SK Innovation expects favorable market conditions in 4Q on solid demand

MOSCOW (MRC) - SK Innovation, owner of South Korea's top refiner SK Energy, said on Friday that market conditions are expected to be "favourable" in the fourth quarter on the back of firm demand, Reuters.

Middle distillates such as diesel are expected to support overall demand for the fourth quarter, the company said in an earnings statement. A week ago, S-Oil, South Korea's third-biggest refiner, said seasonal demand for heating and tight regional supply were expected to help boost refining margins in the fourth quarter.

Oil refining margins have been volatile, with fuel oil and gasoil cracks soaring on tightening supply and higher demand for low-sulphur gasoil ahead of the implementation of stricter marine fuel regulation by the International Maritime Organization (IMO). By contrast, a supply glut has weakened gasoline cracks.

"Current weakness in gasoline cracks is due to increased export volumes from China and impact of non-peak season ... but further falls are expected to be limited," Kang Dong-soo, head of corporate planning office at SK Energy, said in a call with analysts.

Demand from India and China, as well as lower inventories, is expected to keep gasoil cracks firm, he said. SK Innovation's July-September operating profit fell 12.7 percent to 836 billion won (USD741 million) due to a weaker Korean won and lower inventory-related gains, down from 958 billion won a year earlier, the statement said.

The company announced last year it would build a 40,000 barrels per day (bpd) Vacuum Residue Desulfurisation (VRDS) by 2020 in a bid to produce clear fuels ahead of tougher IMO sulphur regulations from 2020.

Kang said construction of the unit was 27 percent complete, and it was expected to generate an annual operating profit of up to 300 billion won once it comes online.

SK Innovation, which has a total refining capacity of 1.115 million barrels per day (bpd) in Ulsan and Incheon, ran at 92 percent capacity on average in the second quarter, slightly down from 94 percent during the same period a year earlier, the statement said.

Planned 4Q 2018 refinery outages not expected to constrain fuel availability

MOSCOW (MRC) -- The U.S. Energy Information Administration’s (EIA) latest analysis of planned refinery outages for the fourth quarter of 2018 finds that planned outages in the United States are not likely to cause a shortfall in the supply of petroleum products—including gasoline, jet fuel, and distillate fuel—relative to expected demand, either nationally or within any U.S. region, said Hydrocarbonprocessing.

EIA has reached this conclusion despite the current high level of U.S. gasoline demand, which so far in 2018 has been close to the record high seen in 2017.

EIA’s national and regional conclusions are the result of simulating regional monthly supply based on assumptions about refinery operations. The report considers planned shutdowns of refinery units as reported by Industrial Info Resources (IIR) and provides EIA's analysis of the implications of outages affecting ACDU, FCCU, CRU, HU, and CU.

Regional supply and demand balances are more valuable than U.S. national balances because pipeline infrastructure, geography, and marine shipping regulations constrain the amount of product that can flow between regions in the United States. Barring unusually high unplanned outages, planned outages that extend beyond schedule, or higher-than-expected demand, the supply of gasoline, jet fuel, and distillate fuel will be adequate in all regions through December.

Planned refinery maintenance in the East Coast will be moderate in the fourth quarter of 2018, except for outages as a result of maintenance on hydrocracking capacities in October, which will exceed 50% of regional capacity. In October, planned maintenance for crude distillation capacity will reach a peak average of 243,000 barrels per day (b/d), or 19% of regional capacity. Production losses associated with planned maintenance could be offset by movements from other regions, by imports, and by drawing down inventories.

Planned outages in the Midwest in the fourth quarter of 2018 will be moderate, except for crude distillation and coking capacities in October and reforming capacity in October and November, which are close to or exceed the previous 10-year maximum. Nevertheless, EIA expects supply of petroleum products to be adequate to meet domestic demand in the Midwest during the fourth quarter. Production losses from planned outages in October and November will average 235,000 b/d and 107,000 b/d in gasoline, 49,000 b/d and 24,000 b/d in jet fuel, and 164,000 b/d and 48,000 b/d in distillate fuel, respectively.

Planned outages in the Gulf Coast in the fourth quarter will be light, and regional inventories appear to be sufficient to offset lost production from those planned outages. More than half of the refining capacity in the United States is located in the Gulf Coast region, and as a result, the region produces far more petroleum products than it consumes. The Gulf Coast’s surplus production supplies other U.S. regions, mainly the East Coast and the Midwest, as well as international markets. EIA’s calculations indicate that planned refinery outages in the Gulf Coast will result in light production losses in petroleum products. Planned outages will result in production losses of 96,000 b/d in gasoline and 99,000 b/d in distillate fuel in October. For the fourth quarter, total estimated production loss as a result of the planned outages accounts for 4.3% of existing gasoline inventory, 2.2% of jet fuel inventory, and 8.4% of distillate inventory as of the week ending August 31, 2018. Regional inventories will likely be sufficient to account for lost in-region production.

Shell Canada sees cost advantage in LNG Canada expansion

MOSCOW (MRC) - An expansion of LNG Canada has a cost advantage over its rivals in the race to build more liquefied natural gas export capacity, but a go-ahead decision on phase two is likely still a few years away, Shell Canada's president said, as per Reuters.

