China will account for nearly a third of global refining capacity additions over the next two years with about one million barrels per day (bpd) likely to stream by 2016 according to a new report by Bank of America-Merrill Lynch.

Next year alone, global refining capacity is set to increase by two million bpd—the largest addition to crude distillation unit capacity since 1999—with capacity addition outpacing oil demand growth, the bank said.

CDU capacity expansions around the world will increase to 1.1 million bpd in 2016.

China will likely add 700,000 bpd of new refining capacity next year and 200,000 bpd in 2016 versus 600,000 bpd in 2014.

The expansion of China National Offshore Oil Corp.'s (CNOOC) Huizhou refinery in Guangdong province, which will most likely be delayed from the original schedule of 2015 until the second half of 2016, will boost Huizhou's refining capacity from 12 million metric tonnes per year (mty) to 22 million mty.

The 900,000 bpd of new refining capacity in China over the next two years will outpace the 400,000 bpd of the annual oil demand growth the bank is forecasting for the country, keeping it a net exporter of gasoline and middle distillates.

September 8, 2014

China's economy is shifting from investment toward consumption, and its petroleum use is starting to reflect this trend. Industrial inputs, such as diesel fuel, fuel oil and petrochemicals, make up 70% of Chinese oil consumption. Thus, oil demand was mostly flat between January and July compared to a year earlier, as the country’s industrial activity started to slow down. For example, diesel fuel consumption declined by 1.2% during the first seven months of the year compared to the same period a year ago. Meanwhile, gasoline demand soared 10.3% this year as consumers’ car purchases grew 11% during the same period.

Most analysts expect Chinese car sales to continue to grow, although growth in gasoline demand may not grow proportionally with the proposal to introduce strict fuel-efficiency standards starting in 2016. The regulations, if approved, call for a reduction in fuel consumption by 6.2% on average every year between 2016 and 2020.

Chinese consumers demand nowhere near as much oil as industrial users do. For every 1% increase in China’s gross domestic product, Chinese oil demand today increases by about 0.3%, according to HSBC. That is down from 1.5% a decade ago, at the height of China's industrial expansion.

Refiners outside China are already feeling this shift. Over the recent years, China built too much capacity to process crude oil. It has started to export that excess capacity; during the last seven months, China exported five times as much diesel fuel compared to last year. This has contributed to lower refining margins in Asia. And although China's major oil companies have pledged to reduce their refining investments, it will take time for demand to keep up with the increased product supply availability.

August 25, 2014

The Japanese government has offered to subsidize up to half the consolidation costs for refineries that display readiness for natural disasters.

To qualify, petroleum wholesalers must put in place measures that would allow them to continue their supply in the event of a natural disaster. Up to two-thirds of the cost of boosting resistance against earthquakes and soil liquefaction, as well as the construction of more tanks for inventory, will be covered.

The Ministry of Economy, Trade and Industry (METI) has requested JPY22 billion (USD209 million) for the effort in the fiscal year 2015 budget and is currently talking with the Finance Ministry. Regardless of the amount allotted, the subsidies will start in the next fiscal year.

Domestic production of petroleum products has been exceeding demand by 20 to 30%. This has lead the ministry to ask oil companies to reduce their capacity by 10% in the next three years.

The ministry, which will keep track of company progress, is also considering implementing rewards and fines for further motivation.

Recently, Cosmo Oil and TonenGeneral Sekiyu have announced their plans to merge the operations of their main refineries in Chiba Perfecture.

August 28, 2014

Brazilian policies to cap gasoline prices may lead 30 ethanol and sugar plants to file for bankruptcy, Valor Economico said, citing a report from a research firm.

The mills, with a combined capacity to process 60 million metric tonnes of sugar cane, have delayed payments to suppliers for several months and aren’t operating, the Sao Paulo-based newspaper said, citing a study by Ricardo Pinto Associados, a firm that provides services and research to Brazil’s sugar and ethanol industry.

