Jadestone Energy Share Discussion Threads

[mount teide] 13/1/2020 15:07

'But if the price of fuel for non scrubber vessels remains high they are going to complain as well.'

While many shipowners, managers and charterers may complain about the high cost of operating on LSFO and MGO, most have either very short or selective memories.

From Jan 2011 to December 2014, when Brent averaged circa $110 bbl, HSFO averaged $96/bbl and MGO $131/bbl respectively in Singapore.

After the collapse of oil and marine fuel oil prices in 2015, the market bottomed in H1/2016 and despite charting a partial recovery since, is still today for MGO/LSFO, some way below the previous peak period pricing of the last decade(unadjusted for inflation), even after adjustment of the chart below for the pricing impact of IMO 2020 in H2/2019.

HSFO and MGO Bunker Prices in Singapore from May 2009 to May 2019



With regard to Australian heavy sweet crude demand and pricing over the longer term - 2020-24, we would not expect to see the current huge 'Pyrenees' level premiums to dated Brent maintained - but on the balance of probabilities would not be surprised if STAG production were to average a very healthy $10-$15/bbl premium - which would still be a 30% zero cost premium to where heavy sweet crude was priced, on average, relative to Brent, fore most of the last 30 years.

[pogue] 13/1/2020 14:16

But if the price of fuel for non scrubber vessels remains high they are going to complain as well. They probably assume its only a price spike as well and expect more supply/alternatives to appear when there is such a high price. Witness what happened to the price of oil when it went to high an US shale oilers went mad producing we still have a global oversupply. High prices creates supply which brings down prices.

I cannot believe the committees that designed the new regulations assumed no one would use open loop scrubbers and did not legislate for it. I am guessing that was left out as a compromise so will not be brought in, could be wrong but it is very unusual to change legislation so soon after its issued. As for how many ships that use scrubbers that depends on how long alternative sources of fuel remain high. I suggest more will migrate if prices remain high thus reducing demand for sweet crude.

Good to hear your views though making me think, I now believe that sweet crude will maintain a premium but not such a significant one.

[mount teide] 13/1/2020 13:59

'The shipping industry is not going to accept more changes so soon after the recent one.'

We're talking about 3% of the current fleet(fitted with scrubbers) and at most a peak of 7% by 2023, according to latest industry forecasts.

The other 97% of vessels in the global fleet have owners currently paying more than double for their fuel oil post the implementation of IMO 2020 - it would be safe to assume there would be plenty of support from them into pushing the IMO, on environmental grounds, into the early regulation of the use of exhaust scrubbers, to even up the playing field/reduce their potential commercial benefit, since exhaust scrubbers simply move the high pollution impact on the environment from the air into the sea, whereas LSFO and MFO actually reduce its impact by 86% under the new regs.

And it's not just 1.65m bpd of LSFO that the marine fuel oil industry has had to instantaneously produce and supply from the start of this year, but another 1.2m bpd of new MGO supply too.

[pogue] 13/1/2020 13:30

Its all about costs to the ship owner if scrubbers and keep using the old bunker fuel is cheaper then they will use that, and I suggest that it will become cheaper as new ships will not burn it and not all ships will change to scrubbers.
New legislation will not come in for quite a few years to stop dumping waste water at sea and regulations like Singapore's can be got round with a small tank on board that can be discharged at sea after leaving port. The shipping industry is not going to accept more changes so soon after the recent one. The disposal of scrubber waste water they will argue should have been covered then. I do not see this as an issue myself.
edit
if the forecasts for what fuels ships are going to use are so accurate why has sweet crude jumped so much? As I said my oil trader friend, and his friends, had no idea how it was going to play. When there is a step change normal forecasting goes out the window.

[mount teide] 13/1/2020 13:20

With regard to the future commercial activity of complex oil refineries designed to produce high quantities of MGO/LSFO/low sulphur diesel:

H1/2019 (Pre IMO 2020) - saw 5.7m bpd of demand from the shipping industry for HFO/LSFO/MGO

Comprising:
4.00m bpd - HSFO
1.55m bpd - MGO
0.15m bpd - LSFO

Current situation - according to latest best estimates
2.75m bpd - MGO
1.65m bpd - LSFO
1.30m bpd - HSFO

Data Source: Lloyd's List


McKinsey in 2018 predicted the MGO - HSFO spread would rise from the $20/bbl 10 year average to briefly peak at $40/bbl on implementation of IMO 2020. Thereafter, falling back to $20-25/bbl by 2023/24.

