Tag: gas and oil

The article was written by Alex Kimani, and was originally published on FreightWaves

Global crises and geopolitical chaos are bad for most businesses. Not so in industries like defense and energy shipping. Go to a commodity shipping conference in troubled times and you’ll hear a lot about how bullish all that trouble is for freight rates.

The focus at Marine Money’s New York Ship Finance Forum on Thursday was on the worsening global energy crunch, the war in Ukraine, looming sanctions on Russia, the evolving situation in China — and how phenomenal the rate outlook is for tankers carrying crude, refined petroleum products and liquefied natural gas.

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The article was written by Tsvetana Paraskova, and was originally published on OilPrice.com

On Monday, the earnings on the benchmark key crude oil trading route hit $100,000 per day, according to Bloomberg’s estimates. That’s the highest crude oil tanker rate since the beginning of 2020, just before Covid sapped global oil demand.

The much higher cost of shipping crude this year is the result of the longer voyages many tankers are now making because of the EU sanctions on Russian exports. Russia’s oil cargoes from the Baltic ports in Russia are now traveling months on a return trip to Asia – now Moscow’s key export market – instead of just a week from a Russian Baltic port to Rotterdam in the Netherlands

Falling premiums on spot prices for various crudes, however, could offset some of the high shipping costs, traders told Bloomberg.

The surge in freight rates adds an additional layer of uncertainty for crude oil buyers, on top of the EU embargo and price cap set to enter into force on December 5. After that date, Russian oil will have to be sold at or below a certain price – yet to be announced – otherwise the cargo will not be able to use Western maritime transportation services, including financing and insurance.

Some analysts say that there aren’t enough non-Western tankers available to carry the current volumes of Russian oil to markets. Yet, other analysts note increased vessel-buying from unknown entities in recent weeks in preparation for what they believe is Russia’s copycatting the oil export tactics of Iran and Venezuela, which have been exporting their crude under the radar for years now after the U.S. sanctioned their oil exports in 2018 and 2019, respectively.

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The article was written by Sameer Joshi and was originally published on Financial Express.

Chalk up another way that China is benefitting from Western sanctions against Russia.

First we saw China seize the opportunity to buy Russian oil at a steep discount. Now, China’s shipyards are racking up record orders for liquefied natural gas (LNG) tankers as world markets adjust to supply disruptions caused by the sanctions regime.

In 2022, China has scored 45 LNG tanker orders — quintupling the country’s tally from last year. Having assembled only 9% of the world’s existing LNG tankers, China captured 30% of this year’s orders and now accounts for 21% of global orders on the books, Reuters reports. That’s about $60 billion in business.

China’s growing presence in this speciality shipbuilding market represents demand spilling over from South Korea, which has long dominated the LNG tanker category. Hudong-Zhonghua Shipbuilding accounts for 75% of China’s 2022 orders.

South Korean shipbuilders have been deluged with orders for ships that will be used to transport gas from Qatar’s North Field expansion. That will bring huge growth in Qatar’s production capacity — to the extent that QatarEnergy’s CEO in October said his company will, within the next five to ten years, surpass Shell as the world’s largest natural gas trader. In that endeavor, Qatar is itself capitalizing on Europe’s drive to replace Russia’s pipeline gas with shipborne imports.

Building modern, membrane LNG tankers is a highly technical process that requires certification by Gaztransport & Technigaz (GTT), a the French company that holds the patents and licenses its designs to shipyards. The need for precision — as hundreds of workers painstakingly laser-weld seams inside 40-meter-tall LNG tanks — translates into build times of up to 30 months.

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The article was written by Irina Slav and was originally published on OilPrice.com

China’s natural gas imports are set for a 7-percent rise next year as the country reopens after Covid lockdowns, which could aggravate an already tight supply situation globally.

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The article was written by Charles Kennedy and was originally published on OilPrice.com

Indian Prime Minister Narendra Modi on Monday projected that the country’s gas demand would rise 500% due to the rapid pace of development, while its share of global oil demand would more than double.