The first phase of the C41 billion (USD31.3 billion) Royal Dutch Shell-led project was given the go-ahead last month, firing up a race among companies eager to be the next to tap into booming Asian demand for the gas that is supercooled into liquid form for export by tanker.

"What's in our favor now is expansions are typically lower capital cost," Michael Crothers, Shell Canada President, told the Reuters Global Commodities Summit. "I think that opens up an even more competitive opportunity for us and the partners."

That expansion cost saving adds onto the project's other advantages, including a relatively short shipping distance to key Asian markets and cheap feed gas. The question of when the second phase, which would double output at the 14 million tonne per annum (mtpa) plant to 28 mtpa, will be approved remains unclear, Crothers said.

"I'm sure Shell leadership would like to see demonstrated performance before we start to consider this too closely. So that's still probably a few years away," he said.

He added an LNG Canada expansion would have to compete with global rivals, including options in the U.S., Africa and Middle East, and would depend on the market for the fuel - though all signs point to sustained Asian demand.

LNG demand has risen sharply in recent years, led by China, gobbling up an anticipated surplus and fanning fears of a shortage by mid-next decade. This has projects around the world scrambling to secure the long-term deals they need to finance multi-billion dollar builds.

LNG Canada is a joint venture between Shell, Malaysia's Petronas, PetroChina Co Ltd, Mitsubishi Corp and Korea Gas Corp.

Big oil traders set to cash in on shipping fuel overhaul

MOSCOW (MRC) - The world's biggest oil traders are gearing up to cash in on big disruptions that could hit the shipping fuel market in just over a year due to new U.N.-mandated environmental rules, Reuters.

International Maritime Organization (IMO) regulations will cut the limit for sulphur in marine fuels globally from 3.5 percent to 0.5 percent from the start of 2020.

"We're going to hopefully facilitate the new rules in 2020 by helping out the industry and the participants in general to have a reasonably smooth transition," Marco Dunand, the chief executive of trading house Mercuria, told the Reuters Global Commodities Summit.

He said Mercuria was in talks to finance shipowners who want to install expensive sulphur cleaning kits called scrubbers, allowing them to burn cheaper high sulphur fuel. He declined to name those clients. The company is offering a package that would include providing compliant fuels via its subsidiary Minerva as well as fuel-price hedging.

Traders are widely expected to benefit as they thrive off efficiently moving products between regions with price dislocations. But the market currently lacks a benchmark for the new compliant fuel grade.

"There are legitimate concerns about this product being available in multiple locations," Vitol Group Chief Executive Russell Hardy told the summit. He added that planning for the changes in the absence of a futures market was complicating matters. "It's doable but we would like a bit of transparency," he said.

While S&P Global Platts, the agency that publishes benchmark physical fuel oil price assessments, plans to launch a set of new 0.5 percent sulphur prices starting in January, a paper market does not yet exist. "I think it will be a bit chaotic in the beginning of 2020 ... (but) we don't think it's going to be extremely disruptive," Gunvor CEO Torbjorn Tornqvist told the summit.

Other winners from the changes will be complex refineries that have invested in the right kit to turn high-sulphur products into low-sulphur, or sweet, ones. This leaves simple refiners that can't easily clean sulphur from petroleum products at a risk of losing out.

US refiners boost processing capacity to accommodate shale

MOSCOW (MRC) - As U.S. oil production rises - setting records in average daily output nearly every month this year - the companies that convert crude to diesel and gasoline are increasing their ability to consume more crude and generate higher profits, Reuters.

Using more efficient equipment and running bigger plants at peak speeds, the combined capacity of nation's 135 refineries was 18.6 million barrels per day (bpd) at the start of the year, up 16 percent over the 15.7 million bpd in 1985, when there were 223 refineries, according to Energy Information Administration data.

Demand for new products coming from these expansions "will lead to higher refinery utilization, higher distillate prices and higher refinery margins generally," Arvinder Saluja, a senior analyst at debt ratings firm Moody's Investors Service, wrote in a report on Thursday.

U.S. refinery utilization, or how much of the capacity is being used, hit a record 98 percent in early August, the EIA said. Utilization differs from capacity due to weather or maintenance disruptions, market demand and other factors.

This year, high production and ample supplies of shale and heavy Canadian oil have made U.S. refiners very profitable. Refining income this year through September at Phillips 66 was USD1.94 billion, up 87 percent from the year earlier. Valero Energy's refining business posted an operating profit of USD3.64 billion, up 21 percent.

Just as shale producers are exporting more, U.S. refiners which convert crude into low-sulfur fuels should be able to drive exports of marine fuel and profits higher next year. Earning from such sales can remain strong through "at least 2022," Moody's Saluja said.

Between 2012 and 2017, exports of finished U.S. refined products climbed by 772,000 bpd to 2.79 million bpd, accounting for a national increase of refined products exports of 735,000 bpd to 3.34 million bpd.

Consolidation is also lifting refiners' outlooks. Last month, second-largest refiner Marathon Petroleum Corp acquired fifth-largest Andeavor in part to gain Andeavor's ability to process shale and because of its retail gasoline network in Mexico.

Six of the 10 largest U.S. refineries are owned by oil producers, including Motiva, owned by Saudi Aramco, Exxon Mobil Corp and Chevron Corp .