New base 16 october 2019 energy news issue 1286 by khaled al awadi (1)

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NewBase Energy News 16 October 2019 - Issue No. 1286 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
UAE: Adnoc signs strategic framework with Russia's Gazprom
Neft and Luke Oil …. The National
Dr Sultan Al Jaber exchanges an MOU with Vladislav Baryshnikov, Gazprom Neft Deputy CEO for
International Business Development at Qasr Al Watan. Ministry of Presidential Affairs
Abu Dhabi National Oil Company signed a comprehensive strategic agreement with Russia's
Gazprom Neft to explore opportunities for partnership in upstream, downstream and artificial
intelligence.
The two sides will look for opportunities in exploration and production, and possible collaboration in
sour gas, or gas with a large volume of sulphur. Most gas caps in Abu Dhabi are sulphurous, such
as Ghasha, in which Russian company Lukoil has secured a 5 per cent concession.
“The strategic agreement offers the potential for exciting new opportunities for both companies in
the upstream and downstream sectors, as well as in artificial intelligence and sour gas, where Adnoc
www.linkedin.com/in/khaled-al-awadi-38b995b

has vast untapped reserves," said Dr Sultan Al Jaber, Adnoc group chief executive and UAE
Minister of State. Enhanced oil recovery will be another area of interest for both sides.
The technology is used to recover production from maturing wells by injecting carbon dioxide into
the fields. Adnoc has plans to enhance its recovery rate, where commercially viable, to 70 per cent.
The state oil company uses carbon captured at its Reyadah facility to enhance recovery from some
fields.
Technology is also covered under the agreement, which includes opportunities in developing
systems for integrating upstream and downstream operations using artificial intelligence, as well as
other areas.
"[The framework agreement] creates a platform for co-operation in research and development, as
well as upstream and downstream sectors," said Vladislav Baryshnikov, Gazprom Neft's deputy
chief executive for international business development.
"Our partnership builds capacity to deliver breakthrough solutions that can be used to achieve the
goals of Gazprom Neft technology strategy and to overcome the challenges confronting the
industry."
Adnoc awards 5% stake in Ghasha concession to Russia's Lukoil
Abu Dhabi National Oil Company awarded Lukoil a 5 per cent stake in the ultra-sour gas Ghasha
concession, marking the first time a Russian energy firm has participated in the emirate's upstream
activities.
The Russian firm will pay Dh697.3 million as a signing fee for the stake in a concession expected
to produce up to 1.5 billion cubic feet per day of gas and 120,000 barrels per day of crude and high-
value condensate by 2025.
Lukoil will be the fourth foreign partner to join the Ghasha concession, which also has Austria's
OMV, Italy's Eni and Germany's Wintershall as stakeholders. Adnoc retains the majority interest in
the concession, which includes the Hail, Ghasha, Dalma, Nasr, SARB, Bu Haseer, Shuweihat and
Mubarraz offshore sour gas fields.
"Lukoil joins our other value-add partners on the Ghasha concession, which is integral to our
objective of enabling gas self-sufficiency for the UAE," said Dr Sultan Al Jaber, Adnoc group chief
executive and UAE minister of state.

Meanwhile, the Russian Direct Investment Fund, the country's sovereign wealth fund signed a
framework agreement to explore further opportunities within the Ghasha concession. The
agreements were signed during the visit of Russian President Vladimir Putin to Abu Dhabi on
Tuesday.
"The concession award, as well as the framework agreement, reflect the strong and strategic
bilateral ties between the UAE and Russia and highlight the important role of energy cooperation in
strengthening the relations between our two countries," said Dr Al Jaber.
Adnoc is developing its gas caps such as Ghasha in a bid to boost its overall gas output to meet
demand for power and industrial use. The Ghasha project is expected to provide electricity to more
than two million homes. Much of the UAE's gas is trapped in unconventional, sulphurous caps, also
known as sour gas, which contains sulphur that has to be stripped to produce gas suitable for
consumption.
Last year, Adnoc started awarding stakes in its unconventional gas fields to international companies
to help unlock the reserves. The company awarded a 40 per cent stake in the Ruwais Diyab
unconventional gas concession to French energy major Total.
OMV was awarded a 5 per cent stake in the Ghasha concession, while Germany’s biggest energy
producer, Wintershall, secured a 10 per cent stake. Eni has a 25 per cent stake in the offshore
asset.Lukoil, one of Russia's largest oil companies, accounts for around 2 per cent of global output
and has 1 per cent of proven hydrocarbon reserves under its management.