While the Indian prime minister did not offer a specific time frame for this major boost in demand, he said that the country’s energy demand would be highest in the present decade.

Modi’s statement, delivered during the opening ceremony of India Energy Week 2023, coincides with a recent OPEC report that expects India to be the largest contributor to incremental demand, with the country expected to add some 6.3 million bpd until 2045.

Overall, OPEC said it saw demand increasing to 110 million bpd in 2045, up from 97 million bpd in 2021.

Modi predicts India’s share in global oil demand will increase from 5% to 11%. 

The Indian prime minister used the occasion to highlight the country’s plans to boost exploration and production, which he said would provide opportunities for investors. Right now, India relies on imports for some 85% of its energy needs, with India and China being the largest importers of oil and gas in the world.

With this in mind, India will remove significant restrictions on exploration, reducing “no-go” areas for E&P companies. India also plans to expand its refining capacity, along with its LNG import capacity by 2030.

Asia is now the biggest buyer of Russian crude since the imposition of Western sanctions following Putin’s invasion of Ukraine. Some 70% of Russian Urals January loading cargoes were bound for India, according to Reuters data.

India’s oil minister, Hardeep Singh Puri, also said on Monday that regardless of Western sanctions, the country would not shun Russian oil, which it receives at a discount to Brent crude.

“I will be very frank,” Puri said, “we will play the market card …”

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The article was written by Silvia Sciorilli Borrelli, Sylvia Pfeifer, Alice Hancock, Rafe Uddin, Peter Campbell, Lauly Li and was originally published on Financial Time.

As European businesses brace for energy shortages, workers at one plant in south-eastern France are getting a new winter wardrobe.

Saint-Gobain, the French building materials group, has ordered extra-warm coats and gloves for staff at its warehouse in the Alpine town of Chambéry, who have agreed to turn down the heat this winter. In order to cut gas consumption, temperatures will be closer to 8C, instead of the usual 15C.

“It will be just like working outside so we have to give them all the tools to work in an outside environment,” says Benoit d’Iribarne, senior vice-president of manufacturing.

Turning down the thermostat is no mere cost saving for many of Europe’s industrial companies as they dig in for a hard winter. With energy prices soaring to unprecedented highs after Russia’s invasion of Ukraine, it has become a matter of survival.

Europe’s industrial base employs some 35mn people or roughly 15 per cent of the working population. The bloc’s leading industrialists warned earlier this month about the potentially devastating economic impact of the energy crisis.

“Soaring energy prices are currently precipitating an alarming decline in the competitiveness of Europe’s industrial energy consumers,” said the European Round Table for Industry in a letter to Ursula von der Leyen, president of the European Commission, and Charles Michel, head of the European Council. Without immediate action to cap prices for energy-intensive companies, “the damage will be irreparable”.

On the surface, European industrial companies are putting a brave face on it — talking about the energy-saving measures they are implementing and the other costs they are finding to cut. While some are looking to coal and other fossil fuels to get them through the winter, others talk optimistically about the green revolution that the crisis is spurring.

But there is already evidence that major companies are reducing production in some sectors because of the energy shortage, even before the winter kicks in. And executives from chemicals to fertilisers to ceramics businesses warn that they risk losing permanent market share and could be forced to move some of their production to parts of the world that can offer cheaper and more reliable energy.

The alarm bells are ringing among Europe’s politicians. “We are risking a massive deindustrialisation of the European continent,” says Alexander De Croo, Belgium’s prime minister.

Saving energy In the meantime, companies in sectors from steel to chemicals, ceramics to papermaking, fertilisers to automotives are racing to reduce consumption both to cut crippling energy costs and to prepare for gas shortages over the winter, should governments impose rationing.

Many are finding ingenious ways to reduce energy use. French carmaker Renault, for example, is reducing the time it keeps paint hot — a process that accounts for up to 40 per cent of its gas demand.

Such innovations promise to deliver more efficient factories and processes in future. But first, these businesses have to get through the winter.

Those that could do so have increased prices. Cologne-based chemicals company Lanxess, which makes base chemicals and active ingredients for the pharmaceuticals market, increased base prices by up to 35 per cent when energy costs began to surge.

