Press digest from last week



Sinopec signs $1-bln Iran refinery deal

Sinopec has signed a long-anticipated deal under which it will invest USD 1.05 billion in the overhaul of Iran’s Abadan Refinery.

The contract signing, which follows an early-2017 USD 2.7-billion refining investment agreement between Iran and China, was reported on Saturday by Iranian local media.

Abadan is the oldest refinery in the Middle East. The facility was brought on line in 1912 and at its peak processed 650,000 bpd. It sustained heavy damage in the Iran-Iraq war and today is able to process 380,000 bpd. The government now aims to raise this figure to 540,000 bpd of higher-grade fuel through a revamp and expansion of facilities.

Sinopec’s role in the project is slated to include the construction of a 210,000-bpd unit for producing high-grade petrol. Its investment will be financed by Chinese export credit agency Sinosure.


Masela block projected to go on stream by 2027

Oil and gas giants Inpex and Royal Dutch Shell have kicked off the preliminary front-end engineering design (pre-FEED) for the development of an onshore liquefied natural gas (LNG) plant at the Masela block in Arafura Sea, which is expected to go on stream by 2027.

The government approved the plan to develop the LNG plant, which has a capacity of 9.5 million tons per annum (mtpa) and 150 million standard cubic feet per day (mmscfd) of gas, according to the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas).

SKKMigas head Amien Sunaryadi said the pre-FEED would be crucial in determining the exact location of the onshore LNG plant and gas pipelines.

“We hope the pre-FEED can be completed in the middle of this year. The results of the pre-FEED will be used [by Inpex and Shell] to finish their plan of development [POD] for Masela before the end of this year,” Amien said on Friday in Jakarta.

“After the POD is completed, the two companies will conduct a FEED study before starting the construction process. Hence, Masela might only be able to start production in 2027.”

Inpex and Shell, which currently hold respective stakes of 65 and 35 percent in Masela, will see their contract at the block expire in 2028. The government, however, promised to give them a 20-year extension.

Masela is estimated to be able to produce 1,200 mmscfd of gas and 24,000 barrels of condensate per day for 24 years. (bbn)


Europe Becomes Victim of Russia’s Newest Oil Strategy

Higher shipments of Russian crude oil to China may saddle European importers with a fatter bill, an industry consultancy warned at the end of last year, noting the latest stage of Russia’s Eastern pivot: the launch of the expanded East Siberia-Pacific Ocean pipeline that would lift Urals crude supply to China twofold, to 30 million tons annually. 

FGE said in a note quoted by Bloomberg that Russia will start moving more Urals eastward right after the launch of the pipeline extension, at a rate of 160,000 bpd. The overall increase of Russian crude shipments to China, according to the consultancy, could be around 200,000 bpd. 

This means less oil for Europe, which is Russia’s number-one oil client. This only highlights the significance of Moscow’s Asian pivot amid lingering European sanctions following the 2014 annexation of Crimea and Russia’s involvement in separatist conflicts in the Ukraine. 

In 2016, Russia exported an average 3.7 million barrels daily to European countries, compared with less than a million bpd to China, according to figures from the Energy Information Administration (EIA). In percentage figures, Europe accounted for 70 percent of Russia’s 2016 crude oil exports, while the share of China was just 18 percent.

The rise in Chinese exports has been quite steep since 2014: as of November last year, Russia shipped 1.3 million barrels of oil daily to China. All the latest signs point to further growth. However, exactly how much this would hurt European buyers is unclear. 

The Urals is currently trading at a discount of about $4 to Brent crude but WTI’s discount to the international benchmark is $6 a barrel. In other words, Russia’s diverting of crude oil from Europe to China could be an opportunity for U.S. exporters as long as they can keep their transport costs low enough. Europe will probably be grateful for the diversification. 

Over the long term, things are even more uncertain. Clearly, Russia has prioritized its relationship with China: In addition to the ESPO expansion, Gazprom is on track to complete the Power of Siberia gas pipeline by 2019. The 2,500-km mammoth of a pipeline will pump 1.3 trillion cu ft of gas to China annually. 

The country is already the third-largest consumer of natural gas in the world, behind the U.S. and Russia, and is expected to show the strongest demand growth over the coming decades—propelling it to second place by 2040 as the economy shifts away from coal. 

This soaring demand has already created shortages in parts of the country. A recent report by Eurasia Daily suggested the Power of Siberia will be essential in avoiding future gas shortages. Would that take gas away from Europe? It’s unlikely given Gazprom’s 30+-percent market share in Europe, and besides, there’s enough gas for everyone. What might happen is China overtaking Europe as Russia’s biggest gas export market at some point in the future, especially if Russia–EU relations continue to be strained.


Egypt to Seal 12 Petroleum Agreements Worth $433 M in 2018

Egypt will launch international exploration and production (E&P) tenders for Upper Egypt and the Red Sea. The two geophysical data collection projects will be finalized by the time E&P tenders are issued, Egyptian Minister of Petroleum and Mineral Resources, Tarek El Molla, stated. The minister added that Egypt will seal 12 petroleum agreements worth $433 million minimum investments during 2018, in addition to further deals that will result from the agreements, Egypt Oil & Gas reports.

The ministry of petroleum has walked a great mile on its road to turn Egypt into an oil and gas regional trading hub, which comes in line with the plan to modernize the country’s oil and gas sector, El Molla pointed out.

The ministry’s plan aim to make the best use of Egypt’s geographical location and infrastructure, which will allow oil and gas to be transported without any technical or regulatory barriers. The country will further start to work with the new gas regulatory law in 2018, the minister disclosed.

El Molla highlighted that Egypt’s regional hub vision will boost the economy and help develop the petroleum industry, as it will encourage larger influx of investments from the private sector.

Additionally, Egypt will start the actual operations of the liquefied natural gas (LNG) platform and its Arab Petroleum Pipelines Company (SUMED) facilities in Ain Sokhna Port in 2018, as a first phase preparing for receiving a floating storage regasification unit (FSRU), petroleum products, and fuel tankers.




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