UAE:Mubadala completes deal with the Carlyle group on Cepsa
The National + NewBase
Carlyle acquires a 37 per cent stake in Spanish oil and gas firm
Mubadala Investment Company, the Abu Dhabi strategic investment firm, completed a
deal to sell a significant minority interest in its fully-owned Spanish oil and gas firm
Compania Espanola de Petroleos (Cepsa) to US-based Carlyle Group, the companies
said on Tuesday.
Mubadala will remain the majority shareholder of Cepsa with a 63 per cent stake, while
funds affiliated with Carlyle Group will have a 37 per cent stake, the statement said.
Carlyle and Mubadala have also named Philippe Boisseau as chief executive of Cepsa,
succeeding Pedro Miro, who is retiring.
Philippe is a seasoned industry leader with an extensive track record of over 30 years,
notably with the Total Group, where he served in senior leadership roles in France, the
Middle East, the United States and Argentina.
“We are pleased to have completed the transaction and look forward to working closely
with Carlyle and Cepsa’s management on growing the business and creating even
greater value from its portfolio and operations,” said Musabbeh Al Kaabi, chief executive
of Mubadala's petroleum & petrochemicals arm and chairman of Cepsa.
Mubadala will be entitled to appoint five members to the board, including its chairman,
and Carlyle will appoint three members following the transaction. In addition, there will
continue to be one independent member and the company’s chief executive to complete
the board’s composition.
Cepsa is Europe’s biggest privately-owned oil and gas company, with an extensive
network of retail service stations across the Iberian Peninsula and two refineries in Spain.
It is also a global leader in the production of linear alkyl benzene (LAB), a key component
in the manufacture of biodegradable detergents, and is the second-largest producer of
phenol and acetone.

UAE: Dewa secures lowest bid $1.7 cents for MBRASP Phase Five
DEWA+NewBase
Dubai Electricity and Water Authority (Dewa) said it has received the lowest bid of $1.6953 cents
per kilowatt hour (kW/h) for the 900-MW Phase Five of the Mohammed bin Rashid Al Maktoum
Solar Park for using photovoltaic (PV) solar panels, based on the independent power producer (IPP)
model.
This phase will become operational in stages starting in Q2 of 2021, said a statement from the Dubai
utility. Dewa said it is building three other projects with a total capacity of 1,250 MW. The 900-MW
Phase Five of the solar park will increase its production capacity to 2,863 MW, it added.
Lauding the achievement, Saeed
Mohammed Al Tayer, the managing
director and CEO, said: "For the fifth
time, Dewa has achieved a world
record in getting the lowest price for
PV solar power projects based on the
IPP model. This shows the priority our
wise leadership gives to clean and
renewable energy projects, which has
contributed to its global cost
reduction."
"The projects at the Mohammed bin
Rashid Al Maktoum Solar Park, the
largest single-site solar park in the
world, are of great interest to
international developers and reaffirms investor confidence in the major projects that are supported
by the government of Dubai," noted Al Tayer. "Dewa has attracted huge investments to the UAE
from the private sector and foreign banks, leading to increased cash flow to the economy of Dubai
and the UAE," he added.
Al Tayer said achieving the Dubai Clean Energy Strategy 2050 to provide 75 per cent of Dubai’s
total power output from clean energy by 2050, requires a capacity of 42,000 MW of clean and
renewable energy by 2050.
Al Tayer said the Dubai utility was committed to completing the key phases according to the highest
international standards using the latest solar power technologies to enhance the shift towards a
green economy by increasing its share of clean and renewable energy. He pointed out that the solar
park would reduce over 6.5 tonnes of carbon emissions annually.
Executive vice-president (Business Development and Excellence) Waleed Salman said Dewa had
released the tender for the Phase Five in February, and received 60 Requests for Qualifications
(RFQ) from developers for construction and operation of the 900-MW project using PV solar panels.
"After studying the proposals, nine consortiums and companies qualified, and were invited to send
their bids," stated Salman, adding that these bids were being studied and the winning bid would be
announced next month.-

