Ada Taib

Key developments Managing Editor

Middle East and Asia Pacific
Crude Oil

in Asia crude oil S&P Global Platts

March 2018

markets
Agenda
• Key trends in global oil prices
• Uptick in US crude flows into Asia
• Asia’s crude oil imports: China and India
• Changes in Asia’s refining landscape
2017 market highlights

• In end 2016, OPEC initiated production cuts with non-OPEC members in for 6
month period starting January 2017, freezing production at around 32.5 million
b/d.

• In May 2017, production cuts extended for another 9 months, extending the
agreement until Q1 2018.

• In November 2017, OPEC/non-OPEC members agreed to extend the

production cuts until end of 2018.
Key developments: price trends
• Platts Dubai, Oman, Jan 2015-Present ($/b)
80 • Cash Dubai closed Dec 29 at
$64.36/barrel, up $3.51/barrel
(5.77%) from the end of Nov
70
– Up 182.28% from the 2016
low of $22.80/barrel seen
60 on January 21, 2016

• Cash Oman closed Dec 29 at

50
$64.36/barrel, up $3.51/barrel
(5.77%) from the end of Nov
40 – Up 171.45% from the 2016
low of $23.71/barrel seen
on January 21,2016
30

OPEC cuts have impacted supplies of

20 Middle Eastern crudes into Asia

Refinery margins have risen steadily

10
on strong gasoil and gasoline cracks

0
Apr-15
May-15

Apr-16
May-16

Apr-17
May-17
Oct-15
Dec-15

Dec-16

Oct-17

Dec-17
Jan-15

Mar-15

Aug-15

Jan-16

Mar-16

Aug-16

Jan-17

Mar-17

Jan-18
Feb-15

Jun-15

Jun-17
Jul-15

Sep-15

Feb-16

Jun-16
Jul-16

Sep-16
Nov-16

Feb-17

Jul-17
Sep-17

Nov-17

Feb-18
Impact of OPEC cuts on benchmarks:
Brent/Dubai Exchange of Futures for Swaps (EFS)
$/bbl
4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.73
0.5

0.0
Oct
Oct

Oct
Jan

Jan

Sep

Jan

Jan
Feb

Sep

Feb

Feb

Sep

Feb
Jul

Dec

Apr
Apr

Jun

Aug

Nov

Jun
Jul
Aug

Dec

Jul

Dec
Mar

May

Mar

May

Nov

Apr

Jun

Aug

Nov
Mar

May

Mar
2015 2016 2017 2018
Impact of OPEC cuts on benchmarks:
Dubai/WTI Crude Swaps
$/bbl

8.0

Dec-2016
6.0 OPEC/Russia deal

4.0

2.0

0.0

-2.0

-4.0

-6.0
Oct

Oct

Oct
Jan

Jan

Jan

Jan
Feb

Sep

Feb

Sep

Feb

Sep

Feb
Nov
Jul

Dec

Jul

Dec

Jul

Dec
Apr

Jun

Aug

Nov

Apr

Jun

Aug

Apr

Jun

Aug

Nov
Mar

May

Mar

May

Mar

May

Mar
2015 2016 2017 2018
US drill activity
US Rig Counts Rise To 30-Month Highs
Baker Hughes Rig Weekly Counts (Total Number of Rigs, January 2015-December 2017)
1800

1600

1400
Dec 2016
1200 US lifts crude OPEC/Russia deal
export restrictions
1000

800

600

400

200

0
Apr-15

Apr-16

Apr-17
Mar-15

Dec-15
May-15

Aug-15

Mar-16

Dec-16
May-16

Aug-16

Mar-17

Dec-17
May-17

Aug-17
Jun-15

Oct-15

Jun-16

Oct-16

Jun-17

Oct-17
Jan-15

Nov-15

Jan-16

Nov-16

Jan-17

Nov-17
Feb-15

Jul-15

Sep-15

Feb-16

Jul-16

Sep-16

Feb-17

Jul-17

Sep-17
Source: Baker Hughes
US Crude exports rising
kb/d
1,200

1,000

800

600

400

200

0
2013 2014 2015 2016 2017

Source: US Census Bureau

US Crude exports to Asia
barrels/year

90,000,000

80,000,000

70,000,000
2015 2016 2017
60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0
China Korea Singapore Japan India Malaysia Taiwan Hong Kong Thailand
South

