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Asian downstream oil
Japanese earthquake implications
Event
An 8.9 magnitude earthquake hit Japan on Friday afternoon; we examine the
potential impact to Asian refining.
Impact
A regional heavyweight. With respect to consumption at 4.4m b/d, Japan
represents 17% of Asian consumption and is the third largest oil consumer in
the world. We estimate total Japanese refining capacity at 4.5m b/d.
Supply outages material. Using the confirmed closure announcement from
JX Nippon Oil as boundaries, we believe there is an estimated 1.9m b/d that
is at risk. This represents 42% of total Japanese capacity, 7.1% of Asian
capacity and 2.1% of global capacity.
Length of still outages uncertain. Simple shutdowns can be restarted in
weeks while downtime from material damage can be measured in months in
our view. We have seen two reports of fires at JX Holdings’ facility in Sendai
and the Cosmo Oil’s facility in Chiba.
Power to drive import demand. According to Argus, the 2007 earthquake
that damaged the 8,200MW Kashiwazaki-Kariwa nuclear facility caused
utilities to consume an additional 200k b/d of fuel oil. This points toward 200-
500k b/d in incremental fuel oil consumption following last Friday’s
earthquake.
Demand concerns seem misplaced. We looked at major earthquakes in
Japan going back to 2005. There is little evidence of permanent demand
fallout, leaving us focused on the disruption to refining capacity.
Global views from Macquarie. Chi Chow, our US refining analyst, has drawn
parallels to hurricane Katrina in 2005 where flooding and power issues
delayed restarts for months. During conversations between our Australian oil
and gas team and industry players, the possibility of Asian utilisation rate
returning to above 90% was discussed. We think this is relevant as refining
margins broke the US$8/bbl level when utilisation last reached these levels in
2007/2008.
Asian maintenance relevant. At the very least, it would appear that planned
Asian maintenance will be delayed. This suggests the seasonal weakness in
May will not be as pronounced, if at all.
Outlook
While this story continues to develop, it is material and points toward upside
risk to our 2011E US$6.1/bbl Singapore complex refining margin forecast.
We believe the medium term outlook will be determined by the length of
announced Japanese outages. Coupled with recent events in Libya and Iraq,
global refining utilisations are currently higher than our previous projections.
Our preferred names have both refining and paraxylene exposure. Thailand:
PTT Aromatics, Thai Oil, Esso Thailand; Korea: S-Oil, GS Holdings, SK
Innovation; India: Reliance Industries. We maintain our OP rating on JX
Holdings, and we are awaiting damage estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asian downstream oil
Japanese earthquake implications
Event
An 8.9 magnitude earthquake hit Japan on Friday afternoon; we examine the
potential impact to Asian refining.
Impact
A regional heavyweight. With respect to consumption at 4.4m b/d, Japan
represents 17% of Asian consumption and is the third largest oil consumer in
the world. We estimate total Japanese refining capacity at 4.5m b/d.
Supply outages material. Using the confirmed closure announcement from
JX Nippon Oil as boundaries, we believe there is an estimated 1.9m b/d that
is at risk. This represents 42% of total Japanese capacity, 7.1% of Asian
capacity and 2.1% of global capacity.
Length of still outages uncertain. Simple shutdowns can be restarted in
weeks while downtime from material damage can be measured in months in
our view. We have seen two reports of fires at JX Holdings’ facility in Sendai
and the Cosmo Oil’s facility in Chiba.
Power to drive import demand. According to Argus, the 2007 earthquake
that damaged the 8,200MW Kashiwazaki-Kariwa nuclear facility caused
utilities to consume an additional 200k b/d of fuel oil. This points toward 200-
500k b/d in incremental fuel oil consumption following last Friday’s
earthquake.
Demand concerns seem misplaced. We looked at major earthquakes in
Japan going back to 2005. There is little evidence of permanent demand
fallout, leaving us focused on the disruption to refining capacity.
Global views from Macquarie. Chi Chow, our US refining analyst, has drawn
parallels to hurricane Katrina in 2005 where flooding and power issues
delayed restarts for months. During conversations between our Australian oil
and gas team and industry players, the possibility of Asian utilisation rate
returning to above 90% was discussed. We think this is relevant as refining
margins broke the US$8/bbl level when utilisation last reached these levels in
2007/2008.
Asian maintenance relevant. At the very least, it would appear that planned
Asian maintenance will be delayed. This suggests the seasonal weakness in
May will not be as pronounced, if at all.
Outlook
While this story continues to develop, it is material and points toward upside
risk to our 2011E US$6.1/bbl Singapore complex refining margin forecast.
We believe the medium term outlook will be determined by the length of
announced Japanese outages. Coupled with recent events in Libya and Iraq,
global refining utilisations are currently higher than our previous projections.
Our preferred names have both refining and paraxylene exposure. Thailand:
PTT Aromatics, Thai Oil, Esso Thailand; Korea: S-Oil, GS Holdings, SK
Innovation; India: Reliance Industries. We maintain our OP rating on JX
Holdings, and we are awaiting damage estimates.
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