August 27, 2012:

China Petroleum & Chemical Corp. (386), Asia’s largest refiner, and rival PetroChina Co. (857) are poised to seek assets overseas to diversify as domestic earnings are depressed by state-controlled prices for processed fuels. Refining losses resulted in China Petroleum, known as Sinopec, reporting a 41 percent decline in first-half net income to 24.5 billion yuan ($3.9 billion) yesterday. PetroChina, the nation’s biggest oil and gas producer, last week said first-half profit declined 6 percent to 62 billion yuan. Chinese refiners, which sell gasoline and diesel below cost because the government caps retail prices to contain inflation, aren’t waiting for the controls to be relaxed. PetroChina said it plans to generate more than half its oil and gas output from overseas projects by 2020 to offset refining losses, while China Petrochemical Corp., Sinopec’s state-owned parent, said it would more than double its foreign production by 2015. “Every dollar spent on domestic refining projects would be a waste of a dollar, since it generates absolutely no return,” said Simon Powell, the Hong Kong-based head of Asian oil and gas research at CLSA Ltd. “Overseas acquisition is a short cut to balance refining losses, but it’s a gradual process and takes a long time because of political scrutiny and availability of assets globally.”

China’s state oil companies have spent more than $100 billion on assets over the past decade to supply the world’s largest energy importer. Sinopec lost 9.3 percent in Hong Kong trading this year through today, while PetroChina fell 1.8 percent. They’re the second- and third-biggest members of the MSCI Far East Energy Index (MXMF0EN), which also fell 1.8 percent in the period. The Bloomberg World Oil & Gas index, whose largest member is Exxon Mobil Corp., dropped 1.3 percent. Sinopec climbed 3.4 percent to HK$7.41 today and PetroChina slipped 1.6 percent to HK$9.50 in Hong Kong.

Cnooc Deal

Cnooc Ltd. (883), China’s biggest offshore oil and natural gas maker with no refining operations, has proposed the nation’s biggest overseas acquisition, offering $15.1 billion for Canada’s Nexen Inc. (NXY) Canadian and U.S. regulators are reviewing the takeover. “If the Cnooc deal is approved, we can expect more Chinese energy investment in those countries almost right away,” said CLSA’s Powell. Sinopec lost 18.5 billion yuan after processing 811 million barrels of oil in the first half compared with PetroChina’s loss of 23.3 billion yuan from refining 489.7 million barrels. “The loss came purely from the government’s policy of capping retail fuel prices,” said Laban Yu, head of Asia oil & gas equity research at Jefferies Hong Kong Ltd. “There is not much Sinopec can do. We believe current low inflation will allow higher refiner margins in the second half and quite possibly a change in the fuel-pricing mechanism.”

Price Controls

Gasoline and diesel prices are set by the National Development and Reform Commission, China’s economic planner, under a system that tracks the 22-day moving average of a basket of crudes, including Brent, Dubai and Indonesia’s Cinta. The cycle may be shortened to 10 days, China Petrochemical said March 28. NDRC has indicated it may relax price controls on natural gas and fuels in the second half, PetroChina President Zhou Jiping said at a post-earnings briefing on Aug. 23. The fuel pricing reform may not materialize in the second half, especially after the government has made and missed similar commitments in the past, said Shi Yan, a Shanghai-based energy analyst at Uob-Kay Hian Ltd. “I believe both Sinopec and PetroChina understand the situation well and both of them are determined to expand in upstream quickly with or without the pricing reform being finally implemented,” she said.

Overseas Targets

PetroChina wants half its oil and gas output to come from overseas by the end of the decade, Chairman Jiang Jiemin said in March. Production abroad rose 0.9 percent to the equivalent of 62.5 million barrels, accounting for 9.4 percent of the company’s output in the first half. Chinese companies can sell oil and gas from overseas assets at market prices. President Zhou said in Hong Kong on Aug. 23 the explorer is looking closely at assets in Central Asia, east Africa, Australia and Canada. Zhou said he’s “completely confident” of achieving the 2020 goal. China Petrochemical, Sinopec’s parent, seeks to produce 50 million metric tons of crude a year overseas by 2015. Last year, foreign production was 22.9 million tons. Sinopec said it boosted first-half crude output 4.3 percent to 163.09 million barrels and overseas production jumped 82 percent to 11.13 million barrels.

Opportunities vs. Risks

Sinopec has been looking at many energy projects globally and from a strategic point of view Sinopec needs to buy up assets to balance its refining losses, Sinopec Chairman Fu Chengyu told a press conference in Hong Kong today. “But I wouldn’t prefer the word ’eager’ to describe our attitude in overseas acquisition, because eagerness usually leads to risks,” Fu said. There are many acquisition opportunities because of sluggish global economy, “but opportunities come with risks and we have to be careful not to buy assets because they look cheap,” Fu said. “We buy assets only because they can bring long-term value to our shareholders.”