Source: US Bureau of Census

Asian crude import remains firm
million b/d
25

South Korea Japan India China

20

15

10

0
China crude inflows in 2017

Source: Platts cFlow

China Total Crude Imports
million barrels/day
9
8.43

8 7.63

7 6.74
6.19
6 5.67

0
2013 2014 2015 2016 2017

Source: China Customs

China: New refineries start-up 2017
PetroChina’s Yunnan refinery
260,000 b/d
• Receives crude via pipeline from Myanmar’s
Maday Island
• Process crudes from the Middle East and Africa

Source: Platts cFllow

China: New refineries start-up 2017
CNOOC’s Huizhou refinery
200,000 b/d expansion
• Phase 2 units designed to
process Middle East sour
crudes
• Phase 1 units processes
Russian, Angolan crudes
China Crude Imports by Region
million barrels/day
9 North America Europe Asia Latin America Russia Africa Middle East

0
2013 2014 2015 2016 2017
China Crude Imports by Countries

2016 2017
Russia
Russia Others 14.24%
Others 13.77% 20.30%
16.64%

UAE
3.20%
UAE
2.42% Saudi Arabia
Kuwait Saudi Arabia 12.43%
4.29% 13.39% Kuwait
Brazil 4.34%
5.02% Venezuela
5.18%
Venezuela Angola Angola
5.29% 11.48% 12.01%
Brazil
5.50%
Iran
8.21% Oman
Iraq Iraq
Oman 9.50% 7.38%
Iran 8.78%
9.20%
7.42%
China’s Independent Refiners’ appetites increase
• Mainly in the Eastern Shandong province,
some in the Northern and Southern parts
of China
• First receive crude import quotas in July
2015, and receives crude import licenses
a few months later
• Prior to this, independent refiners primarily
processed fuel oil and domestic crudes
China’s Independent Refiners’ appetites increase
million barrels Independents China total
800 100%

700 90%

80%
600
70%
500
60%

400 50%

40%
300
30%
200
20%

100 10%

0 0%
2016 2017 2016 2017

• Independent refiners’ crude imports • Independent refiners’ share of

increased by 55% to 680 million China’s total crude import have
barrels for the whole of 2017, from increased from around 16% in 2016,
438 million barrels in 2016 to around 22% in 2017
China Crude Imports 2016
million barrels

Russia

Angola

Iraq

Oman

Brazil

Venezuela

Colombia

Congo

US

Malaysia

Gabon

0 100 200 300 400 500

China Total Teapot Total
Source: China Custom Data, S&P Global Platts
China Crude Imports 2017
million barrels

Russia

Angola

Iraq

Oman

Brazil

Venezuela

Colombia

Congo

US

Malaysia

Gabon

0 100 200 300 400 500

China Total Teapot Total
Source: China Custom Data, S&P Global Platts
Chinese Independent Refiners Crude Imports
million barrels

Percentage
Country 2016 2017 Change
Russia 70.07 130.29 86%
Angola 39.90 106.04 166%
Venezuela 61.75 93.32 51%
Brazil 38.17 57.42 50%
Malaysia 7.03 42.92 511%
Oman 51.16 38.45 -25%
Congo 12.97 33.45 158%
Gabon 8.67 17.87 106 %
Iraq 18.40 16.03 -13%
Colombia 20.61 15.97 -23%
US 0 13.78 -

Source: S&P Global Platts, market sources

China Crude Imports : What has changed?

