When making investment decisions, Asian oil and gas companies must weigh the region’s continuing industrial growth against North America’s potential to supply inexpensive petroleum products based on abundantly exploited shale gas reserves.
Malaysia’s state-owned oil and gas company Petroliam Nasional Bhd., commonly known as Petronas, recently announced plans to invest $27 billion in the construction of a new refining and petrochemical complex in the southern state of Johor, close to the border with Singapore. Yet some major independent oil-and-gas industry players have pulled back from parallel investments.
It’s been predicted Chinese refiners will add the largest proportion of new refining capacity planned globally in 2014/2015, with the launch of a further 1.2 million bpd, according to a new report on the global refining and marketing industry outlook published by Moody’s. Yet, China’s largest refiner, Sinopec Corp., has reconsidered its plans to invest in new petrochemical projects, shelving proposed billion-dollar investments.
The decision to proceed with the Pengerang Integrated Complex has been approved by Petronas’ board of directors, which voted to invest about $16 billion in a refining and petrochemical integrated complex. A further $11 billion will be allocated to constructing associated facilities, including raw-water supply and power co-generation plants, as well as a liquefied natural gas regasification terminal. The refinery should go live in 2019, the company said.
CEO Shamsul Azhar Abbas said that before making the final investment decision the company carried out a thorough project review, including commissioning an independent assessment by a third party, to make sure the complex would be in line with Petronas’ goals for long-term profit and sustainable growth.
The Pengerang Integrated Complex is part of a wider petroleum complex that the Johor government plans to build, hoping to turn the state into a regional energy hub. However, plans to build facilities at Pengerang have already been dropped by BASF and Kuokuang, a division of Taiwanese state-owned refiner CPC Corp.
Based on the increase in refining capacity, Chinese refined-products output will exceed domestic demand, suggesting that the country will ramp up exports. Meanwhile, substantial new capacity is also expected to go live in the Middle East, but developments in the region are less predictable the opaqueness of state-owned companies.
Overall, the Moody’s analysis predicts that earnings before interest, taxes, depreciation and amortization for the refining & marketing sector are likely to remain volatile globally but on average they are expected to go up about eight percent through the second half of 2015.
Refiners in North America will still remain in a leading position, especially those located at the Gulf Coast. Their competitive advantage will persist thanks to cheaper feedstock and low natural gas prices. That is why the region is expected to see earnings go up by 10% or more through the same period.
Chem projects stall
The main reason for Sinopec dropping plans for new chemical projects is growing competition from the U.S. petrochemical sector, in addition to increasing domestic opposition from environmental groups over new projects related to oil and gas development.
The announced move follows a previously stated reduction of budget for 2014, as a reaction to unsatisfactory performance of Sinopec’s chemical unit and in response to China’s economic slowdown. Previously, the company announced it was dropping plans for a $3.1 billion ethylene plant in Qingdao city.
But the overall scale-back comes after two decades of continual investment and expansion, not just by Sinopec but also by other major players in the Chinese energy market, Reuters noted. The trend appears to be reversing at present, with other companies taking similar steps. PetroChina, another big gun in the sector, has stalled a $13 billion project that it was planning together with Shell in the eastern part of the country, and another one with state-owned Petroleos de Venezuela.