. With demand for low sulfur fuel oil outpacing supply in Singapore, the world’s biggest bunkering hub, the price of Marine Fuel 0.5% has spiked by more than 185% month on month, Platts data showed.

What’s next? Australia looks set to reap the benefits of the International Maritime Organization’s global sulfur cap as the country’s heavy sweet crude oil is widely considered one of the best feedstocks for making IMO-compliant marine fuels – and many Asian refiners are willing to pay lofty spot premiums for it. Australian oil and gas producer Santos recently sold a 550,000-barrel cargo of Pyrenees crude for loading over March 4-8 to a Japanese buyer at a premium of around $31/b to Platts Dated Brent crude assessments on an FOB basis, essentially making the Australian oil the most expensive grade in the world. Asian refiners will likely compete for more Australian heavy sweet crude oil, with several cargoes of Van Gogh crude for loading in March up for grabs this week in the regional spot market.

Go deeper: Crude oil quality and the S&P Global Platts periodic table of oil


3. German offshore wind stepping up to energy transition plate


Offshore wind power North Sea Baltic

Click to enlarge


What’s happening?  German offshore wind generation has doubled since 2016, with turbines in the North Sea generating as much electricity last year as two large nuclear power reactors running at baseload. Offshore turbines are playing an increasingly material role in wind’s overall ascendancy to the Number One spot in Germany’s generation mix. With over 7 GW installed in German waters, project commissioning in the North Sea is set to take a breather until 2022, with the focus switching to Baltic Sea projects.

What’s next?  More is being asked of German offshore wind in the longer term. Berlin has upped its 2030 target by 5 GW to 20 GW, to help fill the gap left by nuclear and coal closures. The target is challenging because of grid constraints and reduced offshore acreage availability. One way to counter the grid constraint issue could be to produce green hydrogen at sea or coast. The concept is early-stage but the world’s leading offshore wind developer, Orsted, has already bid a joint offshore wind/green hydrogen project into a Dutch auction and is determined to pursue the idea.


4. Specter of negative gas prices looms over Permian Basin…


West Texas Waha forward curve


What’s happening? Balance-2020 forwards gas prices at the West Texas Waha hub tumbled to a record low in mid-January as the market outlook for available pipeline capacity exiting the Permian Basin continues to deteriorate. At market close on January 15, the forward curve dipped to its lowest on record at just 49 cents/MMBtu. Shoulder season prices for this year have faced even more downward pressure with the April contract falling to just 7 cents/MMBtu.

What’s next? As Permian output continues to build, hitting a record high at 12.4 Bcf/d recently and averaging 11.5 Bcf/d over the past month, market jitters over midstream constraints have reemerged. Concerns about the possible return of negative prices this year were exacerbated following Kinder Morgan’s third-quarter earnings call in October when executives announced a three-month delay to startup of the company’s 2.1 Bcf/d Permian Highway Pipeline. The pipeline was originally scheduled to enter service in late 2020 but has since been delayed to Q1 2021.


5. …while EU’s huge gas overhang limits Ukraine transit


EU gas storage overhang 2019 2020


What’s happening? Natural gas stocks across the EU are currently at around 77 Bcm – some 18 Bcm above the levels at the same time last year – helping to keep a lid on prices already pressured by warm weather and weak demand. To put that surplus into context, the additional stocks represent only a little less than the total pipeline exports from Algeria – considered a key European gas supplier – to Europe in 2019. Stocks across Europe were built up to record highs by the end of 2019 on fears that Russian gas transit via Ukraine to Europe could be disrupted.

What’s next? Withdrawals across the EU have stepped up since the start of 2020 to some 450 million cu m/d as Russian deliveries slumped despite the transit deal. Gazprom itself was aiming to build up more than 11 Bcm in storage in Europe and may be withdrawing that gas rather than flowing via Ukraine to avoid keeping gas in storage any longer than necessary.


6. Ethanol, meat industry keep Brazil corn prices supported


Brazil corn prices and exports


What’s happening? Corn prices in Brazil, the world’s largest corn exporter in 2019, have risen considerably over the last few months. Mato Grosso, the largest grain-producing state in the country, saw a sharp price increase because of record exports in 2019 and higher consumption by the ethanol industry. The feed industry in southern states also drove up prices as they paid a higher premium for corn to secure food supply for pork and poultry farms.

What’s next? Domestic corn prices in Brazil are seen firm as meat exports from the country are expected to rise in 2020 on higher demand from Asia. Higher prices for corn in Brazil, especially in southern states, are likely to force the animal protein industry to buy more corn from neighboring countries. Moreover, higher local corn prices could also reduce the availability of the grain for exports.