The MGO(and LSFO) spread last week in fact averaged between $55/bbl and $75/bbl at the Worlds two largest ship bunkering hubs, largely the result of a much higher than expected initial demand for LSFO and MGO and lower demand for HSFO.

Latest shipping industry research suggests the use of scrubber technology is a short term measure and at risk of all but disappearing within 10 years as a result of new environmental restrictions - taking with it, most of the current demand for HSFO.

This highly plausible scenario would potentially increase demand for LSFO/MGO by a further 1.0m+ bpd, on top of the expected 1.5m bpd increase in fuel oil demand forecast from the 30% growth in the global shipping fleet by the end of this decade.


At an International Shipping Conference in the run up to implementation of IMO 2020, S&P Global Platts were in attendance and noted the following:

'Keynote speaker US Rear Admiral Paul Thomas expressed concern that the scrubber systems would not meet the goal of reducing the environmental footprint of the maritime industry as envisioned by the IMO’s 2020 sulphur level reduction regulation, but rather provide a short-cut road to compliance.

“You choose to take sulphur out of the air and put it into the ocean or onto land,” Thomas said. He explained that open-loop scrubber systems were short-term at best and would likely be regulated, as they do nothing to reduce a vessel’s environmental footprint.

Captain Anuj Chopra, Vice President of Rightship, a provider of maritime and environmental risk management systems, pointed out that the use of scrubbers would increase environmental emissions of up to 5% through additional energy used to power the cleaning systems.

These concerns have not escaped local regulators. The Singapore Port Authority announced on November 30 that it will ban the discharge of wash water from open-loop scrubber systems as of January 1, 2020, requiring the use of compliant fuel in the port.

Scrubber manufacturers marketed their systems with the promise of ‘business as usual’, as the exhaust gas cleaning systems essentially scrub the sulphur from currently used 3.5% sulphur bunker fuel to the mandated 0.5% sulphur ceiling.

But this version of ‘business as usual’ also includes the not-so-usual neutralization and disposal of the sulfuric acid washwater, as well as the maintenance of the scrubber. Because the systems have not yet been tested widely on long-haul voyages, their reliability gives cause for concern.'

[pogue] 13/1/2020 11:58

The price of any product decreases as more is produced hence my comment on the price fall on LSFO.
You are right regards the production of low Sulphur diesel this is also being increased below is one project I know of at Fawley that will come on line next year so that will ramp up as well as other refineries will do it. Rotterdam refinery have done it already as the team that managed it there are being used on the Fawley project.
hxxps://www.theconstructionindex.co.uk/news/view/800m-expansion-approved-at-fawley-refinery
Regards the scrubbers there are queues of ships going for that option. I think many played a waiting game to see what would happen, bit like the oil traders, and now have clearly decided which way to go. hxxps://gcaptain.com/scrubber-queue-grows-ahead-of-imo-2020/
All this will decrease demand for expensive sweet crude. In the end ship owners have always gone for the cheapest source of fuel so the large premium cannot last forever, perhaps a small one is justified, but I still see the price falling in around 6 months.

[pogue] 13/1/2020 09:52

Thank you for the detailed reply. My question was raised as I know refineries are reconfiguring their output for more refinery produced LSFO which should reduce the price further and some will be coming on line early this year add in the queue of ships getting scrubbers fitted to enable them to use the old bunker fuel both will offer cheaper alternatives than sweet crude at today's prices for ship owners and they are very keen on costs. I take on board your point regards ship owners currently preferring the blended LSFO but when differentials are so high will this premium remain, I don't think so hence the question.
An oil trader friend of mine was guessing at 6 months the other night when we talked but neither he or any of his mates had any idea how the market was going to be affected with the new regulations and were just playing wait see pre January so his guess, as most traders he works with, is based on gut feeling of how the market works rather than pure fundamentals.
I personally feel he is about right.

[mount teide] 13/1/2020 08:55

pogue - Ships engines are designed to run at 85% of max RPM for months without a shutdown on heavy, highly viscous(flows like treacle even when heated to 40 centigrade) fuel oil.

Lighter, low viscous(flows like water) Marine Gas Oil is used only for when manoeuvring in estuaries and rivers and when berthing, where short engine response times are needed for safety purposes.