But price increases will not address the problem of gas shortages. Paper and packaging group DS Smith has ordered its factories to cut consumption by 15 per cent, a voluntary reduction agreed by EU member states in July. Machines that used to be idled between production runs will now be turned off, and thermostats turned down. “If we do things like this and turn down the thermostat from 20 to 18.5 degrees we reduce gas consumption significantly,” says Miles Roberts, chief executive.

Valeo, the French automotive supplier, has asked factories to reduce energy consumption by 20 per cent, with measures such as halting production at the weekend and turning down temperatures during the week. Solvay, the Belgian chemicals company, says it is organising its factories to operate on 30 per cent less gas using alternative energy and mobile diesel-fuelled boilers.

Gas is the single most important source of energy for Europe’s industrial companies. But gas is also an important feedstock, used in the chemicals and fertiliser industries. In total, industry consumes about 27-28 per cent of the bloc’s total supply, according to Anouk Honoré, ​deputy director of the gas research programme at the Oxford Institute for Energy Studies.

But it is not that easy to cut the fuel out of many industrial processes. Roughly 60 per cent of industrial gas consumption is used for high-temperature processes of 500C and above, such as glassmaking, cement or ceramics. “For lower temperature processes, there are more options to use renewable energy and heat pumps,” Honoré says.

For that reason some companies are turning to fossil fuels, in a potential setback for the EU’s green transition plans. Bayer, the German pharmaceutical and biotech company, in 2019 announced plans to move entirely to renewable energy. But it has now reactivated oil as a fuel “just in case” it is unable to meet heat needs for production.

Carmaker Volkswagen is running power plants in Wolfsburg, its largest site, with coal for the next two winters, instead of switching to gas as planned as part of its decarbonisation efforts.

Even for the lower temperature industrial processes, alternatives are unusually scarce at the moment. The summer’s drought has depleted hydropower capacity, while France’s ageing nuclear reactors are unable to meet demand due to protracted shutdowns and maintenance issues.

So some industries, faced with crippling energy prices and softening consumer demand, have decided that the best way to cope is simply to cut production.

Analysts at investment bank Jefferies estimate that close to 10 per cent of Europe’s crude steel capacity has been idled in recent months. ArcelorMittal, Europe’s biggest steelmaker, expects output from its European operations to be 17 per cent lower this quarter compared with last year after it cut production.

Metals trade body Eurometaux says all of the EU’s zinc smelters have had to curtail or even completely halt operation, while the bloc has lost 50 per cent of primary aluminium production. Some 27 per cent of silicon and ferroalloy output has also been mothballed, and 40 per cent of the furnaces, it adds.

The fertiliser sector, which relies on gas as a feedstock to create ammonia, has also been hit, with 70 per cent of capacity offline, according to Fertilizers Europe. Goldman Sachs estimates that 40 per cent of Europe’s chemical industry “is at risk of permanent rationalisation” unless energy prices are contained.

“With the rapid rise in energy prices, we are constantly reviewing our production levels across Europe,” said German chemicals group Covestro in a statement.

The same story is playing out in the plastics, ceramics and other energy-hungry industries. Consultancy Rhodium estimates that just five sectors account for roughly 81 per cent of Europe’s industrial gas demand: chemicals, basic metals such as steel and iron, non-metallic minerals products such as cement and glass, refining and coking, and paper and printing.

In some of these sectors, temporary shutdowns are not only costly; often they are almost impossible to implement without permanently damaging equipment.

Saint-Gobain’s d’Iribarne says the potential for energy reduction is limited in the company’s glass factories, where furnaces have to keep burning to keep the glass from solidifying. “You can’t reduce consumption by 30 per cent because that means you would have to shut down and that would damage the factory. You would need six months to a year to restart.”