7. Renewables focus could expand reach of US cap-and-trade


RGGI auction CO2 allowance


What happening? The Regional Greenhouse Gas Initiative issued the auction notice for the 47th quarterly carbon dioxide allowance auction that will take place March 11. There will be 16,208,347 CO2 allowances for sale, 24% more than the previous auction, with a minimum reserve price of $2.32/st. Plants in RGGI states must purchase an allowance for each ton of CO2 that they emit. Applications must be submitted by January 29.

What’s next? As the focus on renewables intensifies in the US and the RGGI market matures, more states are looking to join the regional cap-and-trade program. RGGI states currently include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. New Jersey rejoined January 1 after an eight-year hiatus. Other states that could join RGGI include Virginia, whose joining has been postponed, and Pennsylvania, whose governor issued an executive order in October instructing the state Department of Environmental Protection to join RGGI.

Reporting by Paul Hickin, Philip Vahn, Stuart Elliott, J Robinson, Kassia Micek, Mugunthan Kesavan, Henry Edwardes-Evans, Andreas Franke


The post Commodity Tracker: 7 charts to watch this week appeared first on Platts Insight.

]]> Mon, 20 Jan 2020 12:51:24 +0300
<![CDATA[Reading the tea leaves: China and commodities in 2020]]> China’s voracious demand for commodities and energy continued unabated in 2019 despite a slowing economy and uncertain external environment.

But what will be on the agenda in 2020 as the economy, environment and energy security come into greater focus? Here are are some key trends to watch over the coming year and what they mean for commodities.

Slower growth

The recent signing of the first phase of a trade deal between China and the US may herald a truce between the world’s two largest economies and give markets something to cheer but it will do little to address fundamental structural issues in the Chinese economy, which slowed to 6% growth in the third quarter.

A few clues as to what to expect in 2020 can be glimpsed from December’s Central Economic Work Conference, a high-level meeting that set the economic tone for the coming year. Don’t expect a wide-ranging stimulus to boost growth in the short term. Instead expect a focus on financial stability and longer-term economic priorities like restructuring.

Official GDP targets won’t be announced until March but many analysts expect the government to target growth of around 6% in 2020. S&P Global economists expect it to come in lower at 5.7%. But if growth starts to look weaker, approaching 5.5%, expect to see the government step in with targeted stimulus for sectors like infrastructure to maintain economic momentum.

While a managed slowdown sounds benign, slower growth and tighter credit, especially if accompanied by continuing industrial deflation, raises the risk that more private companies will come under financial pressure. Last year a number of private companies in Shandong province struggled to repay short-term debts, making it harder for them to continue to access the loans they need to keep operating.

The situation is further complicated by the complex web of financial guarantees that exists between many private companies; a default at one company may result in financial distress at another which is partly liable for their creditworthiness. The situation is most acute in commodity industries plagued by overcapacity like petrochemicals, steel and aluminum.

The most recent economic data from late 2019 indicates a slight rebound in manufacturing and industrial production, which suggests a more positive outlook. But look out for weakening margins which might herald further financial distress in the private sector.

Rising crude oil imports, oil product exports

There will seemingly be no letup in China’s insatiable demand for crude oil, as the new Hengli and Zhejiang petrochemical refineries ramp up throughput and Sinopec’s new Zhongke refinery in Guangdong comes online. But product demand is changing as factors like the switch to low sulfur marine fuels, weakness in the auto sector and economic transition herald a shift in consumption patterns.

Go deeper: S&P Global Platts’ 2020 Outlook for global oil, LNG, natural gas and more

China’s desire to increase domestic supply of IMO-compliant bunker fuels should spur demand for gasoil as low sulfur marine fuel blendstock. Petrochemical output should also rise with a number of new propane dehydrogenation plants driving demand for LPG imports. Gasoline is expected to be weaker as a decline in new auto sales and increasing fuel efficiency across the auto sector heralds a slowdown in demand growth.

The increase in refining capacity could put pressure on China’s independent refineries, with exports the only release valve for an oversupplied domestic market. So far refineries owned by national oil companies (NOCs) have been the only recipients of government-sanctioned product export quotas, though selected large independent refineries are expected to be granted quotas later this year. S&P Global Platts Analytics forecasts China’s gross exports of oil products (gasoline, jet fuel, diesel plus LPG and fuel oil) to grow by a little over 270,000 barrels per day in 2020, a 40% rise on last year’s increase.

China oil products import and export

Domestic shale gas, imported LNG

China’s rapidly growing reliance on imported oil and gas has prompted a drive by China’s upstream companies to increase domestic production. While Chinese NOCs have managed to reverse the decline in oil production, upstream efforts have been most successful in natural gas where output has risen by 8% a year over the last three years. Much of the increase has come from unconventional production, especially from the shale deposits in and around southwest China’s Sichuan province.