MGO has historically commanded a circa 50-100% price premium over heavy fuel oil since it has a very similar specification to diesel and is priced accordingly by the refinery industry.

Refinery produced LSFO is similar to diesel/MGO, while LSFO produced by blending heavy sweet crude with light sweet crude is closer to heavy sour fuel oil in specification other than sulphur content.

As is currently being seen, given the choice, shipowner's shoreside engineering departments and ship's engineers would much prefer to run the main engines on blended LSFO rather than refinery produced LSFO or MGO, until years more experience is gained by the industry on the effects of running ship's low speed engines for very extended periods on lighter, low viscosity fuels.

The expected circa 1.0m+ shortfall in the supply of refinery produced LSFO against demand in 2020 - suggests very strong pricing this year for LSFO, since the shortfall can only be met by expensive MGO.

Over the following 2-3 years and probably beyond, since at least 85%+ of LSFO will be refinery produced rather than blended heavy sweet crude(as heavy sweet crude oil is extremely rare and in very short supply), in common with Maersk shipping line, I would expect the price of LSFO to remain within a range of a $0-7.5/bbl discount to MGO. If this proves correct, it strongly suggests a long term highly material demand and premium pricing above Brent for Australian heavy sweet crude oil production.

AIOHO/DYOR

Edit; and a decent premium to Brent for ultra low sulphur content light, sweet crude oil like Montara and Maari.

[pogue] 13/1/2020 07:36

I have built a average sized position here last few months and the spike in the price of sweet crude is a happy stoke of luck for me. How long do people think this spike will last?

[mount teide] 12/1/2020 23:34

The Wall Street Journal - "JBC Energy notes a double-digit percentage jump in heavy sweet Australian Pyrenees crude prices. ‘The jump is explained by the crude’s potential to be directly blended into the [Very Low Sulfur Fuel Oil] stream’ boosted by IMO 2020. ‘It indicates that bunker suppliers are beginning to worry about their capacity to supply their term commitments,’ JBC says.”

The Western Australian - 'Just shy of US$100/bbl that's the cost of a type of crude that's become prized thanks to the scramble for cleaner burning fuels'........

......'The New Rules have boosted the value of heavy sweet crudes such as Pyrenees that are low in sulphur and also viscous, which makes them better for marine engines'

[mr. t] 12/1/2020 15:51

Would be incredible, but unlikely, if they sell them to Jadestone on terms similar terms to the Maari deal.

[mount teide] 12/1/2020 15:35

MrT - Will be fascinating to see what Santos and Inpex elect to do in light of the recent huge step change improvement in profitability of these mid/later life heavy sweet oil fields in the run up to and post implementation of IMO 2020.

[mr. t] 12/1/2020 14:36

Is there any chance Jadestone could still snap up Inpex and Santos' stakes in Western Australia oil fields at a good price?

[mount teide] 12/1/2020 14:28

saucepan - PTAL is calling it a completely "fake news" story - something I suspect the entire O&G industry will now have to be particularly alert to, considering the increasingly desperate behaviour of the climate change activist community.

[saucepan] 12/1/2020 14:04

As you are probably aware, PTAL is currently having to deny a "fake news" oil spill story.

Had that not been fake news, a major environmental accident is just the kind of black swan event that could do serious damage to an investment. Diversification still has its place, I feel.

I take your point to an extent, which is why both PTAL and JSE are slightly overweight positions in my portfolio.

[mount teide] 12/1/2020 13:57

"The whole secret of investment is to find places where it’s safe and wise to non-diversify. It’s just that simple. Diversification is for the know-nothing investor; it’s not for the professional."
Charlie Munger - Vice chairman of Berkshire Hathaway - Harvard Law Graduate, investor, businessman, former real estate attorney, and philanthropist.

Going overweight in a superbly managed, well located, premium heavy and light sweet(low sulphur) crude oil producer in a IMO 2020 Low Sulphur Cap World, during the early years of the recovery stage of a long term, highly cyclical market may be a place the smart money would consider its relatively safe and wise to non-diversify.