Saudi Aramco to tackle pipeline Corrosion problem ,
Trade Arabia + NewBase
Internal corrosion in pipelines is one of the most significant challenges facing Saudi Aramco on a
daily basis, more than 200 attendees from Saudi Aramco organizations were told recently at a forum
and exhibition in Dammam, Saudi Arabia.
Mohammad A Al Hatlani, general manager of Pipelines, opened the Internal Corrosion Forum,
noting the cost of corrosion globally is approximately $2.5
trillion. Saudi Aramco, he added, recognizes that effective
corrosion management — in conjunction with other ongoing
non-metallic materials development, deployment of new
technologies, as well as best practices in inspection,
detection, correction, and prevention — can significantly
reduce such risks and costs.
Al Hatlani said the forum provided an opportunity to enrich
knowledge and exchange ideas and best practices with a
variety of organizations and subject matter experts — both
within Saudi Aramco and externally. “I have seen an increase in participation in these types of
events across different organizations. We can see the high level of interest among all of the
participants,” said Al Hatlani.
According to the National Association of Corrosion Engineers, the total annual cost of corrosion in
the oil and gas production industry is estimated to be $1.372 billion — including $589 million in
surface pipeline and facility costs, $463 million annually in downhole tubing expenses, and another
$320 million in capital expenditures related to corrosion.
Praising the forum’s ability to effectively engage
participants, Al Hatlani highlighted the
importance of the event. “It really focuses on
one of the most important aspects of our
business, which is pipeline integrity. We really
pay a lot of attention to that because it is
essential for safe, reliable, environmentally
friendly, and cost-effective operations,” he said.
Al Hatlani added that internal corrosion
mitigation is a key factor in pipeline integrity
specifically, and the company’s integrity
programs in general. He further added that
interaction and engagement on the topic would
continue beyond the event itself.
“We will get feedback from the participants so
that we can improve the forum. Also, we will summarize the content and the issues we have
discussed and the solutions proposed,” Al Hatlani noted.
“Pipelines, Distribution, and Terminals (PD&T) is playing a very important role because we cover
everything across the Kingdom and all of the way to the terminals where we distribute the company’s
products to the rest of the world,” he said. –

Oman: Musandam Power Company IPO set for next month
Oman Observer - Conrad Prabhu
Musandam Power Company (MPC), which owns and operates the first gas-powered power plant in
Musandam Governorate, will offer 40 per cent of its share capital in the form of an Initial Public Offering
(IPO) via a listing on the Muscat Securities Market next month.
It follows a decision by the Capital Market Authority (CMA) approving MPC’s prospectus for the IPO,
which will be offered in two stages as part of a ‘book building’ process – the first time it has been
deployed in an IPO issued on the Muscat bourse, according to a Muscat-based market analyst.
“What makes the IPO particularly unprecedented and interesting is the application of the ‘book-building’
mechanism for the first time in a public offering on the MSM,” said Hettish Karmani, Head of Research
at U Capital, the Sultanate’s leading investment banking platform.
“Book-building is typically a process whereby the book runner sets the price range in the first phase at
which the IPO will be offered to the institutions. Institutions bid for IPO within the range given and the
price discovery is done, following which the same price is offered to retail in the second phase,” Karmani
explained.
In a series of tweets on Sunday, the CMA announced that the IPO of 28 million shares will be offered
in two phases. In the first phase, around 14 million shares will be offered within the price range of
260 bz to 325 bz per share.
The subscription period for the first phase is November 3-7, 2019, it said. In the second phase, the
remaining 14 million shares will be offered at a fixed price to be announced upon the completion of
the first phase. The subscription period covering the second phase will be announced on November
12, the Authority said, citing the company’s prospectus.
Musandam Power Company (MPC) is a joint venture between Oman Oil and Orpic Group – the
Sultanate’s integrated energy powerhouse with a 70 per cent stake — and LG International Corp (30
per cent). The company’s 120 MW capacity power plant — the first Independent Power Project (IPP) in
the strategically important enclave — came into operation in July 2017.