Government efforts to contain inflation by blocking state-run Petroleo Brasileiro SA (Petrobras) from raising gasoline prices have made ethanol less competitive in a market where most drivers have the option to choose between gasoline and ethanol to power their “flexible fuel” cars. Only 25% of these cars were filled up with ethanol last year, down from 82% in 2009, as the fuel has become relatively more expensive than gasoline when performance is taken into account, research firm Datagro said in a report in December.

September 29, 2014

Volkswagen Malaysia took top accolades as it won a total of eight awards during the presentation of the recent 2013 Asian Auto Fuel Efficiency Awards.

Organized by one of Malaysia's oldest and most established motoring publications, Asian Auto, the seventh edition of the Asian Auto Fuel Efficiency Awards, is the only automotive award that encourages car manufacturers to offer the latest in engineering and technology to further optimise fuel efficiency and lower emissions.

One of the biggest winners this year, Volkswagen Malaysia won first place in the Performance Coupe Cars category; second place in five categories namely the Executive Cars, Premium Family Cars, Luxury SUVs, Compact MPVs and Luxury MPVs; and third place in the Luxury Family Cars and Performance Hot Hatch categories for outstanding fuel efficiency.

"These recognitions are another great honour for us and further testify to the technology and fuel efficiency of our cars. As a responsible carmaker, we offer Malaysians innovative and cutting-edge technologies that not only reduce fuel consumption but also lessen carbon emission to drive awareness among drivers of the significance of environmental impact without compromising on driving pleasure. We are truly grateful for all your votes and support!" said Armin Keller, managing director of Volkswagen Group Malaysia.

September 21, 2014

Austria’s OMV will be switching from ethyl tertiary butyl ether (ETBE) production to methyl tertiary butyl ether (MTBE) production.

The current FOB Rotterdam spot price for methanol, which is used to produce MTBE, is about half of that of ethanol, which is used to produce ETBE.

The main feedstock to produce MTBE is raffinate, which will come from OMV’s Schwechat refinery.

OMV will produce 100,000 metric tonnes of MTBE annually, 70,000 of which will be used internally to blend finished grade gasoline, the source said. The remainder will be sold via term contracts or in the spot market.

Although OMV starts MTBE production this month, it is unlikely to sell any spot material until the beginning of next year.

MTBE's factor to gasoline, which is a price indicator for MTBE, is 1.25. Low stocks in Europe and strong demand in the Mediterranean this summer and recently in South America and in North Africa have kept MTBE prices high.

October 5, 2014

For the first time, the government of Nepal moved to adopt an automatic pricing mechanism on oil products, including diesel, petrol and kerosene. The new pricing mechanism took effect on Sept. 30. Liquefied petroleum gas (LPG) is exempt.

The new arrangement allows the price of diesel or petrol to rise or fall when there is a minimum of two percent fluctuation in the cost of finished products as determined by Indian Oil Corporation (IOC). IOC is currently the only supplier of petroleum products to Nepal.

Nepal Oil Corporation (NOC) Managing Director Chandika Prasad Bhatta said, “In case of an oil price shock, the Nepal Oil Corporation will control prices with the help of a fund.” He added that the process for setting up that fund has begun.

The fund contains INR500 million (USD8 million) from the government. NOC will withdraw from the fund in case of a loss and deposit money when it makes a profit.

Based on the tariff sent by IOC, prices will be revised every two weeks. IOC will review export prices of petrol and diesel every two weeks, and the prices of kerosene, aviation fuel and LPG monthly.

“The measure is expected to cut the burgeoning losses of NOC and enable private sector’s entry into the business,” said Sunil Bahadur Thapa, minister for commerce and supplies.

The government subsidies began as a method to tame inflation; currently NOC’s government loans are at INR36.66 billion (USD594 million). Thapa says that the new system is meant to put NOC’s finances back on track.

This month, NOC’s projected monthly losses dropped to INR2.8million (USD45,342), mostly due to a decline in global crude oil prices.

The NOC currently makes profits on petrol, kerosene, diesel and aviation fuel but incurs losses on LPG to the tune of INR829.6 million (USD13 million).

The Nepali government has deferred its deadline for introducing dual pricing on LPG because some amendments are necessary. The plan is to sell household cylinders at the subsidized price and commercial ones at full cost.