Arc International, a French glassware maker, has had to do just that. Normally furnaces at its plant in northern France need to run 24 hours a day, making up about half the factory’s energy usage. Now the company has idled two of nine furnaces, and extended the maintenance period on another two, after gas bills increased almost fourfold this year. The company has also been hit by a sudden downturn in demand for some of its products, says Nicholas Hodler, the chief executive. As a result roughly a third of staff have been put on furlough two days a week.

The widespread shutdowns are raising concerns that the crisis is opening the door to rivals from regions with lower energy costs. “A reduction or halt of the exports, albeit temporary, risks translating into a permanent loss of market share,” says Giovanni Savorani, president of Confindustria Ceramica, the trade body for Italy’s €7.5bn a year ceramics industry.

European manufacturers have long complained about the competitive disadvantage posed by the bloc’s fragmented energy market. Over the 10 years to 2020, European gas prices were on average two to three times higher than the US, according to the International Energy Agency.

That gap has widened to as much as 10 times since Russia began cutting back supplies.

“You can import [fertiliser] for half the price we can produce at,” says Jacob Hansen of Fertilizers Europe.

Cefic, the European chemicals industry trade body, points out that since March this year Europe has become a net importer of chemicals by both volume and value for the first time. “This is seriously concerning,” says Marco Mensink, director-general. “We are just way too expensive on a global basis because of energy costs.”

In an effort not to cede ground to competitors, some companies are tapping their lower cost plants outside Europe. Ilham Kadri, chief executive of Belgium’s Solvay, says the chemicals group could step up production of more energy-intensive products in lower cost markets if needed. “We are looking at how to prioritise products,” she says “We are a global company and can leverage assets outside Europe to compensate for any reduction in volume there.”

One Italian steel executive says the combination of high energy costs and Europe’s carbon levy is forcing a rethink about where to produce steel, priced at €800 a tonne. “The price of gas used to have a €40 [a tonne] impact, it has now risen to €400,” he says. “If we add the carbon tax on top, the overall impact of energy costs is €600. It makes a lot more sense for us to move production” to Asia.

Packaging groups Smurfit Kappa and DS Smith are both looking to their factories in North America for paper supplies.

“We are bringing in more from the US than we have done in the past,” says DS Smith’s Roberts. “To make paper you use a lot of energy. In the US it is much more available and energy costs are much much lower.”

Experts warn that the longer companies are forced to shift production from Europe, the greater the risk that some output may never return. Honoré of the Oxford Institute for Energy Studies says this happened before.

“When European gas prices were at relatively high levels between 2010 and 2014, we saw relocation to regions with lower prices — such as the Middle East, north Africa and US,” she says. “Industrial gas demand never went back to pre-financial crisis levels.” “Once investment decisions are made . . . it is hard to ask companies to come back,” says Matthias Berninger, a senior executive at Bayer. “If we were to invest in a new site that has decades-long consequences.”

Lower-margin, gas-hungry commodity producers, such as the fertiliser industry, could be among the first victims, suggests Trevor Houser of Rhodium.

“The economics of producing natural-gas-based fertiliser in Europe will be poor for a long time,” he says. The threat is particularly acute in central and eastern Europe, where many countries have been heavily reliant on Russian gas. Of Europe’s 45mn tons of fertiliser production a year, Poland alone produces 6mn, according to industry sources. All five of its factories are idle. Another 3mn tons of capacity are offline in Hungary, Romania and Croatia. In eastern Europe, 20 per cent of European capacity has been shut down. Hungary-based fertiliser-maker Nitrogénművek is among those that have had to scale back. Zoltan Bige, chief strategy officer, warns that the implications of capacity reductions this winter could be devastating. “If we do not produce in the summer, the stock does not accumulate,” he says.

“Across Europe, there is not the inventory that should be available in the spring when demand starts to increase.” The lasting impact of the shutdowns across Europe will not be known for many months. But already the reduction in output of chemicals, steel and other critical, basic products is worrying those further down the value chain.

BASF’s Ludwigshafen site is the world’s largest integrated chemical plant, supplying industries from carmakers to toothpaste manufacturers © Thomas Lohnes/Getty Images Companies such as Volvo and Bayer have begun to stockpile parts and materials in case suppliers run into trouble. “Our main concern is not the energy price but the availability of inputs we convert into pharmaceuticals,” says Bayer’s Berninger.

