Export Infrastructure to Strand U.S. LPG This Winter

Hellenic Shipping News:

The growth of U.S. LPG exports will outpace terminal capacity this winter, constraining LPG exports, according to ESAI Energy’s webinar U.S. Growing Pains to Upend LPG Trade & Demand. The export constraint will temporarily cause scarcity in Asia and the international market, driving up LPG prices relative to naphtha and causing feedstock switching in the petchem sector. Meanwhile, stranded LPG in the U.S. will push down LPG prices relative to ethane in the Gulf Coast, making propane a more attractive feedstock in that market.

New Russian Refining Subsidies Take Shape

Hellenic Shipping News:
Russia’s oil tax reform will cause refineries to adjust investment plans, causing some to abandon discretionary fuel oil upgrading projects, according to ESAI Energy’s newly released CIS Watch. Underinvestment in fuel oil destruction will exacerbate the oversupply of fuel oil following the introduction of new IMO regulations that will cause many ships to find alternatives to high sulfur fuel oil.yond 2021.

Government Backs Off U.S. Crude Tariff Threat

The diesel import requirement in Brazil and Argentina, South America’s southern cone, will shrink by 30,000 b/d next year. Diesel demand is taking off in Brazil, but throughput will rise faster, causing the import requirement to shrink by as much as 60,000 b/d in the next twelve months. In Argentina, conversely, the import requirement will expand as demand remains flat and throughput declines.

Southern Cone Diesel Import Requirement Shrinks

The diesel import requirement in Brazil and Argentina, South America’s southern cone, will shrink by 30,000 b/d next year. Diesel demand is taking off in Brazil, but throughput will rise faster, causing the import requirement to shrink by as much as 60,000 b/d in the next twelve months. In Argentina, conversely, the import requirement will expand as demand remains flat and throughput declines.

Transport Fuel Demand to Grow Through 2019

In 2018 and 2019, European transport fuel demand growth will slow to an annual average of roughly 160,000 b/d. This slowdown is driven by a deceleration in diesel and jet fuel demand growth, particularly in Germany, where for the first time in a decade diesel demand will contract. Nevertheless, with demand for all three major transport fuels continuing to rise through 2019, and regional refinery throughput expected to slow, Europe’s distillate deficit will expand and gasoline surplus will narrow. These developments will be bullish for global product markets.

Capacity Glut to Trigger Refinery Closures after 2021

Hellenic Shipping News:

An excess of global refining capacity looms after 2021, according to ESAI Energy’s newly released, Global Refining Capacity Five Year Outlook. ESAI Energy projects a significant increase in new distillation capacity to 2023. After lagging demand growth in recent years, the coming capacity build cycle will significantly outpace demand. The resulting rise in spare capacity will reduce global utilization rates and put pressure on margins, particularly beyond 2021.

New Refining Subsidies Take Shape

Progress on Russia’s oil tax reform hints at its likely impact on the future of refining. Most but not all refineries will be subsidized. Distillation capacity will level off after a prolonged period of expansion. Lastly, the new system will eliminate the incentive for investment in fuel oil destruction. However, the consequences for investment will be offset by market incentives stemming from new IMO regulations.

And So, the Sanctions Drama Begins

Today, the first tranche of sanctions on Iran go into effect. Iran will struggle with the economic implications but is unlikely to concede to the extensive demands of the Trump Administration. In November, the sanctions will turn to crude oil, complicating U.S. relations with a host of countries who import Iranian crude. The drama, therefore, is not just between the U.S. and Iran, but also between the U.S. and Iranian crude importers. Look for intended and unintended linkages between waivers to the sanctions and other economic or diplomatic objectives of the Trump Administration.

Tail Wagging Russian Production

The 250,000 b/d increase in Russian production from May to July eclipses the growth hinted at by the Russian Energy Ministry. The opportunity to replace Iranian barrels undoubtedly is encouraging higher Russian output. In response, we now estimate annual Russian growth of 130,000 b/d in 2018 and 210,000 b/d in 2019. However, President Putin will eventually establish a new temporary production ceiling and resume coordination of production in the OPEC+ format.

Crude Oil Outlook Shows Ample Supplies

Oil & Gas Journal:

The outlook highlights three trends that underscore the expectation that non-OPEC crude and condensate supply will increase by an average of 1 million b/d/year during 2019-23:

• Infrastructure catching up with US shale growth.

• Streamlined, cost-effective offshore projects from the Gulf of Mexico, Latin America, and the North Sea brought to production.
• Russia moving to a “coordinated” growth strategy.