Asia oil, refining & petchem- Impact of MENA crises + Japan quake :: Macquarie Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Asia oil, refining & petchem.
Impact of MENA crises + Japan quake
Event
 MENA shaken: Macquarie’s oil economist Jan Stuart has raised his CY11E
Brent crude price estimates by ~20% (while more-or-less maintaining the
longer term estimates) on the back of the Middle East and North Africa
(MENA) turmoil affecting crude production. The Libyan crisis that has affected
most of its ~1.5mbpd exports (i.e. 33% of global spare capacity) has
exacerbated Middle East problems.
 East Asia quakes: The devastating earthquake and tsunami that struck
Japan on Friday have forced emergency shutdowns at 11 nuclear reactors
and these could be offline for months, and 2 of which are permanently offline.
These shutdowns have removed 10.9 GW of generating capacity, about 23%
of Japan's total nuclear capacity and 4% of its total electrical generating
capacity. We expect that LNG and oil products will need to fill the void. This
would equate to about 0.24mbpdoe of incremental demand, equivalent to 11
mmtpa of LNG. This equates to about 5% of worldwide LNG demand.
Country-specific implications
 Asian import bill to surge: China, Japan and India are the #2, #3 and #4 in
global oil consumption. Overall, Asia (ex-Middle East/Russia) consumes 30%
of the world’s oil, and its thirst is growing at a 5-year CAGR of 1.4%. Hence,
we expect Asian economies to be hit hard by the burgeoning oil import bill.
 China: As a pure upstream player, CNOOC is the main beneficiary of surging
crude oil prices. PetroChina is also heavily oil levered, with 81% EBIT
contribution from upstream. Sinopec is the least sensitive due to a larger
downstream presence, which is more sensitive to price hikes for fuels.
 Japan: Japan upstream players Japex and Inpex are the most leveraged to
crude prices, and see ~26% upgrades to our FY12E earnings. The shutdown
of ~50% of JX holding’s refining capacity (2-3 weeks at least for turnaround)
has dragged the stock down by 15%, which adequately captures the lower
earnings and potential Y30-40bn of writedowns, in our belief.
 India: Only Cairn India is a pure oil play (revised FY12E PAT +7.1%, TP
+4.2%), however we downgrade Cairn to UP due to a significant run-up. GAIL
benefits marginally from increased petchem/LPG pricing (crude-dependent)
for its products made from fixed-price gas. Gross subsidy estimates for FY12
jump to US$33bn (+57%), up ~100% YoY, implying the government would
have to substantially increase support and/or increase fuel prices.
 Korea: SK Innovation has a small upstream presence, and its downstream
margins also benefit from the rub-off effects of improved crude pricing.
 Thailand: PTTEP is the only clear beneficiary in the Thai oil and gas space. It
has 70% gas and 30% oil exposure, hence the positive impact is moderated.
Outlook
 Unregulated Asian oil stocks are positively impacted in general, but
upstream majors (see table alongside) are prime gainers. Stocks with the
highest earnings upgrades are Inpex (+27% FY12), Japex (+26%) and
CNOOC (+21%) (see figs 15-17 for more details).
 Regional sector top picks are Petrochina, RIL, and Inpex