Shale Assets

Sinopec has held talks with Oklahoma-based Chesapeake Energy Corp. (CHK) and others about investing in shale assets, Chairman Fu said after the company’s annual shareholder meeting in May. “We’ve always been talking to and cooperating with U.S. and Canadian companies on unconventional and shale gas and oil,” said Fu, who became chairman in April 2011. “Not just Chesapeake.” Fu has already announced at least $12 billion in deals at Sinopec and its parent since he was appointed, data compiled by Bloomberg show. That includes a $1.5 billion agreement for a 49 percent stake in Talisman Energy Inc. (TLM)’s U.K. unit on July 23 and the acquisition of a 30 percent stake in Galp Energia SGPS SA (GALP)’s Brazilian unit in November. Cnooc cut the interim dividend by 40 percent to 15 Hong Kong cents a share on Aug. 21 in order to fund its acquisition of Nexen, a Calgary-based company that operates in the U.S. portion of the Gulf of Mexico, and other potential overseas deals and future production growth. Cnooc posted a 19 percent profit decline after a spill closed its largest offshore oilfield, Penglai 19-3, in China’s Bohai Bay.

Regulatory Approvals

The Nexen acquisition needs approval from regulators in Canada, and the U.S., where the Committee on Foreign Investment in the United States examines whether foreign purchases of U.S. assets raise security risks. Nexen’s oil and gas assets include production platforms in the North Sea, the Gulf of Mexico and Nigeria, as well as oil- sands reserves at Long Lake, Alberta, where it already produces crude in a joint venture with Cnooc. Sinopec and PetroChina would probably wait until the outcome of the Nexen regulatory screenings before announcing new deals, said Uob-Kay’s Shi. “They certainly want to push the tempo but they also understand acquisition is a game of patience and timing,” Shi said. “Takeovers are only going to happen over a long period of time, not something that can be achieved in days or months.” PetroChina will spend at least “over 10 billion yuan” in developing unconventional natural gas in the next couple of years, President Zhou said last week in Hong Kong. Sinopec is one of the two winners of China’s first shale gas parcel auction last June and plans to accelerate the exploration of the fuel by teaming up with domestic and international shale gas explorers, Chairman Fu said in March.

In the second half, Sinopec will “step up efforts in exploration and development of unconventional resources,” including building production capacity in the Fuling continental shale gas project and preparing for coal-bed-methane production in the southern part of Yanchuan, it said in a statement to Hong Kong’s stock exchange yesterday.

By Bloomberg

August 27, 2012:

Switzerland-based trader Gunvor said on Monday that operations had resumed at its German Ingolstadt refinery, acquired from insolvent refiner Petroplus earlier this year. Gunvor, which is co-owned by a Russian tycoon and chief executive Torbjorn Tornqvist, bought the 100,000 barrels per day plant in May from the insolvent Petroplus to build on its presence in Europe. "We intend to build upon the good and enduring customer relationships, and enlarge our trading activities in Germany and the Alpine region," said Tornqvist in an emailed statement. Gunvor, a top-five oil trading house, also bought a Petroplus plant in Belgium in March as part of a bid to become an integrated oil company. Ingolstadt has been in stand-by mode for seven months while the sale process was going through. Revving it up again to maximum capacity is likely to take several days. The refinery's administrator said production was set to begin at the start of September. The plant produces gasoline, diesel, heating oil and bitumen. Before its temporary closure, it had annual sales of $4 billion and a market share of oil products of 20 to 30 percent in the Bavarian state and the adjacent region.

By Reuters

August 27, 2012:

VANCOUVER -- Whether they're crossing the border into the United States or heading west to the British Columbia coast, the controversial pipelines linked to the Alberta oil sands have one purpose: to get the thick, heavy bitumen out of the country. But Enbridge's (TSX:ENB) Northern Gateway and TransCanada's (TSX:TRP) Keystone XL pipelines, which have been fighting for the approval of governments, regulatory agencies and the public, have renewed a debate over whether Canada should be refining the raw bitumen at home instead of exporting it to be refined farther afield. The federal NDP think we should, arguing new refineries would be a boost to the economy and create much-needed jobs. So does B.C. newspaper mogul David Black, who raised eyebrows -- and rolled some eyes -- earlier this month when he proposed a $13-billion refinery at the end of the Northern Gateway pipeline on British Columbia's coast.