October 1, 2014

Indonesia’s state oil and gas company PT Pertamina has predicted that subsidized gasoline and diesel oil consumption will be 1.39 million kilolitres ahead of the quota unless the government controls its distribution and effectively, its consumption.

Until Dec. 31, 2014, subsidized gasoline and diesel oil consumption will be 281 thousand and 1.104 million kilolitres, respectively, higher than the quota, according to Pertamina data.

Pertamina predicted that unless the government controls consumption, the quota of subsidized diesel oil will be exceeded on Dec. 6, 2014 and that of gasoline on Dec. 27, 2014.

The data shows that as of July 31, subsidized fuel consumption has reached 26.825 million kilolitres, comprising 17.119 million kilolitres of gasoline, 9.162 million kilolitres of diesel oil and 544,000 kilolitres of kerosene.

Pertamina has projected fuel consumption to reach 46.74 million kilolitres until Dec. 31, 2014, comprising 29.571 million kilolitres of gasoline, 16.269 million kilolitres of diesel oil and 900,000 kilolitres of kerosene.

To prevent the subsidized fuel consumption from exceeding the quota, since Aug. 18, Pertamina has reduced the daily supply of subsidized gasoline and diesel oil to gasoline stations across the country on a pro-rated basis.

Gasoline supplies have been reduced by 5% and diesel oil supplies by 10-15%. As a result, many motorists queued in several gasoline stations in West Java`s coastal areas following rumors that the gasoline stations have run out of subsidized gasoline.

August 25, 2014

A recent report by the Union of Concerned Scientists (UCS) claims that California’s Low-Carbon Fuel Standard (LCFS) will ultimately result in the average consumer spending less on fuel, despite claims by oil companies that LCFS will result in high fuel prices in the state, which has enacted numerous policies to reduce transportation-related emissions, improve energy efficiency and, in some cases, totally eliminate the use of fossil fuel.

Analysts looked at the anticipated costs of California’s policies and concluded that the average consumer will still save money by using less fuel.

According to the UCS analysis, a California driver who purchases a new car in 2015 will save an average of USD3.90 a week on fuel costs compared to a driver who purchased a new vehicle in 2008 before many current standards took effect.

California Assembly Bill 32—which seeks to lower global-warming pollution to 1990 levels by 2020 through mandatory emissions reporting and other regulations—did not take effect until late that year.

The LCFS was established by then-Governor Arnold Schwarzenegger in 2007 to reduce the carbon intensity of transportation fuels by 10% over the same period, but its provisions did not come into force until 2011.

The UCS report suggests that savings associated with these policies could add up to as much as USD3,000 over the 15-year life of a typical vehicle.

By 2020, savings are expected to increase to an average of USD5.20 a week—or more than USD4,000 over the life of the average car—while new-car buyers in 2025 could save USD9.00 each week, equivalent to USD7,000 over the life of the car.

As more-efficient cars then enter the used-vehicle market, UCS analysts note, their benefits will extend to more California drivers. A 10-year-old used car in 2025 will save its driver USD400, compared to a similar car in 2015, the report says.

The UCS study suggests that oil companies and lawmakers focus far too much on potential changes to fuel costs rather than on the long-term savings from using less fuel.

October 1, 2014

The Philippine Department of Energy (DOE) said it is reviewing the price impact of a 5% biodiesel blend on diesel fuel prices. The Biofuels Act of 2006 mandates that a biodiesel blend higher than the current 2% be implemented by 2015.

According to Energy Secretary Carlos Jericho Petilla, the 5% blend is still under review, although the DOE has been considering implementing the higher blend this year. Energy officials say that the country has enough of a supply of biodiesel. Local petroleum firms, however, say they are not ready for the 5% blend roll out.

The Philippine Energy Plan aims to reach energy independence within the next decade. Industry players, such as Chemrez Technologies, believe that blending cocobiodiesel into diesel fuel can help make this happen. The company says a 5% cocodiesel blend could save the Philippines roughly PHP13 billion (USD291 million) worth of imported crude oil annually.

The law dictates that the amount of coconut oil to be blended with diesel fuel may increase, taking into account domestic supply and availability of locally sourced biodiesel.

September 14, 2014