Russia & Saudi Arabia seal major deals & sign OPEC+ cooperation charter
RT
More than 20 deals have been signed on Monday between Moscow and Riyadh during President
Vladimir Putin’s state visit to Saudi Arabia.
Agreements include the charter for long-term cooperation between the Organization of the
Petroleum Exporting Countries (OPEC) and non-cartel oil producers. Along with the charter, the two
countries have signed a protocol on energy cooperation.
Saudi Arabia's Crown Prince Mohammed bin Salman speaks during talks with Russian President Vladimir Putin in Riyadh, Saudi Arabia
The Russian Direct Investment Fund (RDIF), Saudi Basic Industries Corporation (SABIC), and ESN
Group agreed to invest in designing, building, and operating a methanol plant in Russia’s Far East,
in the Amur region. The plant is expected to have an annual capacity of up to 2 million tons,
according to RDIF.
Russia’s sovereign fund along with Saudi Arabia’s Public Investment Fund and German investment
group KGAL have agreed to invest $600 million in setting up a joint firm, called Roal, which will
lease passenger jets in Russia.
RDIF said Saudi Arabia’s sovereign wealth fund PIF will contribute to an investment in
NefteTransService (NTS), Russia’s major railroad rolling stock operator, worth up to $300 million.
RDIF CEO Kirill Dmitriev praised cooperation with PIF in Russian railroad logistics sector as
a “testament of close collaboration.”
“We support the expansion of NefteTransService’s business as one of the leading players in the
railway logistics market,” said Dmitriev. RDIF, PIF, and the world’s most valuable company Saudi
Aramco have also signed transaction documents to acquire a 30.76% shareholding in Russia’s
Novomet, which is one of the leading producers of oil-submersible equipment.

Russia to build $1bn oil complex in Saudi Arabia & further boost investment in joint projects
The investment will be completed upon approval from Russia’s Federal Antimonopoly Service, RDIF
said. This will be the first joint investment of RDIF and Saudi Aramco within the framework of the
energy platform, which was created in 2017 with PIF participation for the sake of investing in
Russia’s energy sector and possibly localizing business in the Middle East and Saudi Arabia
afterwards.
“RDIF, in partnership with Saudi Aramco and PIF, will support significant growth of Novomet’s
business both in Saudi Arabia and other key markets in the Middle East,” said Dmitriev.
“The company will be able to expand its pipeline of orders for the production and maintenance of
equipment and further develop its product line,” he added.
Russia and Saudi Arabia have also agreed to the mutual expansion of agricultural and food products
exports. The two sides signed a memorandum which, according to the head of the Russian Ministry
of Agriculture, Dmitry Patrushev, provides for an increase in the supply of cereals, live animals,
livestock products, food, fish products, shrimp, fruits and dates, niche crops, and forage grasses.
“Russian companies are interested not only in increasing trade volumes for traditional types of
products, but are also ready to expand its range. We see prospects, including in terms of increasing
supplies of poultry, beef, and mutton. We are ready to increase deliveries of oil and fat, dairy, flour
products, and confectionery,” Patrushev said. Meanwhile, a statement of intent was signed
between Russia’s state space corporation Roscosmos and the Saudi Space Commission, on
cooperation in financing space exploration and the GLONASS global navigation satellite system

