HYDROCARBON
ENGINEERING
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storage operators to help traders build and manage new supply
chains.
Today, the region offers a creative mix of storage choices
provided by independent operators like Royal Vopak and
Oiltanking, state owned firms, the supermajors, floating vessel
operators, and traders. With Brent crude down from a high of
US$115/bbl last June to approximately US$45/bbl in early January,
China, South Korea, Southeast Asia and Australia have staked out
unique positions in the region’s oil trading and storage play.
China
The oil market’s collapse has greatly aided China’s crude
stockpiling agenda as suppliers desperately seek to offload their
cargoes at huge discounts. With oil prices at new six year lows in
January, China boosted crude imports for stockpiling as well as
processing at its vastly expanded refining capacity. At current
prices, China’s 2014 oil import bill may have fallen by half from
2013’s US$222 billion.
Analysts expect Chinese state firms to import between
50 and 60 million bbls of crude for storage in 2015, and by up to
100 million bbls next year to meet the government’s official
target to stockpile 500 million bbls of crude by 2020. This does
not include storage held by China’s private companies and in
tankers berthed in offshore locations.
Its refiners need the additional crude to feed at least
4.3 million bpd of new capacity that they expect to start up
between 2012 and 2018, according to the International Energy
Agency (IEA). BP has said that, China’s refining capacity rose from
10.3 million bpd in 2010 to 12.6 million in 2013. With this
unexpected windfall of cheap oil, China will not only complete
its stockpiling programme ahead of schedule, it will be
encouraged to raise stockbuilding targets as well.
According to the IEA, China has completed four stockpiling
bases with a combined capacity of 103 million bbls under the first
phase of its strategic petroleum reserve (SPR) plan. Combined, the
terminals at Zhoushan, Zhenhai, Dalian and Huangdao port now
hold more than 91 million bbls, according to the National Bureau
of Statistics. Completed in 2009, the terminals were initially filled
to capacity, but were sometimes tapped when oil prices surged
between 2010 and 2013. Construction of the programme’s second
phase and planning of the third phase are underway to meet the
SPR’s 500 million bbl target by 2020. China plans to build
207 million bbls of new capacity in eight locations in the second
phase, according to the China National Petroleum Corporation
(CNPC). In the third phase, the IEA has said that the government
aims to develop between 150 and 200 million bbls of new
capacity to officially meet 90 days of imports. Separately, Beijing
is also encouraging the private sector to build its own stockpile.
Despite China’s promise to be more open about its
stockpiling strategy, the IEA has said it is unsure about its
implementation and impact on the oil markets due to Beijing’s
‘unclear distinction’ between what constitutes strategic and
commercial storage.
Storage supports China’s rise as oil products
exporter
China’s expanded storage capacity and rising imports of cheap
crude oil have combined to position its refiners to become oil
product exporters. Despite an appreciable slowdown, China’s
economy is still expected to grow by at least 6%/y over the next
few years and that will underpin the country’s rising energy
demand. The world’s second largest oil consumer will use
11.34 million bpd in 2015, up by 3.3% from 2014 to follow on a 3.5%
rise in 2013, according to the US Energy Information
Administration (EIA).
As the world’s oil supply glut worsens, producers are
hurriedly locking down crude sales with the world’s fastest
growing major market. Since mid 2014, tanker owners and brokers
have said that there has been a sharp surge in vessel bookings and
oil traffic to China, pushing chartering rates to their highest levels
in more than five years. But these deliveries are ending up in
storage as China’s domestic oil consumption rose by just 2.3% in
the first 11 months of 2014, according to Platts. At the same time,
Chinese crude intake rose 9% while product imports plunged by
more than 26% over the same period, leaving it with a growing
fuel surplus. Platts has also said that these trends have enabled
China to ship out 26.85 million t of oil products in the first
11 months of 2014, up 3.8% year on year.
The IEA began noticing China’s active stockbuilding last April
when it said the country’s crude import reached a record high
6.81 million bpd for the month. Reporting 'an unprecedented
crude stockbuild of 1.4 million bpd', the agency said China might
have begun filling a recently completed expansion of its strategic
petroleum reserve facilities. 'How Chinese importers plan to use
those barrels remains an open question. Reports of Chinese
budget allocations to expand strategic reserves suggest that the
oil is going into storage, a view backed by the fact that some of
the Chinese ports where crude imports rose the most border the
new strategic facilities in Tianjin and Huangdao', it concluded.
South Korea
Another player eyeing a regional supply role is South Korea which
expects to generate US$25 billion/y in revenue from oil storage
and trading activities when its three commercial terminals are
fully operational from 2021. The government will grant oil
companies trading flexibility, a five year tax holiday and support
to develop oil related financial services and derivatives. It also
wants international energy media sources like Platts and Argus to
publish Korea linked oil prices for trading use.
The Ministry of Energy Trade and Industry aims to lease out
20 million bbls of state owned storage capacity for private and
foreign companies to distribute, blend and trade crude and oil
products. This will boost South Korea’s storage capacity to
support trading to 56.6 million bbls to compete against
Singapore’s 52 million bbls. The government will also make it
easier for the companies’ foreign employees and families to
obtain residency rights and education for their children.
South Korea wants to become the world’s fourth main oil
storage and trading centre after the Amsterdam Rotterdam and
Antwerp (ARA) area in Europe, Houston in the US, and Singapore.
It is investing heavily to develop the southern port cities of Ulsan
and Yeosu into oil hubs to serve Asia’s rising energy demand.
State owned KNOC has a 51% stake in Korea Oil Terminal
Co Ltd (KOT) which is building the country’s second terminal in
Ulsan to store 9.9 million bbls of products. KOT, which is partly
owned by Dutch storage specialist Royal Vopak (38%) and South
Korean refiner S-Oil (11%), expects to start up the 622 billion won
terminal located 380 km south of Seoul in 2017. KNOC also leads
a consortium that started up the country’s first commercial
terminal in Yeosu in April 2013 with the capacity to hold