• Tighter National Phase 5 vehicle emissions standard came into force

on January 1, 2017
• Independents favor short voyage time between China and Russia
• Crude in smaller parcels preferred due to infrastructure limitations
• Newly hired traders relying on old contacts
• Strong domestic gasoil demand favoring crudes with high gasoil yield
• Dubai-linked crudes economically attractive as Brent/Dubai spread
widens
Poll Question
Go to www.pigeonhole.at

Enter event passcode:

PLATTS2018
Question:
China’s independent refiners have increased
their crude oil imports by about 55% in 2017
from the previous year.

How much do you expect their crude imports to

grow in 2018?
• 11%
• 38%
• 63%

23
Chinese Independent Refiners’ crude import
quota

2017 2018 Change

Total 87.60 million mt 142.42 million mt 63.0%

First batch 64.88 million mt 114.59 million mt 76.6%

Actual total 103.52 million mt 142.42 million mt 38.0%

• Nine refineries likely to get another 9.69 million mt (190,000 b/d) of

crude imports in 2018 versus 2017
• As many as 12 other independent refineries that may be awarded
crude import quotas for the first time

Source: China’s Ministry of Commerce

Two large private refineries starting 2018-2019

Hengli Petrochemical
400,000 b/d

Zhejiang Petrochemical
Phase One 400,000 b/d
Second ESPO pipeline to Daqing starts Jan 2018
• PetroChina’s ESPO Blend
crude imports to rise 30 million
mt/year from less than 20
million mt currently
• ESPO to replace some Middle
East & WAF crudes at six of its
refineries in Northeast China
• CEFC to get 68 million mt of
Russian crudes from Rosneft
over five years from Jan 2018
China’s ESPO crude imports via China-Russia
pipelines grow 66% on year in Jan

Singapore( Platts)--12Feb2018/227 am EST/727 GMT

China has received around 2.41 million mt of Russian ESPO crude via two
15 million mt/year China-Russia crude pipelines in January, up 66% on the
year, according to a local media report Monday, citing data from the
Heilongjiang Entry-Exit Inspection and Quarantine Bureau.
This was up 960,000 mt from January 2017, after the second China-Russia
crude pipeline started operations in January 2018.
It was also part of PetroChina's plan to raise the ESPO crude imports
from 20 million mt/year to 30 million mt/year from 2018.
The total transmission volume of 2.41 million mt translates to a combined
operating rate of 96.4% at the two pipelines, each with a capacity of 15
million mt/year.
If the pipelines operate at the same rate for the rest of the year, the
total transmit volume could reach 28.92 million mt by the end of 2018, close
to the initial plan of 30 million mt/year.
A total of 16.5 million mt of ESPO crude has been sent via the first
pipeline in 2017, or 110% of its total capacity of 15 million mt/year,
according to data from the bureau.
The first Russia-China crude pipeline, or the Mohe-Daqing pipeline within
China, began operations in January 2011. The pipeline, located in the
northeastern Heilongjiang province, receives ESPO Blend crude from the Mohe
station on the China-Russia border and sends it to Daqing. The second parallel
pipeline of the same capacity was completed in November last year.
Out of a roughly 20 million mt/year of imports last year by PetroChina,
16.5 million mt of ESPO crude was via the first pipeline, with the rest 3.5
million mt coming via seaborne cargoes, according to a PetroChina source.
India’s crude inflows 2017

Source: Platts cFlow

India Total Crude Imports
million barrels/day
5

4.5

3.5

2.5

1.5

0.5

0
2013 2014 2015 2016 2017

Source: PPAC
India Crude Imports by Region
barrels/day
4,500,000

4,000,000

3,500,000 North America &

Others
3,000,000 Europe

2,500,000 Asia

Russia
2,000,000

Latin America
1,500,000
Africa
1,000,000
Middle East

500,000

0
2013 2014 2015 2016 2017 Jan-Nov
Source: Ministry of Commerce
 India Crude Imports by Countries
2016 2017 Jan-Nov