Russia & China to Build Largest petrochemical plant US$B13.25
www.china.org.cn/business/2019-0/15/content_75302707.htm
China National Chemical Engineering Group Corporation has signed an agreement worth around
12 billion euros (US$13.25 billion) with Russia's RusGasDobycha in Chengdu, Southwest China's
Sichuan province.
This project is the biggest ethylene integration project in the world, the biggest single contract in the
global petrochemical field, as well as the biggest contract signed by Chinese enterprises so far, Dai
Hegen, chairman of China National Chemical Engineering Group said when interviewed by China
Central Television.
China National Chemical Engineering Group Corporation signed an agreement worth around 12 billion euros
(US$13.25 billion) with Russia's RusGasDobycha on Oct. 11, 2019. [Photo/cncec.cn]
The contract includes construction of a natural gas processing chemical plant, which include two
sets of ethylene cracking facilities with an annual capacity of 1.4 million tons; six sets of polyethylene
facilities with an annual capacity of 480,000 tons; two sets of LAO facilities with an annual capacity
of 137,000 tons; and an outside battery limiter (OSBL).
It is signed by China National Chemical Engineering No. 7 Construction Co Ltd and Baltic Chemical
Complex LLC, a wholly-owned subsidiary of RusGazDobycha, whose business covers the complete
industry chain of natural gas, such as extraction, transportation and downstream processing.
The project is divided into three phases: infrastructure extension, early stage engineering, and
project implementation. The contract period is 60 months.
Since the Belt and Road Initiative was introduced in 2013, China National Chemical Engineering
Group has grasped opportunities to develop its globalization roadmap. The company currently has
more than 320 projects under construction overseas, worth more than US$58 billion.
These projects cover more than 60 countries and regions such as Russia, Indonesia, Malaysia,
United Arab Emirates, Saudi Arabia, Pakistan, Turkey and Egypt, the company said on its website

China's Yantai Port to launch LNG storage plants by 2022:
Reuters -Muyu Xu, Shivani Singh
China’s Yantai Port Group aims to launch two jointly-owned liquefied natural gas (LNG) storage
facilities by 2022 and expects government approval for them this month, two sources familiar with
the matter said.
Shandong province, where the Yantai port is located, is an industrial and petrochemical hub in
China. It has one quarter of the country’s steel capacity and is also a big coal consuming region,
though it is yet to house a gas-powered plant.
Yantai Port, which holds a 19% stake in the project, is building the two facilities, one with a 5 million
ton capacity and another able to store 6.5 million tonnes, with Yantai LNG Group. Yantai LNG Group
is jointly owned by Poly-GCL Petroleum Holding Group Ltd, Pan-Asia International Energy
Distribution Center Co and Yantai Port.
Land reclamation for the project has started, one of the sources, who declined to be identified, told
Reuters. Phase 1 will cost $1.1 billion and will comprise an LNG-dedicated port area, an LNG berth
able to receive up to 266,000-cubic meter LNG carriers, a 50,000 cubic-meter trans-shipment berth,
and five 200,000 cubic meter storage tanks, a second official said.
It will receive 5 million metric tonnes of LNG per year and regasify 40 million cubic meters per day,
he added. A second phase, expected to launch by 2025, will comprise of two LNG berths receiving
up to 266,000 cubic meter carriers, and five more 200,000 cubic meters storage tanks, expanding
Yantai LNG’s receiving capacity to 10 million tonnes per year.
Yantai Port Group is also investing in a separate 5 million ton storage project at Yantai port which
CNPC aims to build by 2022. Yantai will take 49% stake in that project with CNPC holding the
majority share of 51%, he said.
Separately, Yantai Port will build a 300,000-tonne crude oil berth for a new petrochemical project in
Yantai, the official said.

U.S: Crude oil used in refineries getting lighter in most regions
Source: U.S. Energy Information Administration, Monthly Refinery Report
The API gravity of crude oil input to U.S. refineries has generally increased, or gotten lighter, since
2011 because of changes in domestic production and imports. Regionally, refinery crude slates—
or the mix of crude oil grades that a refinery is processing—have become lighter in the East Coast,
Gulf Coast, and West Coast regions, and they have become slightly heavier in the Midwest and
Rocky Mountain regions.
API gravity is measured as the inverse of the density of a petroleum liquid relative to water. The
higher the API gravity, the lower the density of the petroleum liquid, so light oils have high API
gravities. Crude oil with an API gravity greater than 38 degrees is generally considered light crude
oil; crude oil with an API gravity of 22 degrees or below is considered heavy crude oil.
The crude slate processed in refineries situated along the Gulf Coast—the region with the most
refining capacity in the United States—has had the largest increase in API gravity, increasing from
an average of 30.0 degrees in 2011 to an average of 32.6 degrees in 2018. The West Coast had
the heaviest crude slate in 2018 at 28.2 degrees, and the East Coast had the lightest of the three
regions at 34.8 degrees.
Production of increasingly lighter crude oil in the United States has contributed to the overall
lightening of the crude oil slate for U.S. refiners. The fastest-growing category of domestic
production has been crude oil with an API gravity greater than 40 degrees, according to data in the
U.S. Energy Information Administration’s (EIA) Monthly Crude Oil and Natural Gas Production
Report.
Since 2015, when EIA began collecting crude oil production data by API gravity, light crude oil
production in the Lower 48 states has grown from an annual average of 4.6 million barrels per day
(b/d) to 6.4 million b/d in the first seven months of 2019.