However, there hasn't been a new refinery in Canada since 1984, and many observers say that's unlikely to change any time soon, whether in B.C. or elsewhere. Oil refining is a volatile, low-margin business, they say, and it's far cheaper and much simpler to export crude to countries that already have refineries ready and willing to process it, particularly the United States and China. "It gets a lot of points to say, 'We've got to do things at home, we've got to be independent, we ought to not depend on somebody who could change their mind,' but as an economic matter, it doesn't really make sense, or we would have been doing it," says Michal Moore, a professor at the University of Calgary's public policy school. "My guess is that under current circumstances ... that ship probably has sailed." Canada is a net exporter of oil, and the increasing production from the oil sands combined with the closure of Canadian refineries mean the amount of raw crude leaving this country to be refined elsewhere will only increase. Production in the oil sands is projected to double by 2035. At the same time, the number of refineries in Canada has been steadily decreasing, from more than 40 in the 1970s to fewer than 20 today. Several of the refineries that still exist are at risk of closing or are already scheduled to shut down.

Building a new refinery would be a long and expensive proposition. Such a facility would cost billions of dollars and likely take a decade to obtain the necessary government approvals and build, says Moore. Compare that to the alternative: exporting crude to the United States, where refineries are far below capacity and eager for Canadian crude, or to Asian countries such as China, which is constructing massive refineries to meet that country's rapidly growing demand. "If you think of the cost of capital, it's much easier to just go offshore and move product by ship or rail to existing distribution points," says Moore. "Our comparative advantage lies in being able to get our products upgraded to a point where they're competitive, but just at that point, and then shipping them to areas that have got sufficient refining capacity to deal with them." A report last year from the Conference Board of Canada noted the current roster of refineries still operating in Canada is more than enough to meet domestic demand. While the number of refineries has been cut in half, upgrades and expansions over the years have kept the refining capacity at the same level and Canada continues to refine more fuel than it needs.

That means any additional oil production -- whether in the form of crude or refined fuel -- would be destined for export. It's more complicated to export refined products, rather than simply exporting raw crude, because every jurisdiction has different standards for fuels to meet, says Greg Stringham of the Canadian Association of Petroleum Producers. "Most refineries usually refine close to their market because of the gasoline and fuel specifications in each of those areas," says Stringham. "So that's why it leans to, let's move the crude around."  The federal New Democrats have suggested Canada needs more refineries, arguing such facilities would create jobs and bring in tax revenues, though the Opposition party hasn't said how it would overcome the economic challenges that have until now prevented that from happening. The party's energy critic, Peter Julian, says the New Democrats want to spur a "national discussion" on how to develop such infrastructure.

"What we really need are more value-added jobs in Canada, and that something that is going to be part of the debate," says Julian. "We're not laying out a full blueprint because we haven't had this kind of discussion in Canada. It's been very ad hoc, and the Harper government has simply approved whatever the oil and gas industry has proposed. What we need is a more thoughtful approach." The federal Conservative government, a strong proponent of pipelines such as the Northern Gateway project and the Keystone XL line into the United States, appears content to let the market decide whether it's a good idea to build new refineries. Natural Resources Minister Joe Oliver says the only alternative would be to build refineries with government money. "The economics have to be there to do it, and the fact that there hasn't been a refinery built since the early '80s indicates that the economics weren't there," Oliver said in an interview. "That's a pre-condition, unless of course the government is willing to subsidize the industry to the tune of many billions of dollars, and that's certainly not our approach."

Oliver said even if Canada exports a significant amount of raw crude, the industry still keeps hundreds of thousands of people employed and pays billions of dollars in taxes and royalties. "You're not going to not export wheat because there's some employment in baking bread."

By CTV News

August 27, 2012:

Venezuelan firefighters battled Monday to extinguish a devastating fire at the country’s main oil refinery as President Hugo Chavez slammed reports that poor maintenance was to blame. The Venezuelan leader promised an investigation into Saturday’s tragedy that left 41 people dead – a gas leak is the suspected cause – and three days of national mourning were declared ahead of his trip to the Amuay refinery, in the country’s far north. But Chavez, fighting a re-election campaign ahead of October 7 polls, slammed reports that poor maintenance was responsible for the accident at the state-owned refinery, one of the biggest in the world, as he paid a visit there.  “Some philosopher said – I don’t know who – that ‘life must go on,’” said Chavez, describing as “irresponsible,” experts who have suggested that the government had inadequate safeguards in place at the site. He also said that those who had perished in the tragedy would not be forgotten. “Those who died physically will resurrect spiritually with every victory of our motherland,” the president assured.