Angola
2.53%
Others
Qatar Iraq
Others Brazil 13.76%
2.59% Saudi 19.20%
11.22% 2.10%
Mexico Arabia
3.02% 18.93% Mexico
3.25%
Angola
3.35%
Kuwait
4.75% Kuwait
4.73%
United Arab Iraq Saudi Arabia
Emirates 17.84% United Arab 17.18%
8.18% Emirates
7.70%

Nigeria
9.12% Nigeria
Iran 8.06% Iran
Venezuela 11.00% 11.22%
Venezuela
10.83% 9.44%

Source: Ministry of Commerce

India Crude Imports: Key Increases

Russia Angola Kazakhstan US

2015 1.06 55.86 3.98 0.32

2016 2.05 39.50 2.68 0.00

2017
22.00 49.27 19.18 8.57
Jan-Nov

In million barrels

Source: Ministry of Commerce

Indian Refiners Diversifying
• Indian refinery tenders open up to more
US, Canadian crudes

• Indian government discussing crude supply

contract with Russia's key state oil
companies, Gazprom Neft and Rosneft

Vadinar • Rosneft, Trafigura consortium finalizes

Paradip
purchase of 98% stake in Essar Oil
Jamnagar

• More intake of Mediterranean crudes, ie.

Vishakhapatnam
Mangalore
More Azeri Light, Urals, CPC Blend

Chennai
• Fewer Nigerian crudes
Kochi
 Indian refineries eyeing expansions

HPCL’s
Barmer refinery
180,000 b/d
(2023)

IOC’s
Reliance’s Paradip refinery
Jamnagar refinery 400,000 b/d
2 million b/d
(2030) HPCL’s
IOC, HPCL, BPCL’s Vizag refinery
West Coast refinery 300,000 b/d
1.2 million b/d (2020)
(2022)
Southeast Asia Crude Oil Demand

• Southeast Asia's oil production to continue declining up to 2040, as lower

production in Indonesia, Malaysia and Thailand is not fully offset by higher
output in Brunei and Philippines

• Southeast Asia's oil demand on the other hand will grow to 6.6 million b/d by
2040, from 4.7 million b/d in 2016, with over 60% of the increase coming
from the transport sector alone as the vehicle fleet grows by 26 million cars
and 1.6 million trucks

• Gap in supply and demand will have to be filled with crude from other
regions, boosting trade flows

• Southeast Asia's oil refining capacity is expected to reach 7.7 million b/d by
2040, up from current levels of 4.8 million b/d, but even this growth will be
insufficient, forcing the region to be a net product importer of 1.3 million b/d
by 2040

Source: IEA
Middle East refineries soaking up more crude
Bazian, 47 kb/d, PGS Phase II,
KRG, 2022 112 kb/d,
Al Zour, 615 kb/d,
NIORDC, 2018
Karbala, 130 kb/d, KNPC, 2020
INOC/ORA, 2022 Abadan, 38kb/d,
Sitra, 93 kb/d, NIORDC, 2020
BAPCO, 2021

Fujairah, 186 kb/d,

Rabigh, 400 kb/d, IPIC JV, 2023 Sohar, +82 kb/d,
Aramco/Sumitomo,
Ras Laffan, 146 kb/d, ORPIC, 2017
2016
QP/Total, 2016
Duqm, 230 kb/d,
Jizan, 400 kb/d, IPIC/Oman Oil,
Aramco, H2 2018 late 2020
REFINERY NEWS: ARAMCO targets H2 2018
start-up for Jizan refinery REFINERY NEWS: Iran's Persian Gulf Star starts up
second phase

REFINERY NEWS: Oman Sohar Refinery

Improvement Project units fully operational, at
95-100%
Q&A
Thank you

Contact:

Ada Taib
+65 6530 6568
ada.taib@spglobal.com

39