When setting crude oil slates, refiners consider logistical constraints and the cost of transportation,
as well as their unique refinery configuration. For example, nearly all (more than 99% in 2018) crude
oil imports to the Midwest and the Rocky Mountain regions come from Canada because of
geographic proximity and existing pipeline and rail infrastructure between these regions.
Crude oil imports from Canada, which consist of mostly heavy crude oil, have increased by 67%
since 2011 because of increased Canadian production. Crude oil imports from Canada have
accounted for a greater share of refinery inputs in the Midwest and Rocky Mountain regions, leading
to heavier refinery crude slates in these regions.
By comparison, crude oil production in Texas tends to be lighter: Texas accounted for half of crude
oil production above 40 degrees API in the United States in 2018. The share of domestic crude oil
in the Gulf Coast refinery crude oil slate increased from 36% in 2011 to 70% in 2018. As a result,
the change in the average API gravity of crude oil processed in refineries in the Gulf Coast region
was the largest increase among all regions in the United States during that period.
East Coast refineries have three ways to receive crude oil shipments, depending on which are more
economical: by rail from the Midwest, by coastwise-compliant (Jones Act) tankers from the Gulf
Coast, or by importing. From 2011 to 2018, the share of imported crude oil in the East Coast region
decreased from 95% to 81% as the share of domestic crude oil inputs increased. Conversely, the
share of imported crude oil at West Coast refineries increased from 46% in 2011 to 51% in 2018.

NewBase October 16 – 2019 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices edge higher as OPEC hints at deeper output cuts
Reuters + NewBase
Oil prices rose on Wednesday, tracking gains in equities, as investors pinned hopes on a potential
Brexit deal between Britain and the European Union and on signals from OPEC and its allies that
further supply curbs could be possible.
But gains were limited due to lingering concerns of a global economic slowdown.
Global benchmark Brent crude oil futures LCOc1 had risen 10 cents to $58.84 by 6.38 GMT, up
about 0.17% from the previous day’s close. U.S. West Texas Intermediate (WTI) crude CLc1 had
gained 8 cents or 0.15% to $52.89 a barrel.
“Oil is starting to see some bullish positions added on the easing of two big tail risks for global
demand, the U.S.-China trade war and Brexit,” said Edward Moya, a senior market analyst at
OANDA in New York.
Oil price special
coverage

“While a broader trade deal seems unlikely in the immediate future, the risks for the U.S.-China
trade war have been fading.”
Last-ditch talks between Britain and the European Union to get a Brexit deal ahead of a summit of
the bloc’s leaders this week ran past midnight to Wednesday, but it was still unclear if Britain could
avoid postponing its departure, due on Oct. 31.
Analysts have said any deal that avoids a “hard” or no-deal Brexit should boost economic growth
and in turn oil growth and prices.
Providing more support, OPEC Secretary-General Mohammad Barkindo said the Organization of
the Petroleum Exporting Countries “will do whatever (is) in its power” along with its allied producers
to sustain oil market stability beyond 2020.
OPEC, Russia and other producers have cut oil output by 1.2 million barrels per day to support the
market. Yet an expected rise in U.S. crude inventories this week kept prices under pressure. U.S.
crude stocks probably grew for the fifth straight week, a preliminary Reuters poll showed.
U.S. oil inventory reports are due out from industry group the American Petroleum Institute on
Wednesday and the U.S. Energy Information Administration on Thursday. The reports have been
delayed one day because of a U.S. government holiday.
“Should EIA inventories illustrate for a fifth consecutive week build, we expect for strong selling
pressure to afflict oil prices on an intraday basis,” Benjamin Lu from Phillip Futures said in a
note.Concerns of a global economic slowdown due to a lingering trade war between the United
States and China and swelling U.S. inventories also pressured prices.
The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009
financial crisis, the International Monetary Fund warned on Tuesday.