The toll jumped to 41 on Sunday after two people who sustained extensive burns in the blast succumbed to their injuries. Jesus Valdes of Coromoto Maracaibo Hospital said seven of 15 people admitted with serious injuries and still receiving care were in a “critical but stable condition.” Venezuela is South America’s biggest oil producer and more than 30 hours after the worst accident ever for state oil firm Petroleos de Venezuela (PDVSA), authorities were still struggling to extinguish flames in two of nine storage tanks that were set ablaze at the refinery.  At least 18 of those killed in the fire were National Guard soldiers and 15 were civilians, most of them relatives of the troops. Six more bodies were unidentified. Vice President Elias Jaua said “erratic winds” had complicated the work of firefighters in trying to extinguish monster flames spilling out of the tanks that could be seen from kilometers (miles away), but he insisted that the situation was “under control.”

The refinery is located in a residential and commercial complex where workers live with their relatives and poor families who settled in surrounding neighborhoods. A total of 121 people, including 48 children, were receiving medical and psychological care at a naval base, according to authorities who reported a that 209 homes and 11 businesses had been affected by the incident. Some residents just outside the perimeter cordoned off by security forces gathered their belongings and prepared to leave their damaged homes, while others said they would remain on site. “I have no fear,” said Ali Bello, 60, as he sat in front of his home whose roof was now awkwardly sloping downward. “They are saying it won’t explode again.” Venezuelan Oil Minister Rafael Ramirez predicted that production at the refinery would resume two days after the fire had been brought under control. But Jose Bodas, general secretary of the United Federation of Oil Industry Workers, questioned these plans. “It appears to us that it is too early to talk about resuming production without knowing the exact cause of the explosion,” Bodas told AFP. Before the blast, the Amuay refinery was able to process about 645,000 barrels of crude oil a day.

Venezuelan media have often reported complaints about safety and maintenance standards at the country’s refineries, but authorities insist there were no maintenance issues at Amuay. The Latin American nation produces about three million barrels of oil per day, according to state figures, while the Organization of the Petroleum Exporting Countries puts the number at 2.3 million barrels per day. OPEC certified in 2011 that Venezuela has the largest oil reserves in the world at 296.5 billion barrels, surpassing Saudi Arabia, the country with the biggest refining capacity. In March, Venezuelan authorities reported even higher reserves, of 297,570 billion.

By Agence France-Presse

August 27, 2012:

Vung Ro Petroleum is ready to start hammering out Vietnam’s third oil refinery by the year’s end. The investor, Vung Ro Petroleum Ltd., last week reached managing licensor and technology transfer agreement with Honeywell’s UOP, a leading international licensor for the refining and petrochemical production, for the design and engineering of the refinery in central Phu Yen province. The signing ceremony was witnessed by US’s commercial counselor in Vietnam Sarah Kemp and leaders of Phu Yen Provincial People’s Committee. ‘”This is a very important step to implement the project. UOP is a well-known licensor for refining and petrochemical technology in the world, which will provide us not only the technology but also solutions to build and operate the refinery,’” said Korolev Kirill, general director of Vung Ro Petroleum Ltd. Korolev said an engineering, procurement and construction contractor (EPC contractor) could be selected in the upcoming months. Last year, the investor and local authorities also completed siteclearance that had lasted for four years, a barrier coupled with the global financial crisis.

The investor plans to break ground by the year’s end and Korolev said all the needed preparation for the project’s construction had almost been completed, adding that the agreement with UOP LLC would ensure Vung Ro Petroleum Ltd.owns the latest refining technology. When on streams by 2016, this refinery will produce a wide range of products including LPG, gasoline, gasoline, jet fuel, diesel, fuel oil, polypropylene, benzene, toluene andmix-xylene meetingdemand of local market and export. Vung Ro’s top management has also adopted ‘”fast track’” method for the project which will allow the combination of front-end engineering design and engineering procurement, construction into one contract to optimise costs and time schedule for the whole project. According to experts in the field, by implementing ‘”fast track’” method, investor could reduce implementation time for the project from at least 18-24 months. The refinery project will not only help in reducing Vietnam’s reliance on imported fuel, but also mark a milestone for improving investment climate in Phu Yen, a coastal central province located 400 kilometres north of Ho Chi Minh City.

Nguyen Chi Hien, director of Phu Yen Provincial Department of Planning and Investment, said this project would be a magnet luring other industrial supporting projects to Phu Yen. ‘”Once Vung Ro refinery is constructed, we expect many investors will follow Vung Ro Petroleum Ltd. to invest in petrochemical industry here,’” said Hien. In 2007, a Singapore-based SP Chemicals proposed to build naphtha cracking Hoa Tam complex in Phu Yen. Nevertheless, the company canceled its plan in 2009 due to the global financial crisis. Hien said the provincial committee still wanted to develop Hoa Tam petrochemical complex, especially now that Vung Ro refinery construction is about to start.

By Talkvietnam