The future of Europe’s gas-reliant chemicals industry — and in particular of BASF’s Ludwigshafen site, the largest integrated chemical plant in the world — is deeply concerning for some industrialists. Ludwigshafen is a key supplier to manufacturers of everything from cars to toothpaste and is the engine of Germany’s chemicals sector. “If the German chemicals industry goes down, three weeks later every supply chain in Europe has a problem,” says Cefic’s Mensink.

Germany’s dominance in the supply chain with industrial giants such as BASF, means that even companies based elsewhere are exposed to the fallout of any gas rationing in the country. “If Germany is not able to supply . . . that will have ripple effect all across Europe,” says Saint-Gobain’s d’Iribarne.

German companies, which account for 27 per cent of the bloc’s sold industrial production by value, are on the frontline. At the beginning of this year, more than 50 per cent of Germany’s gas imports came from Russia and industry accounts for just over a third of demand.

The German government recently unveiled a €200bn support package to offset high energy costs for households and business. But German manufacturers like steelmaker ThyssenKrupp do not rule out the need for drastic action if the crisis continues. The group has already relocated production away from two of its plants to its flagship site at Duisburg, which runs on its own energy network, and is less reliant on natural gas.

The company says it is also prepared to shut down individual plants if energy bills continue to rise. “The costs of gas and electricity . . . pose an existential threat to energy-intensive industries such as the steel industry,” Thyssenkrupp says.

Other countries may not have Germany’s industrial heft, but their economies — and employment — are even more reliant on manufacturing. The OECD estimates that Poland, the Czech Republic, Slovakia, Austria Slovenia, Sweden, Finland and northern Italy have the highest shares of employment in vulnerable gas-intensive sectors.

All these countries are scrambling to offer support to their industries and citizens as the weather grows chillier and energy demand rises. But many companies are already looking beyond this winter to the next, and predicting even tougher conditions.

“In 2022, there were decisive volumes from Russian sources,” says Nitrogénművek’s Bige. “If this all goes away, it paints a rather pessimistic picture for next winter [2023-4]. The proportion of new gas sources will increase, but the infrastructure is far from being able to catch up.”

Arc’s Hodler says the scope for increasing prices next year will also be limited. “The real question is whether in 2023 we will see a significant increase in energy costs,” he says. “We are not going to be able to pass on all those extra costs to our customers without seeing a significant impact in volume.”

But there are those who believe the result of the crisis will be a stronger, greener industrial base. Companies such as Saint-Gobain, Solvay and Smurfit Kappa told the Financial Times they were all accelerating energy-transition plans that were in place before Russia’s invasion. Tony Smurfit, chief executive of Smurfit Kappa, says his company is “spending three times what we would have spent” under previous plans. So there are reasons to be optimistic. “This will accelerate the green revolution. Fifty years ago there were no options for green energy and now there are. I think this will make Europe very green.”

Additional reporting by Silvia Sciorilli Borrelli, Sylvia Pfeifer, Alice Hancock, Rafe Uddin, Peter Campbell, Lauly Li Data visualisation by Chris Campbell This article has been amended since original publication to clarify Bayer’s plans on the use of oil to meet its heat needs

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The article was written by Tyler Durden and was originally published on Zerohedge

Take Chinese energy giant Sinopec Group, which reached a 27-year agreement with state-owned QatarEnergy late last year to buy 4 million tonnes of LNG annually. The imports are due to begin around 2026. As a key client, China is also negotiating to invest in a massive Qatari project to expand LNG output.

At the same time, a private-sector Chinese energy company, ENN Group, signed a contract last year with Texas-based Energy Transfer to buy 2.7 million tonnes of LNG annually for 20 years. ENN increased its purchasing agreement with NextDecade, also headquartered in Texas, to 2 million tonnes a year for 20 years as well. In addition, NextDecade has agreed to supply 1 million tonnes of LNG yearly to China Gas Holdings, whose principal shareholder is an investment vehicle controlled by the city of Beijing. Imports are to start in the latter 2020s.