NewBase Special Coverage
News Agencies News Release Oct. 16-2019
Dilemma for Oil Refiners as Surging Ship Costs Kill Margins
Bloomberg - Serene Cheong and Sharon Cho
Oil refiners hoping for some fourth-quarter gravy are facing disappointment as surging freight
rates inflate the cost of buying crude.
U.S. sanctions on Chinese shipping companies and Friday’s attack on an Iranian tanker have turbo-
charged transport costs, with rates on the Persian Gulf to China route at almost six times this year’s
average. That’s slashing the margins of refiners, who had been anticipating a boost in profitability
due to cleaner ship-fuel rules set to take effect next year.
Complex refining profits in Singapore tumbled to $2.91 per barrel on Friday from as high as $10.28
on Sept. 17, according to data from Oil Analytics. Margins are near the lowest for this time of year
over the past five years, based on assessments against Dubai benchmark crude, after being above
the highest level last month.
Refining Gains Plunge
Singapore complex refining margins nears five-year low
Source: Oil Analytics
Note: Figures reflect refinery economics based on Dubai crude

Crude processors are now faced with a dilemma: to buy and ship crude at much higher prices and
risk low or no profits, or to cut operating rates and jeopardize supply of fuels over winter.
“Overall, refinery margins aren’t terrible when considered against oil benchmarks such as Dubai or
Brent, but I can see why some refiners may consider run cuts once you add physical oil premiums
and freight costs,” said Nevyn Nah, an oil analyst at Energy Aspects Ltd.
Refiners are more likely to tap their existing inventories for feedstock, rather than reduce run rates
as we approach the year-end when fuel demand peaks, Nah said. Using up stockpiled oil has the
added benefit of lowering taxes that are typically slapped on crude hoards at the turn of the year,
he said.
Freight rates have risen by about four to five times since the U.S. sanctions and that’s hurting Indian
Oil Corp.’s margins, a company official said in New Delhi Monday. The state-owned refiner
is reducing spot purchases of crude as a result, the official said.
When calculated against Saudi Arabia’s Arab Medium oil, Singapore complex margins fell to a deficit
of $1.58 a barrel on Friday, the lowest in data going back to 2008. On a seasonal basis, processing
returns are about $1.80 below the lowest level over the last five years.
Refining Saudi's Arab Medium oil into fuels is a loss-making business
Returns from breaking down crude into products such as plastics, gasoline and diesel typically peak
in the last three months of each year due to consumption over winter, prompting processors to

increase operating rates. The cleaner ship-fuel rules, known as IMO 2020, were expected to benefit
refiners by causing a shift toward more high-quality fuels that fetch higher prices.
“The second half of this year was supposed to look better for refiners, especially with seasonal
demand,” said Will Sungchil Yun, a commodities analyst at HI Investment & Futures Corp. in Seoul.
“But the sudden spike in freight rates is definitely a burden” and discussions on potential run-rate
reductions may start to take place, he said.
Oil refiners hoping for some fourth-quarter gravy are facing disappointment as surging freight rates
inflate the cost of buying crude.
U.S. sanctions on Chinese shipping companies and Friday’s attack on an Iranian tanker have turbo-
charged transport costs, with rates on the Persian Gulf to China route at almost six times this year’s
average. That’s slashing the margins of refiners, who had been anticipating a boost in profitability due
to cleaner ship-fuel rules set to take effect next year.
Complex refining profits in Singapore tumbled to $2.91 per barrel on Friday from as high as $10.28 on
Sept. 17, according to data from Oil Analytics. Margins are near the lowest for this time of year over
the past five years, based on assessments against Dubai benchmark crude, after being above the
highest level last month.
Crude processors are now faced with a dilemma: to buy and ship crude at much higher prices and risk
low or no profits, or to cut operating rates and jeopardize supply of fuels over winter.
“Overall, refinery margins aren’t terrible when considered against oil benchmarks such as Dubai or
Brent, but I can see why some refiners may consider run cuts once you add physical oil premiums and
freight costs,” said Nevyn Nah, an oil analyst at Energy Aspects Ltd.