Sinopec’s EDRI, a research institute, estimates that shale gas production could reach 20–22 Bcm this year, a significant rise on estimated 2019 shale production of around 15 Bcm. Although total volumes are still very modest at 8% of total output last year, the rapid sustained rise in shale gas production does demonstrate sustained progress in drilling for shale gas in China’s geologically complex deep reservoirs.

China’s other big strategic initiative to reduce its dependence on seaborne imports has been the opening of the Power of Siberia pipeline, which by the time it has fully ramps up in 2025 will supply 38 Bcm of Russian gas to China. But with PetroChina only expecting total volume of 5 Bcm this year, for the moment there’s still plenty of room for LNG imports. According to Sinopec’s EDRI, imported LNG could account for for 27% of China’s total gas consumption in 2020, equivalent to 90 Bcm.

Ray of light for auto sector?

After nearly 18 months of continuous year-on-year declines, the latest data suggests that sales of internal combustion engine passenger vehicles have returned to growth, and it’s likely that ICE passenger sales will stabilize this year. There is talk of the government offering subsidies to rural buyers but last year’s wide-ranging tax cuts to stimulate domestic demand have left government finances under pressure and any subsidy may be less generous than hoped for.

China ICE and electric car sales

The outlook looks less rosy for battery electric and plug-in hybrid vehicles. The most recent statistics suggests that the rate of decline of electric vehicles sales has turned a corner, but sales are still down 25% in December year-on-year, after last year’s sharp reduction in government subsidies.

In an effort to steady sentiment in the EV market the government recently announced that it will not significantly cut subsidies further this year. But this may only give a few months reprieve, as the government has stated that it will remove all buyer subsidies on electric and fuel cell cars by the end of 2020. Wait to see whether the government extends this deadline if sales continue to be poor throughout the year.

Subsidies have not only supported sales of EVS but also helped China gain a position of global leadership in the electric vehicle value chain from raw materials through to batteries. In other technologies, like fuel cells, China remains a relative laggard. At the end of 2018 China was home to just 14% of the global stock of fuel cell vehicles (FCV), well behind Japan with 23% and the US with 46%.

Sales of FCVs in China surged over 1,400% year on year in the first 11 months of 2019 to more than 2,100 vehicles, but that’s still miniscule compared to the more than 1 million battery electric and plug-in hybrid vehicles sold over the same period. Expect to see a lot more talk about hydrogen in 2020, with a focus on building out charging infrastructure. But it will likely be closer to the end of the decade before we see significant numbers of fuel cells vehicles on China’s roads. For the moment the focus will be on electric vehicles, especially in the passenger car segment.

The “dual credit mandate”, a cap-and-trade scheme which compels manufactures to produce a target number of electric and fuel cell vehicles or face financial sanctions, should over the next few years incentivize the production of a whole range of electric cars at a price that is competitive with ICE vehicles.

Platts Analytics forecast that this will rise fivefold from last year so that by 2025 annual sales of electric vehicles will be around 5 million units. But right now it’s all too easy for car makers to meet the targets set by the mandate. Until the targets get tougher in the next few years, ratcheting up the pressure on manufactures to produce EVs that in the eyes of consumers are as good as ICE vehicles, sales are likely to remain in the doldrums.

On the margins the government can support EV demand through mandating procurement of electric vehicles for government and public transport, but for the moment the years of double-digit EV sales growth are over. If we see any growth at all in 2020 it’s likely to be very modest.

China ETS no game changer for climate change

After several years of careful planning, China’s national carbon emissions trading scheme (ETS) is expected to finally start trading in 2020. Initially the cap-and-trade scheme will only cover the power-generation sector, which accounts for a third of China’s total carbon emissions. But such is the size of China’s carbon footprint, the ETS will still be the largest carbon market in the world in terms of total emissions covered.

The 2015 Paris Agreement on Climate Change saw China commit to ensuring that its carbon dioxide emissions would peak no later than 2030, as well as pledging to reduce its carbon emissions per unit of GDP by as much as 65% compared to 2005 levels.

While the ETS undoubtedly sends a signal to markets that China wants to get a handle on its carbon emissions it’s unclear whether it will have much impact in helping China meet its Paris Accord commitments. Platts Analytics expects that even without the introduction of the ETS China’s emissions would be likely to peak by the mid-2020s as the use of renewables grows and the economy moves away from energy-intensive drivers of economic growth.

It’s possible the ETS may help reduce emissions in the power sector by incentivizing the use of more efficient capacity at the expense of plants with higher carbon emissions, but until there is greater clarity from the government on details like baseline emission allowances and how these will change in the future, it will be difficult to assess the impact the ETS will have in shaping China’s low carbon future.

The post Reading the tea leaves: China and commodities in 2020 appeared first on Platts Insight.

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