AIMHO/DYOR

[mount teide] 12/1/2020 12:25

Australian heavy sweet crude oil - the widespread reported news of the circa $31 premium to Dated Brent for the first oil cargo to hit the spot market following the implementation date of IMO 2020, seems to have finally woken up the wider oil market as to the scarcity of and high sales price potential of Australian heavy sweet crude, even among the various global producers, as a result of having the optimum specification for producing blended IMO 2020 compliant fuel oil and being located near to the world's largest marine oil markets in a high oil tanker charter rate world.


Bloomberg: 'Australia’s Santos Ltd. this week sold a cargo of March-loading Pyrenees, a dense and low-sulfur oil, at a premium of about $31 a barrel over Dated Brent - Santos had sought a target price of $32 a barrel or more over Dated Brent, according to traders.

The company has a minority stake in the Pyrenees project, which it acquired through its 2018 purchase of Quadrant Energy.

“New IMO 2020 environmental regulations for shipping bunker fuel are driving the low-sulfur fuel oil market,” a Santos spokeswoman said in an emailed statement.

“Heavy sweet crudes like those from our Van Gogh and Pyrenees fields are well suited for fuel oil blending to meet the new environmental requirements and are currently in very high demand.”

Pyrenees is also particularly valued because of its relative scarcity, with production of about 15,000 barrels a day pumped from fields off Western Australia, according to BHP Group, the majority owner and operator. A cargo to load this month was sold in November at more than $17 a barrel over Dated Brent... while a Van Gogh Cargo sold at a premium of as high as $19 to Dated Brent in December.'


On the shipping front Lloyds List reports the resale of a scrubber fitted VLCC for $105m, the first resale over $100m since the last days of $100 Brent back in 2014.

The ship was bought at a very significant premium to the newbuilding market price shortly after leaving the shipyard to commence engine trials prior to its maiden commercial voyage - for $12.5m above a price recently obtained for a similar specification VLCC new building sold while still under construction.

This is yet more evidence supporting the view of a hardening global tanker charter market, which is likely to tighter further in H1/2020 as a result of:

* The number of vessels out of service, having, or at anchor waiting to have exhaust scrubbers fitted

* Ongoing impact of the US sanctioning of the Chinese Cosco tanker fleet for oil smuggling on behalf of the Iranians

* Global tanker fleet capacity close to balance with demand for the first time since 2013

* Price and availability of IMO 2020 compliant fuel

As a relatively young and inexperienced ship manager, the best advice I received on ship 'valuations' was one evening at the bar of an international shipping conference from an extremely wealthy Norwegian, who personally owned a fleet of over 30 oil tankers. I naively asked him what he thought the current market value of a particular class of ship was - he smiled and said "Are you a buyer or a seller!"

[thegreatgeraldo] 10/1/2020 18:34

Pretty sure thee's an obligation to report rollovers very close together, to make clear that's what they are. Maybe the second, after hours "trade" was a correction to the earlier one (maybe somebody rounded the price up!). Not important, just curious..

[mount teide] 10/1/2020 18:21

tgg - suggests a rollover, but as you say these are usually reported quite close together.

The LSE website is indicating a daily transaction volume of 3,489,694, and since the volume was around 2.7m at the close, it seems to have recognised and added the 500k and 200k transactions posted after the final bell but not the duplicated 481,171 entry.

[thegreatgeraldo] 10/1/2020 17:55

Any thoughts on those 2 parcels (one & the same parcel) of 481,171 shares? Just find it odd that they weren't printed much closer together. Insti rollover? Or was one deleted & replaced with t'other? Just had a quick peek at the basic advfn trade info

[mount teide] 10/1/2020 17:41

Some large after hours trades pushed the daily volume to over 3.5 million and made the last two days the third and fourth highest volume trading days in the past ten months.

MM - thanks - a couple of 27 inch 5K IMacs is more than up to the task. Wore reading glasses for years to read screen text until i tried an Imac - haven't worn them since - the contrast, brightness and sharpness of the image, like a mini skirt on a supermodel, is very easy on the eye.

[marvelman] 10/1/2020 16:56

You must have a bank of computers in your office MT...always appreciative of the stats and information you give out. Regards.

[mount teide] 10/1/2020 16:52

Close to 6 million shares traded during the last two days - need to go back to the period proceeding the big move in mid November to see a larger two day transaction volume.

The average daily trading volume for December was 1.1 million - so the last two days has generated a near tripling of the average daily volume since the beginning of December up until the 8th Jan.

[mount teide] 10/1/2020 16:29

Added 23k at the closing bell. Took some profits at GYM.