Refiners are more likely to tap their existing inventories for feedstock, rather than reduce run rates as
we approach the year-end when fuel demand peaks, Nah said. Using up stockpiled oil has the added
benefit of lowering taxes that are typically slapped on crude hoards at the turn of the year, he said.
Freight rates have risen by about four to five times since the U.S. sanctions and that’s hurting Indian
Oil Corp.’s margins, a company official said in New Delhi Monday. The state-owned refiner is reducing
spot purchases of crude as a result, the official said.
When calculated against Saudi Arabia’s Arab Medium oil, Singapore complex margins fell to a deficit
of $1.58 a barrel on Friday, the lowest in data going back to 2008. On a seasonal basis, processing
returns are about $1.80 below the lowest level over the last five years.
Returns from breaking down crude into products such as plastics, gasoline and diesel typically peak in
the last three months of each year due to consumption over winter, prompting processors to increase
operating rates. The cleaner ship-fuel rules, known as IMO 2020, were expected to benefit refiners by
causing a shift toward more high-quality fuels that fetch higher prices.
“The second half of this year was supposed to look better for refiners, especially with seasonal
demand,” said Will Sungchil Yun, a commodities analyst at HI Investment & Futures Corp. in Seoul.
“But the sudden spike in freight rates is definitely a burden” and discussions on potential run-rate
reductions may start to take place, he said.
VLCC freight rates at USD 300,000 per day to carry crude oil from the Middle East to Asia aren’t
sustainable for a prolonged period in our view. The cost of transportation now represents in excess
of 12% of the cargo’s value, much higher than the typical levels of 1.5% - 2%.
The additional cost has been covered by the charterers for contracts already agreed weeks ago,
with companies simply focusing on securing ships to carry the cargoes after the US imposed
sanctions on COSCO. However, once we start observing a lack of new cargoes, which could start
happening this week, sentiment will inevitably change, but only time will tell how long this rally in
rates can be maintained.
As we highlighted in our earlier article, the dominant role played by tanker subsidiaries of COSCO
Shipping Corporation in Chinese oil imports will continue to have a ripple effect as buyers scramble
to contract enough VLCC tonnage in a bid to secure the country’s crude oil supply.

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
The Editor :”Khaled Al Awadi” Your partner in Energy Services
NewBase energy news is produced daily (Sunday to Thursday) and
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For additional free subscription emails please contact Hawk
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Khaled Malallah Al Awadi,
Energy Consultant
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME member since 1995
Hawk Energy member 2010
www.linkedin.com/in/khaled-al-awadi-38b995b
Mobile: +971504822502
khdmohd@hawkenergy.net or khdmohd@hotmail.com
Khaled Al Awadi is a UAE National with a total of 28 years of experience in
the Oil & Gas sector. Currently working as Technical Affairs Specialist for
Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy
consultation for the GCC area via Hawk Energy Service as a UAE operations
base , Most of the experience were spent as the Gas Operations Manager in
Emarat , responsible for Emarat Gas Pipeline Network Facility & gas
compressor stations . Through the years, he has developed great experiences
in the designing & constructing of gas pipelines, gas metering & regulating
stations and in the engineering of supply routes. Many years were spent
drafting, & compiling gas transportation, operation & maintenance agreements along with many
MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences
held in the UAE and Energy program broadcasted internationally, via GCC leading satellite
Channels.
NewBase : For discussion or further details on the news above you may contact us on +971504822502 , Dubai , UAE
NewBase 2019 K. Al Awadi

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