Over 2021 and 2022, China closed long-term LNG purchasing contracts worth nearly 50 million tonnes a year, European research firm Rystad Energy reports. In this not so covert attempt to corner the LNG market, China has tripled the scale of purchases through long-term contracts in just two years, up from the annual volume of roughly 16 million tonnes from 2015 through 2020.

In 2020 and 2021, spot transactions accounted for 40%-50% of China’s natural gas imports, well above the estimated 30% for Japan. But China appears to have changed strategy to fit long-term demand. Long-term contracts offer more stability in supplies compared with spot contracts.

In 2021, China surpassed Japan as the world’s top LNG importer. But last year, imports apparently dropped 18% to around 65 million tonnes on the economic fallout of the coronavirus pandemic. Yet China’s demand for natural gas in 2030 is projected to be over 50% higher than in 2021.

Amid global efforts to reduce carbon emissions, many countries have converged on natural gas as a relatively clean bridge fuel. The Institute of Energy Economics, Japan predicts annual worldwide LNG demand will reach 488 million tonnes in 2030, up about 40% from 2020. But global supply is on track to fall short of demand by 7.6 million tonnes a month in 2025.

The China contingent are addressing the risk of being cut off from the LNG supply chain at a time when U.S. and allies work to create China-free supply chains for semiconductors. Long-term contracts are seen as a hedge against such disruptions.

Ironically, the US is already China’s biggest LNG supplier based on long-term contracts. The same US that aggressively ramping up alternative semiconductor supply chains that bypass Beijing and which has cracked down on Chinese reverse engineering of US technology. And while Beijing imposed a 25% tariff on American-made LNG in 2019 during the trade war, it then started issuing waivers on the duties in 2020, and since 2021, Chinese and U.S. companies have signed a series of massive LNG deals.

China now imports about 90 million tonnes of LNG through long-term contracts, with the U.S. responsible for around 25 million. Australia ranks next at roughly 17 million tonnes, while the Middle East supplies 14 million and Russia contributes about 6 million.

Despite being extensively reliant on US long-term deal, Beijing intends to avoid dependence on American LNG, and China “is ready to expand cooperation with Qatar in natural gas and other traditional energy sectors,” President Xi Jinping said during a December meeting with Qatar’s Emir Tamim bin Hamad Al Thani in the Saudi Arabian capital of Riyadh.

Additionally, Beijing is carefully diversifying suppliers in the name of energy security. Beyond tanker-borne LNG, China also brings in natural gas via pipelines. China covers just over half of its natural gas demand through domestic output, and the rest comes from Russia and Turkmenistan. The natural gas supplies are supplemented by LNG from the U.S. and other sources.

“It’s best not to rely on any one country for 30%-40% of our needs,” said an executive at a large Chinese oil company, a lesson which Europe learned the very hard way.

As China emerges as a dominant LNG buyer, the role of Japanese purchasers has diminished.

In 2021 and 2022, Japanese companies agreed to less than 10 million tonnes of LNG per annum in long-term contracts. Utilities are wary of large LNG contracts due to uncertainties about future demand amid the decarbonization movement, Japan’s shrinking population and the restart of nuclear plants.

Japanese LNG importer JERA, a joint venture between utilities Tokyo Electric Power Co. Holdings and Chubu Electric Power, decided at the end of 2021 not to renew a 25-year contract with Qatar to buy 5 million tonnes of LNG annually. China’s Sinopec was quick to step in and has emerged as Qatar’s replacement buyer.

Before LNG developers start production at new projects, they sign long-term contracts with importers to secure income and take in financing from lenders. Japanese power and gas companies once took leading roles for projects in Southeast Asia and Australia, but now Chinese players are looking to fill that function.

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The article was written by Charles Kennedy and was originally published on Oilprice.com,

While the European Union’s seaborne imports of Russian crude oil declined by just over 12% last year, Russia still enjoyed status as the top seaborne oil supplier to the bloc, despite sanctions…

The speaking numbers 

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